Natural Gas Prices Surge Amid Supply Tightening, Despite Storage Gains

The U.S. natural gas market is in a state of paradox. Prices have surged 5% to a two-week high, reaching $3.95/MMBtu as of late April, even as storage inventories climbed to 1.83 trillion cubic feet (Tcf)—a 21% increase over the five-year average during the same period. This divergence highlights a market grappling with competing forces: rising export demand, weather-driven volatility, and constrained production growth. For investors, the question is clear: Is this a fleeting blip or the start of a prolonged upward trend?

The Supply-Supply Conundrum

The first layer of this puzzle lies in production dynamics. Despite storage builds, dry natural gas output has stagnated. The EIA projects Q2 2025 production at 105 Bcf/d, a mere 3% increase from 2024 levels. Meanwhile, the natural gas rig count has plummeted to 96 rigs—down 12% year-over-year—signaling reduced drilling activity. This mismatch between stagnant supply and soaring demand has tightened fundamentals, even as storage injections temporarily eased pressure.

LNG Exports: The Elephant in the Room

The single largest driver of demand is liquefied natural gas (LNG) exports, now accounting for 15.2 Bcf/d of output. New terminals like Plaquemines LNG and Corpus Christi Stage 3 have added 3.3 Bcf/d of capacity in 2025, with more on deck for 2026. These projects are not just incremental—they’re transformative.

Take the data: In April, LNG feedgas demand hit a record 17.3 Bcf/d, outpacing production growth by a 2-to-1 margin. Even as storage builds, this export boom is siphoning supply away from domestic inventories, creating a structural imbalance. The Henry Hub price is now 3.5 times lower than European benchmarks, making U.S. gas irresistibly cheap for global buyers—a dynamic that will keep export demand white-hot through 2026.

Storage Builds, but Not Enough

While storage inventories have risen, they remain 4% below the five-year average as of March 2025. The key issue is timing: Winter withdrawals were unusually steep (1,600 Bcf, 21% above average) due to a frigid January, while spring injections are now competing with summer cooling demand. The EIA forecasts end-of-October storage at 3,660 Bcf, 3% below the five-year average, implying tightness will persist into 2026.

Weather and the Wild Card of Policy

Cold weather isn’t done yet. January’s subzero temperatures drove residential/commercial demand to 23.0 Bcf/d—a 1.8 Bcf/d jump from 2024. Meanwhile, the Biden administration’s push for renewables has paradoxically boosted gas’s role as a reliability backstop for grids strained by variable wind and solar.

Looking Ahead: Bulls vs. Bears

The bulls argue that $4.20/MMBtu—the EIA’s 2025 price forecast—is just the beginning. With LNG capacity set to expand further in 2026 and global demand for U.S. gas unlikely to wane, prices could climb to $5/MMBtu by year-end 2026.

The bears counter that rig count declines and pipeline bottlenecks could limit production growth, while storage rebuilds might ease pressure. But the math is stark: Even with maximum output, supply growth is projected to lag behind demand by 2% in 2025 and 1% in 2026.

Conclusion: A Market on a Tightrope

Investors should heed this reality: The U.S. natural gas market is structurally tight, with no quick fixes. LNG exports, cold weather, and storage constraints have created a perfect storm for prices. While storage builds offer short-term relief, the long-term fundamentals are bullish.

The data is clear:
- LNG exports will grow by 4.2 Bcf/d by 2026, outpacing production’s 3% annual expansion.
- Storage levels are projected to end 2025 at 3% below the five-year average, signaling ongoing tightness.
- Henry Hub prices have risen 44% since 2024, with further gains likely as global demand remains insatiable.

For investors, this is a call to hedge against supply risks. Positions in upstream producers (e.g., EOG, CQP) or LNG exporters (e.g., TGP, TEPL) could capitalize on the trend. But caution is warranted: A mild winter or a geopolitical shift—say, Russian gas surging into Europe—could derail the rally.

In the end, the U.S. natural gas market isn’t just a commodity—it’s a geopolitical and climatic seesaw. For now, the bulls are holding the higher ground.