Natural Gas Surges as Summer Heat Forecasts Ignite Demand

Natural gas prices have climbed to a one-month high, fueled by escalating demand expectations for the coming summer. The Energy Information Administration (EIA) and National Oceanic and Atmospheric Administration (NOAA) predict hotter-than-normal temperatures across key U.S. regions, setting the stage for a supply-demand imbalance that could push prices toward $4.83/MMBtu by August.

The Demand Catalyst: A Hotter Summer Ahead

NOAA’s latest seasonal outlook highlights a stark temperature shift: much of the U.S. Southern and Eastern regions are expected to experience well-above-average temperatures this summer. This forecast aligns with the EIA’s analysis, which identifies rising electricity demand for cooling as a primary driver of increased natural gas consumption.

The EIA estimates U.S. electricity sales will rise by 3% in 2025, driven by residential and commercial sectors. Residential demand, tied directly to summer cooling, is expected to grow alongside expanding data centers and AI infrastructure, which consume significant power.

Supply Constraints and Storage Pressures

Despite robust demand, supply growth has lagged. Natural gas production in key basins like Appalachia and Haynesville has slowed due to reduced drilling activity and lower rig counts. Meanwhile, storage levels remain strained: as of March 2025, inventories were 4% below the five-year average, with projections for October 2025 storage to end at 3,660 billion cubic feet (Bcf)—3% below the five-year norm.

Export Growth Adds to the Tightening Market

Exports, including liquefied natural gas (LNG) and pipeline shipments, are projected to surge by 18% in 2025, further straining domestic supply. This growth is underpinned by flexible destination clauses in LNG contracts, which have insulated U.S. exporters from geopolitical headwinds like China’s retaliatory tariffs. However, propane exports to China face steep declines, potentially diverting some supply back to domestic markets—but not enough to offset the broader demand pressures.

Price Projections: A Bullish Outlook with Risks

The EIA forecasts the Henry Hub price to average $3.90/MMBtu in Q2 2025, with August futures already pricing in a $4.83/MMBtu peak. For the full year, the average is expected to settle at $4.30/MMBtu, a near-doubling from 2024’s $2.20/MMBtu.

Yet risks linger. Unseasonably mild summer weather could undercut demand, while a sudden surge in drilling or accelerated LNG project completions (e.g., Golden Pass in 2026) might ease supply constraints. Still, the EIA’s baseline scenario assumes limited production gains in 2025, leaving the market vulnerable to upward price pressures.

Conclusion: A Summer of Scarcity

The confluence of hotter-than-average weather, constrained storage, and robust export demand creates a compelling case for natural gas prices to climb this summer. At $4.83/MMBtu, August 2025 could mark a multi-year high, with further upside risks if storage deficits deepen.

Investors should note that while geopolitical and weather risks exist, the fundamentals—strong demand growth, lagging supply, and storage tightness—are firmly in place. For those positioned in natural gas futures, energy equities, or utilities reliant on gas-fired generation, the summer could deliver outsized returns.

As the EIA’s data underscores, the market is pricing in a $4.60/MMBtu average for 2026, signaling this is not a short-lived spike but a structural shift. Investors would be wise to prepare for a prolonged period of elevated natural gas prices.