EIA's STEO > Natural Gas Storage Report - Feb 10

[dan_s]

EIA Short Term Energy Outlook

Natural gas prices rose sharply in January. The Henry Hub spot price averaged $7.72 per million British thermal units (MMBtu), up 81% from December, in response to increased heating demand, reduced production, and large inventory withdrawals as Winter Storm Fern blanketed a large portion of the United States. We now expect that the United States will finish the withdrawal season at the end of March with less than 1.9 trillion cubic feet of natural gas in storage, 8% less than previously forecast. As a result, we raised our Henry Hub spot price forecast in February and March by an average of almost 40% from the January STEO. We expect the price increases will moderate as drilling activity drives increases in natural gas production later in the forecast period. Our forecast now assumes the Henry Hub spot price will average about $4.30/MMBtu this year and almost $4.40/MMBtu in 2027.

Long Version from the detailed STEO Report dated February 10

In January, the Henry Hub spot price for natural gas averaged $7.72 per million British thermal units
(MMBtu), rising sharply from December’s average of $4.26/MMBtu and marking the highest nominal
monthly average since September 2022. On a daily basis, pricing at the hub set a nominal record of
$30.72/MMBtu on January 23. These price increases reflected stronger natural gas demand driven by
widespread colder-than-normal weather across much of the United States, particularly in the latter half
of the month. Winter Storm Fern intensified heating demand while natural gas production declined
because of temporary well freeze-offs. For the week ending January 30, the combination of strong
demand and a drop in production led to a withdrawal of 360 billion cubic feet (Bcf) of natural gas from
inventory, the largest storage withdrawal on record.

Although market tightness in January was acute, futures prices indicate the market perceived the
tightness as relatively short-lived. The February futures price settled significantly higher than the March
price on January 28. The February natural gas futures contract for delivery at Henry Hub settled at
$7.46/MMBtu on January 28, while the March contract closed at $3.73/MMBtu, the largest difference
between the front and following-month prices since at least 2014. On February 2, the new March 2026
prompt-month contract posted its largest one-day decline in 30 years, according to Bloomberg L.P,
falling 25.7% to $3.24/MMBtu as some weather forecasts indicated relatively mild weather for much of
the country in mid-February.

Looking ahead, the large storage withdrawals in late January mean we now expect the United States will
end the withdrawal season in March with less natural gas in storage than we previously expected. Less
natural gas in storage led us to raise our forecast for prices for much of this year. We expect the Henry
Hub spot price will average $4.60/MMBtu in February and $4.12/MMBtu in March, up from forecasts of
$3.46/MMBtu and $2.86/MMBtu, respectively, in last month’s outlook. However, the price increases
relative to last month’s forecast moderate later in the year, and we expect the current high prices will
encourage more natural gas-directed drilling and lead to higher natural gas production than we
previously forecast. With more production, we lowered our price forecast for 2027. We now expect the
Henry Hub spot price will average about $4.40/MMBtu next year, down 5% from our forecast last
month.

Natural gas storage

We expect almost 2,080 Bcf of natural gas will be pulled from storage this winter (November—March),
7% more than the five-year average draw. Based on data from the National Oceanic and Atmospheric
Administration, we assume January had 5% more heating degree days (HDDs) than the 10-year average
and 12% more HDDs compared with last month’s forecast. As a result of colder weather and more
demand, we now expect natural gas inventories will end the withdrawal season 1% above the five-year
average, whereas last month, we forecast stocks would end the season 10% above average.

Inventories in January fell across all regions. At the time of publication, inventories are lower relative to
the five-year average in the East and Midwest regions and close to average in the South Central region.
However, the Pacific region remains 30% above average, and the Mountain region is 34% above
average.

January reported the largest weekly withdrawal on record of 360 Bcf for the week ending January 30.
The cold weather had a significant effect on the South Central region, which increases its supply to other
consuming regions when severe cold occurs. Withdrawals in that region comprised 44% of total U.S.
withdrawals in that week.

Looking ahead, we expect natural gas inventories to rebuild more rapidly than the five-year average
during injection season. As a result, we forecast storage balances to return to surplus relative to the five
year average by the end of injection season (October).
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As I have posted here many times, comparing the gas in storage to the 5-year average is very misleading. To get an idea of how tight the U.S. gas market is, it is better to measure storage based on Days of Demand. The U.S. needs a lot more gas in storage at the beginning of each winter because demand for U.S. gas is much higher than it was five years ago and the rate of demand growth is accelerating. On slide 9 of my February 8th podcast ( Watch it on YouTube here: https://www.youtube.com/watch?v=E7Nvz5l4gQ0 ) I show that demand for U.S. natural gas is expected to increase by 29 Bcfpd from the end of 2024 to the end of 2030.