U.S. Natural Gas Market Update - March 22

[dan_s]

As of March 14, nat-gas inventories were down -26.8% y/y and -10.0% below their 5-year seasonal average, signaling tight nat-gas supplies. In Europe, gas storage was 34% full as of March 18, versus the 5-year seasonal average of 46% full for this time of year. < Demand for U.S. LNG should remain high.

Last Monday, nat-gas rallied to a 2-year high on signs that US nat-gas storage levels could remain tight ahead of the summer air-conditioning season.

BloombergNEF projects that US gas storage will be 10% below the five-year average this summer.

Lower-48 state dry gas production Friday was 106.7 bcf/day (+3.8 y/y), according to BNEF. Lower-48 state gas demand Friday was 81.7 bcf/day (-9.2% y/y), according to BNEF. LNG net flows to US LNG export terminals Friday were 16.1 bcf/day (+3.8% w/w), according to BNEF.

An increase in US electricity output is positive for nat-gas demand from utility providers. The Edison Electric Institute reported Wednesday that total US (lower-48) electricity output in the week ended March 15 rose +2.6% y/y to 72,295 GWh (gigawatt hours), and US electricity output in the 52-week period ending March 15 rose +3.5% y/y to 4,239,259 GWh.

In a bullish longer-term factor for nat-gas prices, President Trump lifted the Biden administration's pause on approving gas export projects in January, thus moving into active consideration a backlog of about a dozen LNG export projects. Bloomberg reported that the Trump administration is close to approving its first LNG export project, a Commonwealth LNG export facility in Louisiana. Increased US capacity for exporting LNG would boost demand for US nat-gas and support nat-gas prices.

Thursday's weekly EIA report was bearish for nat-gas prices since nat-gas inventories for the week ended March 14 rose +9 bcf, a larger build than expectations of +4 bcf and well above the 5-year average draw for this time of year for a -31 bcf draw. < The decline in the APR25 NYMEX contract after the storage report was due to paper traders covering their long positions. The MAY25 NYMEX contract will soon be the "Front Month". It closed at $4.004/MMBtu on Friday.

[dan_s]

NYMEX futures contracts average closing prices on March 21

APR25 to JUN25 = $4.041
JUL25 to SEP25 = $4.446
OCT25 to DEC25 = $4.881

For my forecast models, I am now using the following HH natural gas prices. For each company I adjust for their hedges and regional price differentials. Due to a shortage of pipeline takeaway capacity, the Permian Basin differentials will remain high (around $1.50/MMBtu for most companies).

2025
Q1 > $3.50
Q2 > $4.00
Q3 > $4.25
Q4 > $4.75

2026 > $4.50
The NYMEX Strip for 2026 average is $4.368/MMBtu. JAN26, which will be the front month contract in December, 2025 closed at $5.456/MMBtu on Friday. If Ngas in storage is still below the 5-year average in November, I expect 2026 strip prices to move over $5.00.

If natural gas in storage is still 10% below the 5-year average in July, the possibility of a "Bidding War" for supply during the 3rd quarter between the utilities and the LNG exporters (like we saw in August 2022) will be HIGH. Keep in mind that comparing the storage level to the previous five years is misleading since demand for U.S. natural gas is much higher than it was five years ago and demand increases year-after-year.

Bottomline: 2025 and 2026 should be very profitable for all U.S. natural gas producers.

My Top Picks for exposure to natural gas are AR, CRGY, CTRA, EQT, RRC, BSM, KRP

Natural gas prices in Western Canada will eventually drift higher. A new LNG export facility on the west coast of Canada is expected to open by the end of 2025. Tariffs on Canadian gas should not have much impact since most of their gas is used in Canada.