Natural gas

Natural gas prices
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 stroage
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).

Natural gas production
The cold snap led to a drop in natural gas production in January. We estimate that production fell by 4 Bcf/d (3%) from December to January, because of sustained, frigid weather conditions, mostly in the Northeast Appalachia region. However, most production was back online as of early February. U.S. dry natural gas production in our forecast grows by 2% in 2026 or about 2 Bcf/d and then by 1%, or 1 Bcf/d, in 2027. We expect slower growth in the first half of 2026 (1H26) as weather-related disruptions and lack of sufficient Permian pipeline takeaway capacity affect production in the Lower 48 states. During 2H26, as new pipeline capacity comes online in the Permian, we expect production to ramp up. In 2027, we expect higher gas-oil ratios in the Permian region and increased drilling following higher natural gas prices in the Haynesville region to contribute to overall growth. We now forecast the United States will produce 110 Bcf/d of dry natural gas this year and more than 111 Bcf/d next year. Both of those forecasts are more than 1 Bcf/d higher than in last month’s STEO.