Arctic Blast Curbs US Nat-Gas Production and Boosts Prices

February Nymex natural gas (NGG26) on Tuesday closed up by +0.154 (+2.26%).

Feb nat-gas prices on Tuesday closed higher, but remained below Monday's 3.25-year high.  Long liquidation pressures took nat-gas prices off their best levels on Tuesday as weather forecasts shifted slightly warmer, according to the Commodity Weather Group.

On Monday, nat-gas prices surged to a new 3.25-year nearest-futures high, driven by the massive storm that just crossed the US and the Arctic blast of cold weather.  The cold weather caused freeze-up in gas wells and disrupted production in Texas and elsewhere.  About 50 billion cubic feet of natural gas were offline Saturday through Monday, or about 15% of total US natural gas production.

At the same time, the Arctic weather caused a spike in demand for natural gas for heating.  

Projections for lower US nat-gas production are supportive for prices.  The EIA on January 13 cut its forecast for 2026 US dry nat-gas production to 107.4 bcf/day from last month's estimate of 109.11 bcf/day.  US nat-gas production is currently near a record high, with active US nat-gas rigs recently posting a 2-year high.

US (lower-48) dry gas production on Tuesday was 96.8 bcf/day (-6.6% y/y), according to BNEF.  Lower-48 state gas demand on Tuesday was 135.2 bcf/day (+26.7% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Tuesday were 12.7 bcf/day (-33.2% w/w), according to BNEF.

As a negative factor for gas prices, the Edison Electric Institute reported on January 14 that US (lower-48) electricity output in the week ended January 10 fell -13.15% y/y to 79,189 GWh (gigawatt hours), although US electricity output in the 52-week period ending January 10 rose +2.5% y/y to 4,294,613 GWh.

Last Thursday's weekly EIA report was supportive for nat-gas prices, as nat-gas inventories for the week ended January 16 fell by -120 bcf, a larger draw than the market consensus of -98 bcf but smaller than the 5-year weekly average draw of -191 bcf.  As of January 16, nat-gas inventories were up +6.0% y/y and were +6.1% above their 5-year seasonal average, signaling ample nat-gas supplies.  As of January 25, gas storage in Europe was 45% full, compared to the 5-year seasonal average of 60% full for this time of year.

Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ending January 23 was unchanged at 122 rigs, modestly below the 2.25-year high of 130 set on November 28.  In the past year, the number of gas rigs has risen from the 4.5-year low of 94 rigs reported in September 2024.