Natural gas prices turn lower, with October back below $3/MMbtu
The October Henry Hub contract lost 9c this week to settle at $2.94/MMbtu, after trading above $3/MMbtu all of last week. The Winter ‘25/’26 seasonal strip moved lower too, falling 5c to $3.74/MMbtu, but the selling pressure was limited to these parts of the curve. Summer ’26 gained 1c to $3.73/MMbtu and Winter ‘26/’27 settled 2c higher at $3.62/MMbtu. The storage surplus to the five-year average expanded for a second week on Thursday and an announcement on Friday of Permian pipeline maintenance sent West Texas gas prices sharply lower.
This week’s EIA storage report showed that the surplus to the five-year average expanded again, reaching +188 Bcf. This comes after last week’s report also showed an increase in the surplus. Since June, the surplus to the five-year average has been in a range between +150 and +200 Bcf, following the rapid increase during the first half of the year. Based on our modeling, the surplus should begin to shrink around the start of winter and potentially fall below the five-year average around February 2026. This would be a relatively bullish setup for gas prices in 2026.
While price action in Henry Hub was relatively muted, regional basis pricing in West Texas was far more volatile. Prompt month Waha basis fell more than 70c after Kinder Morgan posted a notice announcing maintenance on the Permian Highway Pipeline would significantly reduce capacity out of the Permian Basin. The notice states that on October 3 through October 16 “The total Mainline capacity on PHP will be reduced from 2,660,000 MMBtu to 1,460,000 MMBtu.” This resulted in fixed price Waha for October trading into negative territory. This is a situation that is not particularly uncommon during times of major pipeline maintenance in West Texas. Pipeline egress capacity in the region should remain somewhat limited until the second half of 2026 when new pipes enter service, exposing Waha prices to similar periods of stress.
AEGIS holds a neutral view on near-term prices and a bullish view on Winter ‘25/’26 and beyond. Swaps are recommended in the summer months, while costless collars may be preferred in the winter.
Natural Gas Factors
Price Trend. (Bearish, Priced In) Gas prices have moved lower this summer, but over the past several weeks the prompt Henry Hub contract has traded in a range around the $3.00/MMbtu level.
Winter S&D. (Bullish, Surprise)
Storage Level. (Bearish, Priced In) The storage level is a bearish priced-in factor due to the high levels of gas in inventories relative to the five-year average. According to the latest EIA weekly natural gas inventory report, the surplus to the five-year average stands at 204 Bcf above the five-year average but 4 Bcf below last year.
Associated Gas Production.(Bearish, Priced In) Growth in associated gas production will be much slower than has beeen seen over the past few years, at least until the second half of 2026. Pipeline capacity out of the Permian Basin will begin to grow again next year, likely filling relatively quickly. These new Permian pipes should enter servicce around the same time as projects which will reroute gas around Houston, towards the border of Louisiana.
LNG Outages. (Bearish, Surprise) Feed-gas levels are at their near max capacity, and if there's any unplanned maintenance event or an outage, it may act as a surprise bearish factor for natural gas prices.
Slow Supply Response (Haynesville). (Bullish, Surprise) If production remains near where it is currently and does not grow into winter, this would be a bullish factor for gas prices. As production growth in the Permian and Northeast should be relatively constrained by pipeline capacity until the second half of 2026, the Haynesville will likely be the primary engine of production growth in the near-term. After being flat through most of 2025, Haynesville production and drilling activity has begun to increase this summer. Production is now up about 1.5 Bcf/d from the start of the year, but remains down from levels seen two years ago.
LNG Schedule. (Bullish, Mostly Priced In) With a significant amount of new LNG feedgas demand coming this year and the next few years, if these facilities startup sooner than anticipated it should be a bullish factor for gas prices. One example of this occuring is the recent startup of Plaquemines LNG, which saw feedgas levels reach more than 1 Bcf/d much sooner than anticipated.
Hedge Activity. (Bearish, Priced in) With prices for next winter and beyond continuing to trend higher, producers have been hedging into the strength of forward prices.
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