Henry Hub falls below $4/MMbtu in second weekly loss
Natural gas prices moved lower again this week, with the January contract falling below $4/MMbtu to settle at $3.98/MMbtu. Prices for the next few seasons also fell, with the Summer ’26 seasonal strip down 17c to $3.52/MMbtu and Winter ‘26/’27 9c lower at $4.20/MMbtu. Gas prices were pressured lower as bearish near-term weather forecasts continued to weigh on the market. Meanwhile, the EIA reported a large withdrawal from storage, but smaller than many expected, further adding to losses.
Two weeks ago, meteorologists were predicting that this December could be one of the top five coldest of the past 25 years. While the first half of the month was particularly cold, its now expected that December will come in as slightly cooler than the 30-year average. While this is still bullish relative to the last ten years, it represents a significant bearish shift compared to the outlook at the beginning of the month. The remainder of December into the first few days of January is now forecast to be well above the ten-year average, with Lower-48 temperatures for next week forecast to be nearly 10 ºF above average. This should result in weaker gas demand and smaller withdrawals from storage.
While the next two weeks do not look particularly bullish for gas demand, cold weather in the first half of the month has resulted in storage levels dropping toward the five-year average. This week’s EIA report, which came in smaller than many anticipated, showed the storage surplus dropping to 32 Bcf above the five-year average. This is the lowest level the surplus has been since spring. Next week’s report should show another sizeable withdrawal, potentially dropping inventories below the five-year average for the first time since April. However, if current weather forecasts do pan out, inventories could once again be above the five-year average in the weeks following.
Based on our modeling, even if weather comes in equivalent to the ten-year average for the reminder of winter, inventories could end the withdrawal season a few hundred Bcf below the five-year average. This tightening supply-demand balance is primarily driven by strong growth in LNG feedgas demand, which looks poised to average about 20 Bcf/d this winter. In 2026, feedgas demand should rise above 22 Bcf/d as liquefaction trains enter service at Golden Pass LNG and Corpus Christi LNG.
Natural Gas Factors
Price Trend. (Bearish, Priced In) Gas prices have turned sharply lower over the past week, after rallying to as high as $5.50/MMbtu at the start of the month. The Jannuary contract is down more than $1 over the past two weeks.
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 32 Bcf above the five-year average but 61 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.
Winter Weather. (Neutral, Surprise) While the first half of December came in significantly colder than average, the second half of the month is forecast to be warmer than average. Based on our modeling, if weather comes in equivalent to the ten-year average, inventories would tighten to the five-year average. Therefore, anything colder than the ten-year average would be particularly bullish.
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