Natural gas continues to trend lower on rising storage surplus
The September Henry Hub contract lost another 8c this week, bringing losses over the past two weeks to -23c. The Winter ‘26/’27 strip hit new lows, falling 9c this week to $3.43/MMBtu, while Summer ’27 lost 2c to $3.06/MMBtu. This week’s price weakness came amid another sharp increase in the storage surplus, although LNG feedgas demand has improved.
This week’s EIA natural gas storage report showed the surplus expanded by 10 Bcf, reaching +195 Bcf above the five-year average. This is the largest surplus since last summer. The continued expansion of the storage surplus has weighed on the Winter ‘26/’27 strip and sent it towards new lows. By extension, the Summer ’27 strip has also been weakened by this. Our modeling shows inventories reaching 4.02 Tcf by the start of winter, which would be a new five-year high. If the forecasted super El Nino pans out, this could result in a milder winter and a particularly high level of gas in storage by the end of winter, adding further downside risk.
LNG feedgas demand rebounded slightly this week as Golden Pass LNG hit a new record of more than 600 MMcf/d. However, Train 1 of the facility is still not at full capacity of 790 MMcf/d. The startup of Train 1 has been much slower than many anticipated, and has capped LNG demand this summer. This also creates concerns that Train 2 and 3 may also be slow to startup, delaying some of the LNG demand growth this year into 2027. Rio Grande LNG is expected to begin taking gas by the end of 2026, which should support LNG demand this winter, although volumes will likely not be material until mid-2027.
As storage levels continue to rise above the five-year average and the possibility of a milder El Nino-driven winter remains, the Winter ‘26/’27 strip looks to be at risk, even after trending lower over the past few months. By extension, a weak winter would result in lower prices for the Summer ’27 strip. Beyond this period, fundamentals look materially tighter into the second half of 2027.
Natural Gas Factors
Price Trend. (Bearish, Priced In) The September Henry Hub contract has trended lower over the last few weeks, recently falling as low as $2.70/MMBtu.
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, Lower-48 storage is now at a surplus of 195 Bcf to the five-year average but 12 Bcf lower than 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. It was announced in early August that the Blackcomb pipeline has begun flowing some gas.
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. An outage at Freeport LNG has weighed on feedgas demand lately.
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.
2H26 Permian Pipes. Pipeline capacity out of the Permian is set to expand later this year, unlocking more gas supply. If the new Blackcomb pipeline fills quicker than expected, this could pose a bearish surprise to gas prices.
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