US Natural Gas Market Faces Headwinds as Plentiful Supplies Accumulate

Natural gas futures showed weakness in recent trading, with February Nymex natural gas (NGG26) declining 0.80% as abundant domestic supplies continue to suppress market momentum. The latest EIA data reveals a critical imbalance: current storage levels sit 3.4% above the 5-year seasonal average, signaling an oversupply situation that constrains price recovery potential.

Storage Buildup Reflects Supply Glut

The Thursday weekly EIA report exposed the root cause of price pressure. Natural gas inventories fell by only 71 bcf for the week ended January 9—significantly below the market consensus of 91 bcf and well below the 5-year average weekly draw of 146 bcf. This smaller-than-expected drawdown indicates storage is accumulating faster than seasonal norms would suggest. As of January 9, inventories were up 2.2% year-over-year and 3.4% above their 5-year seasonal average, painting a picture of abundant supply cushioning the market.

The European situation provides a stark contrast: gas storage there sits at only 52% capacity compared to the 5-year seasonal average of 68%, highlighting the regional nature of supply imbalances.

Production Remains Robust Despite Forecast Cuts

US domestic production continues near record levels, though growth projections are moderating. Lower-48 dry gas production reached 113.0 bcf/day on Friday, representing an 8.7% year-over-year increase. The EIA’s recent downward revision of 2026 production forecasts—from 109.11 bcf/day to 107.4 bcf/day—provides limited upside for the market, as abundant output continues overwhelming demand.

Active US natural gas rigs stood at 122 in the week ending January 16, down 2 rigs from the prior week but still elevated compared to historical lows. Baker Hughes data shows the sector has recovered substantially from the 4.5-year low of 94 rigs recorded in September 2024.

Demand Weakness and Export Terminal Constraints

Lower-48 gas demand weakened to 104.9 bcf/day on Friday, down 2.4% year-over-year, offsetting any production discipline. More significantly, LNG export terminals—normally a key pressure valve for abundant supply—have operated below capacity this week.

Feedgas to Cheniere’s Corpus Christi LNG facility and Freeport LNG terminals along the Texas Gulf Coast experienced electrical and piping disruptions, reducing export capacity. This mechanical constraint allows US storage to build rather than be drawn down through exports, exacerbating the bearish supply picture.

Estimated LNG net flows to US export terminals Friday totaled 19.8 bcf/day, up 2.5% week-over-week according to BNEF, but the operational issues at major hubs remain a factor.

Limited Support from Colder Forecasts

Friday’s price decline was partially contained by weather forecasts predicting below-normal temperatures across much of the northern US and East Coast for January 21-30. The Commodity Weather Group’s projection suggests potential heating demand support could help arrest further downside.

However, electricity generation data provided a counterweight: US lower-48 electricity output in the week ended January 10 fell 13.15% year-over-year to 79,189 GWh, reducing power-generation gas demand despite yearlong improvements showing 52-week output up 2.5% year-over-year at 4,294,613 GWh.

Market Outlook

The convergence of abundant supplies, robust production, constrained export capacity, and weak seasonal demand creates a challenging environment for price appreciation. While projections for moderating long-term production growth offer theoretical support, the near-term picture remains clouded by the persistent supply surplus that continues to weigh on sentiment across the Nymex natural gas complex.