• Natural Gas Market Indicators

Natural Gas Market Summary

Above-normal temperatures, electric power consumption, and strong LNG export demand are supporting strong year-to-date natural gas demand. Meanwhile, robust year-over-year production growth continues to support favorable supply fundamentals, bolstering storage inventories ahead of winter.

The developing El Niño may become an important factor in the winter demand outlook. The National Oceanic and Atmospheric Administration (NOAA) confirmed in June that El Niño had formed and was expected to strengthen, bringing warmer weather to the Northern Hemisphere during the coming winter. A July NOAA update now projects a 97 percent chance that El Niño will persist through early spring 2027 and an 81 percent chance that it will become very strong during the fourth quarter of 2026. To the extent the pattern contributes to warmer conditions across major U.S. heating-demand regions, it could temper natural gas consumption and place downward pressure on prices, although the location and severity of winter weather remain uncertain.

Futures Prices Lower Amid Strong Supply Fundamentals

After 30 consecutive trading days above $3 per MMBtu, the Henry Hub prompt-month settlement fell to $2.94 per MMBtu on July 10 amid strong production and ample storage inventories. The August contract has trended lower as of market close on July 22, down 8.0 percent from its first settlement as the prompt-month contract on June 29. The prompt-month price settled at $2.91 per MMBtu on July 22.

Lower pricing follows weeks of elevated production, which has contributed to rising storage inventories. The domestic price trend contrasts with rising prices and renewed supply concerns in Asia and Europe as optimism has faded over a near-term reopening of the Strait of Hormuz. According to Rystad Energy, the East Asia spot LNG price for September delivery rose to $18.60 per MMBtu for the week ending July 14.  

Above-Normal Temperatures Persist Across Much of the U.S.

Summer heat continues to support elevated cooling demand across much of the country. For the week ending July 18, temperatures in the U.S. were 4.7 percent warmer than last year and 21.6 percent warmer than the 30-year normal, according to cooling degree days weighted by electric home air conditioning customers.

Looking ahead, NOAA’s 8–14-day temperature outlook from July 30 through August 5 anticipates warmer-than-normal trends to continue across much of the continental U.S. The strongest probabilities are centered over the Southwest, including Arizona, New Mexico, and western Texas, as well as Hawaii. Near-normal temperatures are favored across much of the Midwest, Northeast, and Mid-Atlantic, along with portions of the Pacific Northwest and Alaska. Below-normal temperatures are limited to parts of southern Alaska and the Aleutian Islands.

As of July 23, NOAA’s National Hurricane Center is monitoring two named storms in the Pacific and Atlantic basins. In the Pacific, Hurricane Fausto is moving westward, far southwest of the Baja California Peninsula. In the Atlantic, Tropical Storm Bertha is moving west near the southwestern Louisiana coast after tracking along the northern Gulf Coast from waters south of the Florida Panhandle. Tropical storm warnings remain in effect for portions of Louisiana and Texas as Bertha gradually weakens through late July 23 or early July 24.

Total Demand Remains on Pace for a July Record

So far in July, above-normal temperatures and strong LNG export demand have supported higher U.S. natural gas consumption. According to preliminary data from S&P Global Energy, total demand, including exports, is 7.7 percent higher month-to-date through July 23 than during the same period in June and 2.7 percent higher than last year. Total demand is also tracking 2.7 percent above the previous July record, putting the month on pace to set a new high. Exports are the primary source of year-over-year demand growth, while domestic consumption is 0.6 percent higher.

Exports are averaging 7.9 percent higher month-to-date through July 23 than during the same period last year. However, volumes are 0.6 percent lower than during the comparable period in June, partly reflecting intermittent maintenance and outages at LNG facilities, such as Freeport LNG.

Year-over-year domestic consumption growth reflects a 1.1 percent increase in electric power demand, which has offset a slight decline in residential and commercial consumption and nearly flat industrial demand. Despite above-normal temperatures and higher power-sector consumption than last year, electric power demand remains 4.2 percent below the July 2024 record.

In related news, S&P Global Market Intelligence reports that planned power-sector growth slowed during the second quarter of 2026. Planned or early-stage fossil-fueled generating capacity increased only 1 percent from the previous quarter to 156.9 GW, following several quarters of double-digit growth. Natural gas still accounts for approximately 98 percent of that capacity, although permitting, financing, and uncertainty around longer-term data center demand may affect project development.

Production Remains Strong, Driven by Eagle Ford and Haynesville Output

Domestic natural gas production continues to advance. For the month-to-date through July 23, preliminary data from S&P Global Energy indicates that dry natural gas output for the lower 48 is up 0.2 percent compared to the same period in June and 2.5 percent higher than the same period last year. Year-to-date production is up nearly 4 percent, driven by gains in the Eagle Ford and Haynesville basins, according to preliminary data from Rystad Energy. Based on preliminary estimates through July, average production during the first seven months of 2026 is expected to rise 10.8 percent in the Eagle Ford and 7.7 percent in the Haynesville compared to the same period in 2025. Production in the Permian Basin is expected to increase nearly 6 percent during this time, reaching an average output of 23.7 Bcf per day.

LNG Flows Remain Below Early-Year Peaks as Global Risks Rise

U.S. LNG feedgas flows remain below the record levels reached earlier in 2026, as planned maintenance at Freeport LNG and intermittent reductions at other export terminals continue to weigh on deliveries. According to Rystad Energy, feedgas deliveries averaged 16.9 Bcf per day for the week ending July 22, down 1.6 percent from the previous week but still 6.8 percent higher than last year. Month-to-date flows have averaged 17.4 Bcf per day, above the latest weekly average but below the 18 to 19 Bcf per day range recorded earlier this year.

In the global market, energy market risks have intensified. Rystad Energy reports that renewed U.S.-Iran conflicts have stalled the recovery of cargo movements through the Strait of Hormuz, while threats from the Houthis, a Yemen-based armed group that has previously targeted commercial vessels, raise the risk of disruptions to Red Sea shipping. Continued constraints in the Strait of Hormuz and potential disruptions at the Bab el-Mandeb Strait could further restrict Middle Eastern energy exports, with LNG particularly exposed because it depends on maritime shipping. Although oil prices have eased amid hopes for diplomacy, limited vessel traffic and continued regional tensions keep global LNG supply risks elevated.

Storage Inventories Remain Strong

For the week ending July 17, lower 48 underground storage inventories increased by 1.1 percent to 3,056 Bcf following a net injection of 32 Bcf, according to data from the Energy Information Administration. Working gas stocks now sit 6.4 percent above the five-year average and remain 0.5 percent below the same period last year. All regions posted net injections for the week except the Pacific, which recorded a net withdrawal of 5 Bcf, potentially reflecting strong electric power demand. Inventories in every region remain above their respective five-year averages, with surpluses ranging from 2.4 percent in the East to 19.4 percent in the Mountain region.

Cross-Border Pipeline Flows Show Mixed Weekly Trends

Cross-border pipeline flows were mixed for the week ending July 22, according to preliminary data from Rystad Energy. Imports from Canada fell 8.3 percent week-over-week to 4.3 Bcf per day, while exports to Mexico increased 5.9 percent to 6.2 Bcf per day. Year-over-year, both imports from Canada and exports to Mexico have declined by 16.9 percent and 2.8 percent, respectively.

Oil-Directed Drilling Drives Weekly Increase in U.S. Rig Count

According to Baker Hughes, the U.S. drilling rig count increased by seven to 588 for the week ending July 17. Oil-directed drilling, which increased by seven rigs to 452, drove the weekly gain, while natural gas-directed rigs held steady at 126. Compared with the same week last year, total drilling activity is up by 44 rigs, or 8.1 percent, reflecting increases in both gas- and oil-directed drilling. Natural gas rigs remain nine above year-ago levels, while oil-directed rigs have increased by 30 rigs over the same period. The Permian Basin accounted for the largest share of this week’s increase, adding three rigs to reach 259, while New Mexico and Oklahoma each added two rigs. Although natural gas-directed drilling was unchanged this week, gas rigs remain well above year-ago levels, suggesting producers continue to maintain activity in anticipation of stronger long-term natural gas demand. Meanwhile, continued growth in oil-directed drilling, particularly in the Permian, is likely to support higher associated natural gas production, reducing the need for additional gains in gas-directed drilling in the near term.

What to Watch:

• Prices: With El Niño expected to strengthen this winter, could warmer-than-normal conditions reduce the need for storage withdrawals, keeping inventories elevated and limiting upside risk for natural gas futures prices?
• Demand: Could the recent slowdown in planned natural gas-fueled generation temper long-term expectations for natural gas demand, pipeline development, or producer investment?
• Cross-Border Flows: How might stronger Permian production support pipeline exports to Mexico as summer cooling demand sustains strong natural gas consumption in the country’s electric power sector?

For questions please contact Juan Alvarado | jalvarado@aga.org, Liz Pardue | lpardue@aga.org, or Lauren Scott | lscott@aga.org

To be added to the distribution list for this report, please notify Lucy Castaneda-Land | lcastaneda-land@aga.org

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