Abundant US Natural Gas Supplies Continue Dampening Market Sentiment

The natural gas market faced persistent downward pressure this Friday as Nymex NGG26 contracts closed 0.025 lower, representing a 0.80% decline. While February nat-gas futures managed to stay above Thursday’s three-month low, the session underscored the headwinds facing prices in an environment of ample domestic supplies.

Abundant Supply Dynamics Outweigh Demand Hopes

The primary culprit behind the bearish tone stems from the latest EIA weekly inventory report, which revealed that storage levels currently sit 3.4% above their five-year seasonal average. This surplus of abundant natural gas supplies in storage facilities has created a structural ceiling for price appreciation. The data paints a picture of well-stocked inventory levels that continue to constrain upside momentum in the futures markets.

Despite forecasts calling for below-normal US temperatures across northern regions and the East Coast during January 21-30—conditions typically supportive of heating demand—the market’s enthusiasm remained tempered. The Commodity Weather Group’s temperature projections offered modest support, but failed to overcome the weight of abundant supply data.

Export Terminal Constraints Paradoxically Support Price Pressure

An unexpected bearish development came from the Texas Gulf Coast, where both Cheniere’s Corpus Christi LNG export facility and Freeport LNG terminals operated below normal feedgas levels this week due to electrical and piping complications. Rather than tightening the market, these operational disruptions actually facilitated additional nat-gas inventory buildout, a factor that ultimately weighed on prices rather than buoyed them.

The reduced export throughput creates a peculiar dynamic: with less gas flowing to LNG facilities, abundant supplies continue accumulating in storage, extending the bearish outlook for price recovery.

Demand Signals Show Mixed Signals

Recent electricity generation data provided little relief. The Edison Electric Institute reported that US lower-48 electricity output declined 13.15% year-over-year for the week ending January 10, reaching 79,189 GWh. While the 52-week comparison showed a 2.5% year-over-year increase to 4,294,613 GWh, the near-term weakness in power generation suggested subdued nat-gas burning for electricity production.

Current nat-gas consumption registered at 104.9 bcf/day, down 2.4% year-over-year, according to BNEF data. Meanwhile, domestic dry gas production maintained elevated levels at 113.0 bcf/day, representing 8.7% growth compared to the prior year.

Storage Picture Reveals Ample Cushion

The most recent EIA inventory report confirmed market concerns about abundant natural gas supplies. For the week ending January 9, nat-gas inventories declined by only 71 bcf—substantially less than the 91 bcf consensus estimate and markedly below the five-year average weekly draw of 146 bcf. This smaller-than-expected storage withdrawal underscored plentiful supply conditions.

As of the January 9 reporting date, nat-gas inventories had risen 2.2% year-over-year and remained 3.4% above seasonal norms, cementing the case for abundant stockpiles. By contrast, European gas storage levels stood at just 52% full as of January 13, well below the typical seasonal fill rate of 68%, illustrating the relative abundance of US supplies.

Production Outlook Provides Minimal Support

The EIA’s downward revision to 2026 US dry natural gas production estimates offered limited encouragement. The agency reduced its forecast to 107.4 bcf/day from the previous month’s 109.11 bcf/day projection. Despite this cut and current production running near record highs at 113.0 bcf/day, the market has largely discounted these supportive factors against the backdrop of abundant near-term supplies.

Active US nat-gas drilling rigs fell by 2 units to 122 during the week ending January 16, according to Baker Hughes. While this represented a pullback from the 2.25-year high of 130 rigs set in November, the rig count remains substantially elevated compared to the 94-rig low witnessed in September 2024, suggesting ongoing production capacity remains robust.

Estimated LNG net flows to US export terminals reached 19.8 bcf/day on Friday, up 2.5% on a week-over-week basis, yet this level of export activity proved insufficient to absorb abundant domestic supplies and prevent inventory buildup.