February Dry Gas Output Plummets as Arctic Freeze Sends Prices to 3-Year High

An unprecedented Arctic blast sweeping across the United States has triggered a dramatic surge in natural gas prices, with February Nymex contracts closing up 7.28% and hitting their highest level in over three years. The extreme cold spell that gripped the nation recently has created a perfect storm for the energy market: production disruptions, surging heating demand, and expectations for significant inventory drawdowns are all converging to lift prices sharply higher.

Extreme Weather Disrupts Production Across Lower-48

The frigid conditions that swept through Texas and other major production regions last week proved devastating to natural gas output. Approximately 50 billion cubic feet of natural gas production went offline from Saturday through Monday—representing roughly 15% of total US natural gas production—as freezing temperatures caused equipment shutdowns and well freeze-ups across the Lower-48 states. The production recovery has been gradual, with some output slowly coming back online as temperatures moderated slightly by mid-week.

Current dry gas production in the Lower-48 region stood at 102.8 billion cubic feet per day as of Wednesday, down 1.2% year-over-year according to BNEF data. While this represents a marginal decline, the recent Arctic disruption underscores the fragility of production during extreme weather events. Gas demand, meanwhile, surged to 133.0 billion cubic feet per day—a striking 34.2% increase year-over-year—as heating load intensified across cold regions.

Inventory Decline Expected to Support Dry Gas Market

Market consensus projects that Thursday’s weekly EIA report will show natural gas inventories fell by 239 billion cubic feet for the week ended January 23, exceeding the five-year average drawdown of 208 bcf for this time of year. This larger-than-average inventory reduction reflects the combination of elevated heating demand and weather-related production losses.

The dry gas market is receiving additional support from expectations that the Arctic blast prompted a substantial inventory withdrawal. As of mid-January, gas inventories were running 6% above year-ago levels and 6.1% above the five-year seasonal average, indicating ample supplies—yet the recent cold snap may alter this picture considerably. In Europe, storage levels stand at just 45% full compared to the five-year average of 60% for this period, highlighting global supply tensions.

Rigs Remain Active Despite Production Challenges

Despite the temporary production setbacks, drilling activity has remained relatively robust. Baker Hughes reported that active US natural gas drilling rigs held steady at 122 in the week ending January 23, though this falls slightly below the 2.25-year high of 130 set in late November. Over the past year, the number of active rigs has climbed substantially from September 2024’s 4.5-year low of 94, signaling industry confidence in long-term dry gas economics.

The EIA has maintained a constructive longer-term outlook, cutting its 2026 US dry gas production forecast to 107.4 billion cubic feet per day from the prior month’s projection of 109.11 bcf/day. While this represents a modest downward revision, US natural gas production remains near record levels, underscoring the sector’s underlying strength despite near-term volatility from weather disruptions.

Market Mechanics Accelerate Price Gains

The sharp acceleration in prices into Wednesday’s close reflected tactical positioning, as funds covered short positions ahead of the final trading session for February Nymex contracts. Natural gas prices have soared over 120% in just one week, driven almost entirely by the Arctic weather system’s impact on both supply and demand dynamics. The combination of weather forecasts signaling slightly colder conditions for the eastern half of the US in early February, coupled with reduced dry gas availability, points to further support for near-term price levels.

As counterbalance, weekly US electricity output in the week ended January 24 fell 6.3% year-over-year to 91,131 gigawatt hours—a potential headwind for gas-fired generation demand. However, LNG export flows to US terminals averaged 16.9 billion cubic feet per day, providing an outlet for excess production and supporting the overall market structure.

The natural gas market remains acutely focused on the pace of production recovery and upcoming inventory reports as dry gas supply-demand dynamics continue to evolve in response to weather forecasts and seasonal demand patterns.