U.S. natural gas prices at Henry Hub have remained below $3 per MMBtu as a persistent supply glut outweighs seasonal demand, with the September contract opening at $2.778 per MMBtu before falling further.
The Energy Information Administration reported a 16 billion cubic feet (Bcf) storage injection for the week ending August 14, nearly matching the 14-15 Bcf consensus estimate but falling short of the five-year average build of 29 Bcf. Working gas inventories now stand at 3,169 Bcf, down 25 Bcf from the same period last year but still 198 Bcf, or 6.7%, above the five-year average of 2,955 Bcf. The narrower-than-average injection reduced the surplus to roughly 185 Bcf, though analysts note that a 13 Bcf weekly reduction would require 14 weeks to eliminate the surplus—well beyond the end of the injection season.
Price action has reflected the imbalance. After closing at $2.690 on Monday, the September contract fell 2% to around $2.68, the lowest since August 7. A brief rally above $2.80 on hotter weather forecasts stalled at resistance levels that have capped summer gains, with prices retreating below Wednesday’s low by Thursday.
Production remains the primary driver of the surplus. Lower-48 dry gas output hit 112.0 Bcf per day on Wednesday, up 2.7% year-over-year, with August averaging 111.6 Bcf per day against July’s record monthly pace of 110.7 Bcf per day. Producers have not adjusted output despite lower prices, as shale wells and associated gas from Permian oil drilling continue to flow regardless of Henry Hub levels. The structural disconnect is worsening, with Permian takeaway capacity expanding to 1.5 Bcf per day by September 1 via the Hugh Brinson pipeline, further easing constraints on oil-directed drilling that generates associated gas.
Demand-side offsets have underperformed. LNG export flows to the nine major facilities averaged 17.3 Bcf per day in August, up just 0.1 Bcf per day from July, while production rose by roughly 0.9 Bcf per day over the same period. Power burn has also lagged, with gas-fired generation 2% below record levels despite total power demand nearing all-time highs, as wind and solar output displaced marginal gas demand. Solar generation rose 21% and wind 6% in the first half of 2026.
The EIA’s latest Short-Term Energy Outlook (STEO) underscores the bearish outlook. The agency reduced its third-quarter 2026 Henry Hub price forecast to $2.87 per MMBtu, down 50 cents from the prior month’s projection, citing reduced LNG feedgas demand and record production. The revision marks a sharp downward shift from July’s STEO, which had projected $3.37 per MMBtu for the third quarter and $3.57 for the fourth. The EIA now expects spot prices to remain below $3.00 per MMBtu until November, averaging $3.03 per MMBtu over the remaining five months of the year.
Inventory projections reinforce the bearish sentiment. The EIA expects natural gas inventories to reach a record 3,985 Bcf by the end of October 2026, 19 Bcf higher than its July estimate and 5% above the five-year average. The futures curve reflects this outlook, with contracts through September 2026 remaining below $3.00 per MMBtu.
LNG export demand, often viewed as a structural floor for prices, has also disappointed. The EIA cut its third-quarter LNG export forecast to 16.5 Bcf per day, down 0.2 Bcf per day from the prior month, despite actual feedgas flows reaching 17.3 Bcf per day in August. Maintenance at Freeport LNG, which began July 10 and is expected to conclude in late August, has removed 2.0 Bcf per day of export capacity—the largest identifiable demand outage. Even with Freeport’s return, export growth remains constrained by liquefaction capacity bottlenecks, not demand.
International gas markets present a contrasting picture, with European prices surging amid Middle East supply shortages, but the arbitrage has not translated into higher U.S. exports due to transportation constraints. The forward pipeline includes Venture Global’s CP2 expansion, which could add 11.7 million tons per year of peak liquefaction and nearly 1.9 Bcf per day of transportation capacity, though such additions are not expected to materialize before 2027.
