As summer approaches, natural gas market dynamics are shifting under the weight of higher year-over-year prices. While elevated pricing is encouraging stronger production, it’s also reducing demand from the power sector, where coal-to-gas switching played a critical role last summer. With storage levels still trailing last year, the next few months will be pivotal in determining how quickly inventories can recover.

The facts
May Henry Hub natural gas futures expired at $3.17/mmbtu on Monday, marking a nearly 20% decline from April’s expiration level. While this recent softening has caught attention, prompt-month prices are still trading at nearly double where they stood at this time last year. This year-over-year jump in pricing is expected to shape summer fundamentals across supply, demand, and storage, as outlined in our April short-term outlook.

Despite the recent pullback, these higher prices are already influencing the broader gas landscape. Power demand—which surged last summer amid economic coal-to-gas switching—is expected to ease back this season, assuming normal weather patterns prevail. Meanwhile, production remains elevated and continues to track near record levels.

‘’The market has ground to make up. Storage currently sits about 0.5 Tcf below year-ago levels.’’
Daniel Myers, Senior Research Analyst, North America Gas

Our take
The pricing environment has set up a summer of contrasts. On the supply side, elevated prices are supporting robust year-over-year production growth. On the demand side, the same price signal is discouraging the hefty kind of economic switching that helped boost gas-fired power burn to all-time highs last year. This dynamic is expected to create a more balanced but less demand-heavy summer profile.

LNG exports offer some upside, with about 3 bcfd of year-over-year growth projected. However, this is likely to be largely offset by the expected pullback in domestic power generation demand. As a result, storage builds are expected to run stronger this summer, with injection rates projected to be higher compared to last year.
Still, the market has ground to make up. Storage currently sits about 0.5 Tcf below year-ago levels. To close that gap and return inventories to a more comfortable position above the five-year average heading into winter, stronger injection activity will be necessary in the coming months.

Source: Wood Mackenzie