Natural Gas Summer 2025 Outlook Part 2

Are the boom times over for natural gas?

Yesterday, we talkeda bit about the strong demand dynamics for natural gas over the next two years. Of course, that’s not to mention the fact that we’re coming off two straight record-setting years for winter and summer demand. 

The demand side alone is enough to keep us bullish on prices going forward, and we’re not the only ones that think so. 

In the EIA’s latest Short-Term Energy Outlook, it was clear that prices are expected to rise through 2026. As you can see below, the EIA’s forecast is for natural gas spot prices at the Henry Hub to nearly double year over year to $4.10 per MMBtu this year, then climb nearly 20% in 2026:

I’ll note one interesting shift in LNG prices has taken place over the last few years. In the past, the primary LNG market on everyone’s radar has been in Asia. 

Last winter, however, it was Europe and North America that drove global demand growth, with European gas consumption growing by 10% year over year. As I mentioned before, demand for U.S. LNG will help offset any weakness from milder weather.  

So what could possibly make this situation explosive for prices?

That may come down to the end of our natural gas boom. 

Look, if there’s one thing that the U.S. energy sector could count on for the last 20 years, it’s higher natural gas production. 

Although most people know that the U.S. has experienced a full-blown oil boom, little attention has been given to the vast supply of natural gas that has come on line from tight-rock plays like the Marcellus Shale — more than 35 billion cubic feet of natural gas is extracted from the Appalachian region on a daily basis. 

In total, U.S. drillers produced 41.4 trillion cubic feet of marketed natural gas in 2024. 

But here’s the catch…

Our marketed natural gas production has been relatively flat lately! Last year, it grew by around 0.4 Bcf/d compared with 2023. If you take another glance above at the EIA’s price forecast, you’ll see that dirt-cheap natural gas prices have plagued the market over the last two years. 

Similar to how low oil prices are about to curtail production growth in the short term, low gas prices have had a similar effect. 

However, that’s not the scariest part of this story.

I don’t want you to think that the United States is running out of natural gas because output has flatlined — we’re not. As prices rise over the next two years, we’ll see higher drilling activity as companies look to take advantage of a higher price environment. 

The problem is that much of the supply growth we’ve seen in recent years hasn’t been from traditional tight gas plays like the Marcellus. The truth is that most of the growth in our marketed natural gas production came from the Permian Basin region, and here’s the interesting part — it wasn’t from gas wells. 

You see, the primary driver for gas production growth in the Permian over the last few years has been in what’s called associated gas. Think of it as the natural gas that comes as a byproduct with oil production. And you know as well as I do that there has been no shortage of oil production growth in the Permian for well over a decade. 

This is the dangerous part, dear reader, because we’ve finally hit a tipping point in the Permian Basin where low oil prices are going to start restricting output. 

Over the next few months, that associated gas production will dry up as our domestic oil production declines. 

You can see where this is going, right? 

Limiting supply growth now during a period of healthy demand means that a perfect storm is brewing for individual investors like us. 

We’ve been spoiled with a supply glut for more than a decade, and it comes at a time when we’ll be relying more and more on natural gas as a secure source of baseload power, which wind and solar simply cannot provide. 

Now it’s up to you to find the real hidden investment gems buried in the natural gas sector — and here’s where you should start your search.