This sharp price increase has been primarily driven by periods of colder-than-average temperature, which, along with production freeze-offs and a rapid ramp up of liquefaction operations at the newly started 1.4 Bcf/d phase one of the Plaquemines LNG export facility, helped draw down salt inventories to very low levels1 . The 2025 price rally also pulled Cal 2026 Henry Hub prices higher, up 14% year to date to $4.44/mmBtu currently.
To be sure, we continue to expect 2026 Henry Hub prices to remain above $4/mmBtu to incentivize drilling increases in the Haynesville region, the current source of marginal US dry gas production growth, to help keep storage comfortable in the 2026/27 winter as US LNG exports continue to move higher. That said, we think the rapid rally in the front of the curve looks excessive and we see near-term risk to prices skewed to the downside for two main reasons.
First, last week’s US gas rally that took prompt gas prices back above $4/mmBtu was not accompanied by any significant tightness in the physical market like what we observed in mid-February, and the colder March weather forecasts that arguably triggered that rally have fully reversed (Exhibit 1 and Exhibit 2). Second, this week’s downward revision to US gas production estimates by Wood Mackenzie2 still leaves month-to-date production more than 1 Bcf/d above our expectations, suggesting no urgency for the market to incentivize a sharp increase in drilling this summer.
To be clear, we don’t see US storage congestion appearing as a result of this latest rally in US gas prices, so there is no binding physical constraint forcing US gas prices immediately lower. This is in part because, on the demand side, gas-to-PRB-coal switching is already maximized with Henry Hub near $3.75/mmBtu, and, on the supply side, the impact of higher gas prices on drilling (and ultimately production) is slow. But we do think the balance of risks around US gas prices has changed and is now skewed to the downside. Accordingly, we take this opportunity to close our long Apr26 NYMEX natural gas trading recommendation, now priced around $4/mmBtu, for a potential gain of $0.80/mmBtu.
