Natural Gas Inventory Data Shows Storage Pressures Amid Production Surge and Weak Heating Demand

Natural gas prices retreated on Thursday as forecasts predicted warmer-than-normal conditions across the US, with WSI indicating broad regions of above-average temperatures expected throughout the western and central states over the coming week. The warmer outlook undermined heating fuel demand, creating downward pressure on the commodity.

The latest natural gas inventory report from the EIA revealed a more complex supply picture. Weekly storage data for the period ending January 2 showed inventories declined by 119 bcf, surpassing both analyst expectations of 113 bcf draw and the 5-year average weekly draw of 92 bcf. Despite this bullish inventory signal, prices could not sustain gains due to offsetting bearish factors on the supply side.

Production Remains at Elevated Levels

The current natural gas production environment continues to weigh on prices. Lower-48 dry gas output reached 111.0 bcf/day, representing an 8.7% year-over-year increase, while the EIA recently upgraded its 2025 production forecast to 107.74 bcf/day. This upward revision from November’s 107.70 bcf/day estimate reflects robust production trends, with active drilling rigs recently hitting a 2-year peak, underpinning ample supply.

Demand Remains Subdued

From the demand side, Thursday’s natural gas inventory today figures showed lower-48 state consumption at 88.0 bcf/day, down 29.5% year-over-year according to BNEF data. LNG export flows to US terminals averaged 19.2 bcf/day, down slightly 1.5% week-over-week. On a brighter note, US electricity generation posted modest support, with the Edison Electric Institute reporting a 6.7% year-over-year increase to 82,732 GWh for the week ending January 3.

Storage Conditions Signal Ample Supply

As of January 2, natural gas inventory levels sat 3.5% below year-ago levels but remained 1.0% above the 5-year seasonal average, underscoring abundant supplies in the system. European gas storage painted a different picture, holding at 58% capacity versus the historical 72% seasonal norm for this period.

Rig Count Stabilizes Near Recent Peaks

Baker Hughes data indicated the active natural gas rig count fell by 2 to 125 rigs for the week ended January 2, remaining modestly beneath November’s 2.25-year high of 130 rigs. The upward trend has been notable, with rig counts climbing substantially from September 2024’s 4.5-year low of 94.