Natural Gas Prices Spike as Persistent Cold Weather Tightens Supply

Cold weather gripping the US has ignited a sharp rally in natural gas prices, with March Nymex natural gas (NGH26) closing up 0.436 points (+11.13%) as Arctic conditions continue to reshape energy markets. The surge extends a stunning rally that began in late January, when prices climbed more than 120% and hit a 3-year high, driven by an unusually severe cold snap that swept across the nation. The trajectory reflects a market under pressure from multiple angles—production disruptions, heating demand spikes, and shrinking storage reserves all converging under the weight of persistent freezing temperatures.

Arctic Cold Blast Disrupts Production Across US

The Arctic conditions battering the Upper Midwest, Mid-Atlantic, and Northeast have created significant operational challenges for natural gas producers. Freeze-ups in gas wells disrupted production in Texas and other key regions, forcing approximately 50 billion cubic feet of natural gas offline during the peak of the freeze. This production loss represented roughly 15% of total US natural gas output—a material constraint that persists even as some capacity slowly returns online.

Latest production data reveals the ongoing tightness. US dry gas production in the lower-48 states reached 110.0 bcf/day according to Bloomberg NEF, marking a year-over-year increase of 3.4%. However, this marginal growth masks the structural pressure from the production disruptions tied to cold weather events. The Commodity Weather Group projects that below-normal temperatures will persist through early February across major producing and consuming regions, suggesting additional operational headwinds may emerge.

Surging Demand Amid Freezing Temperatures Drains Storage

The cold weather is simultaneously pumping demand through the roof. Lower-48 state gas demand spiked to 128.7 bcf/day—a stunning 38.4% increase year-over-year—as households and businesses ramp up heating consumption to combat the Arctic conditions. This demand explosion is depleting storage at an accelerated pace.

The latest weekly EIA inventory report showed natural gas storage fell by 242 bcf for the week, exceeding the market consensus of -238 bcf and the 5-year weekly average draw of -208 bcf. Despite the aggressive withdrawals, overall inventories remain elevated: as of late January, storage levels were 9.8% above year-ago levels and 5.3% above their 5-year seasonal average. This suggests ample supplies exist, yet the current cold weather dynamic is creating near-term scarcity in the market’s psychology.

Notably, the supply-demand imbalance extends beyond US borders. Gas storage across Europe sits at just 43% full, substantially below the 5-year seasonal average of 58% for this time of year—signaling that international markets are also facing tightness amid global cold weather pressures.

Drilling Activity Remains Elevated Despite Price Volatility

The price rally has fueled continued investment in drilling infrastructure. Baker Hughes reported that active US natural gas drilling rigs rose by 3 units to 125 rigs in the latest week, keeping pace near the 2.25-year high of 130 rigs recorded in November. The upward trajectory represents a dramatic reversal from the 4.5-year lows of 94 rigs that prevailed back in September 2024—a stark reminder of how the industry’s appetite for drilling expands with rising commodity prices.

LNG export activity, meanwhile, shows modest softening. Net flows to US LNG export terminals reached 17.7 bcf/day, down 8.3% week-over-week, reflecting the pressure of elevated domestic heating demand siphoning supply away from export channels.

A headwind emerged from the electricity sector: US power output in the week ending late January fell 6.3% year-over-year to 91,131 gigawatt hours, a decline that could limit gas burn in the power-generation complex. However, this weakness was offset by the 38.4% surge in direct heating demand, which is the dominant driver for natural gas consumption during cold weather events.

Outlook: Cold Weather and Market Expectations

The confluence of disrupted supply, spiking heating demand, and shrinking storage levels has created a supportive backdrop for natural gas prices. The EIA recently trimmed its 2026 dry natural gas production forecast to 107.4 bcf/day from 109.11 bcf/day—a modest downward revision that reflects ongoing structural constraints in bringing new supplies online.

As long as cold weather persists across heating-intensive regions, the dynamic should remain bullish for natural gas prices. The risk flip: should temperatures normalize earlier than expected or should European storage rebound more quickly than anticipated, the air could drain from the rally just as rapidly as it inflated. For now, though, the Arctic conditions are calling the shots in natural gas markets.