May 2025 Volume 7

ENERGY

ENERGY PRICES RISING FAST: WHY A BIG UPWARD REVISION IS RAISING CONCERNS FOR 2026 By Nancy Gardner

I n March, the U.S. Energy Information Administration (EIA) released its latest Short Term Energy Outlook (STEO). From our perspective, the most interesting takeaways from the report are related to the natural gas market – in particular, how forecasts have changed over the past few months. In its October 2024 STEO, the EIA projected that Henry Hub natural gas prices would average $3.10 per MMBtu in 2025. The March report revised that number 35% (!) higher to $4.20 per MMBtu as shown in the chart below.

In addition to the depleted storage inventories, another factor influencing near-term prices is the development of two new LNG export terminals: Plaquemines LNG Phase 1 in Louisiana and Corpus Christi Stage 3 in Texas. These Gulf Coast export facilities have pushed U.S. LNG exports to record levels, at more than 16.7 Bcf per day. Over the next two years, we expect Plaquemines to nearly double its output to 4 Bcf per day and Golden Pass LNG in Texas to ship out another 2.5 Bcf per day. Canada also has large projects expected to come online in 2026. Depending on the impact of federal tariffs, our neighbors to the north could begin moving a majority of the 7 Bcf per day currently being sent into the U.S. via pipeline to more profitable markets overseas. Should all these projects progress as expected, the total amount of natural gas that is no longer available for domestic consumption will likely approach 10 Bcf per day – a major hole in available supply – by the end of next year.

A major reason for the upward adjustment is that below-normal temperatures in January and February led to increased natural gas consumption. This resulted in much more gas being drawn from storage than expected. U.S. inventories fell from a high of 3,972 Bcf in November to just 1,698 Bcf at the start of March. This 2,274 Bcf drawdown was 25% higher than the previous two winters. The STEO goes on to project that gas futures will average $4.50 per MMBtu in 2026. As of March 27th, the NYMEX calendar 2026 gas strip settled at $4.39, indicating that the agency expects prices to move even higher over the next year. Why Are Prices Moving Higher for 2026? Since July 2024, we’ve seen a steady upward trend in natural gas prices, however, most of the movement has occurred towards the front (i.e., the nearer years) of the forward curve. Calendar years 2027 and beyond have experienced much more modest changes: Trade Date Cal 2025 Cal 2026 Cal 2027 Cal 2028 Cal 2029 Cal 2030 07/29/2024 $3.24 $3.63 $3.71 $3.64 $3.59 $3.50

03/27/2025 $4.34 $4.39 $3.34 ∆ Change +34% +21% +4% -1% -3% -5% $3.87 $3.59 $3.47

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FIA MAGAZINE | MAY 2025