Falling Natural Gas Prices: A Warning to Producers and Investors

Natural gas prices have gotten so low that many companies are curtailing production.

Last week’s average spot price of $1.88 per million British thermal units (mmBtu) was 31 percent below the mid-June weekly average of $2.73 (Figure 1). Meanwhile, production ramped up after prices nearly doubled from the mid-March low of $1.40.

What’s even more concerning is that despite a 120 billion cubic feet (bcf) drop in comparative inventory (yellow bars) since June 14, prices have still declined (red line). This is the opposite of the usual market behavior and is occurring because supply and demand are completely out-of-balance. The market is sending producers a clear and urgent signal to stop drilling.

Despite significant LNG (liquefied natural gas) and pipeline exports, the EIA (U.S. Energy Information Administration) forecasts an average spot price of just $3.27 in 2025 (Figure 2). This marks a rise from $2.30 in 2024, but only if natural gas exports increase by 1.5 bcf/d, from 14.9 to 16.4 bcf/d.

The core issue for gas producers has been the reduced consumption during recent winters. Figure 3 illustrates degree days—a measure of energy used for heating and cooling—over the period from 2007 to the present. Since 2011, U.S. winters have generally been warmer than average, with the exceptions of 2018 and 2019.

Warmer winters have come with hotter summers, but gas consumption remains significantly higher for winter heating than summer cooling. Despite global warming altering the winter-to-summer usage ratio, about 25% more natural gas is still consumed in the U.S. during winter (Figure 4). Total consumption has increased by 40% since 2008, but producers have struggled to manage output effectively.

In an attempt to prevent prices from plummeting, they’ve rushed to offload the surplus onto foreign markets, yet this approach has not stabilized prices. For lasting success, producers need to practice the discipline they claim to uphold. Without it, I see little justification for investors to continue supporting their stock prices.