It’s that time of year again, when demand for natural gas is boosted by the need to cool down during the summer heat. However, there are other factors that increase the risk of limited supplies of the fuel, which makes natural gas even more alluring to investors following a nearly 10% decline in prices so far in the second quarter.
“Not equally,” according to Henry Hoffman, co-portfolio manager of the Catalyst Energy Infrastructure Fund MLXIX, summer cooling demand, low U.S. storage levels, risks associated with the Atlantic hurricane season, and growth in LNG exports will all have an impact this summer.
In the past, the gas market was very localized and seasonal. It is now integrated globally. Catalyst Energy Infrastructure Fund’s Henry Hoffman
“In the past, the gas market was very localized and seasonal. It’s now interconnected globally,” he stated.
“Power demand will probably be the biggest driver for natural gas,” Hoffman said. “Across all regions, natural gas is expected to provide the largest share of net summer generation capacity,” the Federal Energy Regulatory Commission said in its annual Summer Energy Market and Electric Reliability Assessment, which was published on May 15. The agency says that summer electricity demand will be higher than the five-year average.
“Natural gas remains the dominant fuel source for dispatchable generation, especially as renewables can be intermittent,” Hoffman stated. For instance, renewable energy sources like wind and sun are unreliable due to their reliance on uncontrollable natural sources.
Demand for power
Natural gas may experience a prolonged decrease from supplies and an increase in prices, especially during heatwaves, given its significance as a major source of power demand this summer, Hoffman added.
According to Simon Wong, portfolio manager at investment firm Gabelli Funds, a hotter-than-normal summer would increase demand for natural gas, which would “compete with the replenishing” of natural gas in storage for the winter heating season, raising prices.
According to Dow Jones Market Data, natural gas for July delivery (NG00) (NGN25) ended Tuesday at the highest finish for a front-month contract in over three weeks, and on Wednesday it concluded at $3.72 per million British thermal units. Although prices have dropped 9.8% in the second quarter, they have increased by roughly 2.3% so far this year.
With inventories at 2.476 trillion cubic feet for the week ending May 23, U.S. natural gas supplies in storage have begun the summer season lower than they were the previous year, according to the Energy Information Administration. Compared to the same time last year, that is a decrease of 316 billion cubic feet (bcf).
Hoffman explained the reduced supply by pointing to a colder winter and “ongoing production discipline,” noting that there is “less buffer if demand spikes or supply is disrupted.”
Risks associated with storms
According to Hoffman, supply may be affected by the Atlantic hurricane season, not just in terms of output but also in terms of infrastructure and consumption. The period from June 1 to November 30 is hurricane season.
“Infrastructure vulnerability is still real,” Hoffman added, despite the fact that production in the Gulf of Mexico is currently “small”—it has decreased from its 2009 peak of over 7 bcf per day to about 1.7 bcf per day. Last September, the EIA projected that the Gulf’s natural gas production will average 1.8 billion cubic feet in 2025, or 2% of the nation’s marketed natural gas production.
Hurricanes can cause cargo delays at Gulf Coast-based LNG facilities like Sabine Pass, Cameron, and Freeport, resulting in force majeure (a situation that prevents a contract from being fulfilled) or temporarily lowering export capacity, Hoffman said. “That affects both domestic prices and global supply,” he stated.
According to Hoffman, hurricanes may more likely have a negative impact on natural gas prices because Gulf Coast LNG output is currently at or above 15 bcf per day.
Exports of LNG
However, according to Hoffman, the United States is experiencing a “structural ramp-up” in terms of LNG capacity, with the projected completion of projects such as Golden Pass and Plaquemines LNG. He pointed out that the upcoming projects, like the export facility Rio Grande LNG, being built by NextDecade Corp. (NEXT) and the Corpus Christi Stage 3 project, which is being developed by Cheniere Energy Inc. (LNG) with the goal of increasing LNG production capacity, will contribute to the growth of exports and further tighten the domestic market into 2026 and 2028.
As a result, U.S. LNG exports will keep increasing dramatically. According to Hoffman, “we’re only halfway through the buildout” of export capacity, and the United States is currently the leading LNG exporter in the world. “Long-term contracts with Europe and Asia seeking to diversify supply away from Russian gas and coal, respectively,” he said, are the driving forces behind this.
Taxes and tariffs
Another major worry is how President Donald Trump’s tax plan and U.S. tariffs may affect demand for natural gas; depending on how things work out, this could potentially put pressure on natural gas prices.
According to Steve Hochman, managing director for North America at Nagarro, a global engineering and technology consulting business, U.S. tariffs are projected to further lower prices by reducing trade and causing second-order job losses, which would put downward pressure on GDP.
He doesn’t anticipate a significant price increase since he thinks summer usage trends have already been “baked into” oil and natural gas futures.
According to the EIA, rising natural gas prices will likely result in an average U.S. power bill that is roughly 4% more this summer than it was last year.
The price of front-month natural gas futures is 43.7% higher than it was a year ago. According to the government agency, the increased prices are also expected to cause a 3% decrease in power generation from domestic natural gas-fired facilities this year compared to 2024.
According to Hochman, the “big, beautiful [tax] bill,” as Trump has referred to it, is unlikely to have a significant impact on natural gas supply or prices because trade and tariff pressures are likely to stabilize or further lower prices.
“Drive up interest expense, put further drag on the economy and drive down demand,” he said, referring to the tax bill’s projected $2 trillion rise in the national debt.
However, a plan that is gathering traction in the Senate may impose high taxes on any nation that imports uranium, oil (CL.1) (BRN00), or other energy items from Russia. That might result in higher costs for everything from power to gasoline.
According to Beth Sewell, president and CEO of Quantum Gas & Power Services, the way artificial intelligence and data centers play a role in all of this is a “wild card” for the market.
Because there isn’t the infrastructure to sustain them, some data centers are being planned in places around the nation where it makes no sense, she said. The economics of natural gas will “swing towards the demand side and boost prices, but this is all a long ways away,” according to Sewell, if that is resolved.
However, Hoffman of Catalyst responded that although natural gas is “historically cheap” at the moment, the pricing is “misleading” when asked if he thought it was a good deal.
According to him, the market’s expectations for future pricing are reflected in the forward curve, which indicates higher prices until late 2025 and 2026 as LNG projects “go live and demand outpaces supply.”
According to Hoffman, “structurally, we’re headed for a tighter market,” even though natural gas may appear inexpensive in the short term. Unless there is a spike in supply or mild weather surprises, that should help prices, he continued.
The January 2026 natural-gas futures contract (NGF26) has already surpassed $5, but as traders begin to concentrate on the winter months later this summer, Quantum’s Sewell stated she wouldn’t be shocked if the November (NGX25), December (NGZ25), and February (NGG26) contracts for 2025 also break through $5.
This implies that, for the first time since December 2022, front-month prices could surpass $5 later this year.
