Cold weather drives record storage withdrawals and higher energy price outlook
U.S. natural gas prices rose sharply in January as extreme cold weather increased heating demand and reduced production across the country. Prices averaged $7.72 per million British thermal units as Winter Storm Fern caused record withdrawals from underground storage facilities.
According to the latest Short-Term Energy Outlook, U.S. natural gas inventories are now expected to end the winter withdrawal season below 1.9 trillion cubic feet. This level is lower than earlier forecasts and reflects the largest weekly storage withdrawal ever recorded in the government’s weekly storage report.
“Winter Storm Fern caused significant short-term pressure on natural gas markets, but we expect higher prices in the near term will increase drilling, resulting in higher production later this year and helping to replenish storage,” said EIA Administrator Tristan Abbey.
“Ultimately, this will result in lower natural gas prices next year than we had forecast. Our updated forecast anticipates Henry Hub prices will average $4.30/MMBtu in 2026 and $4.40/MMBtu in 2027, 5% lower than our January forecast,” said Abbey.
Higher demand for heating, combined with temporary production disruptions, tightened supplies during January. As a result, forecasts for near-term Henry Hub natural gas prices were raised significantly for February and March.
Energy analysts expect the price spike to be short-lived. Higher prices are likely to encourage increased drilling activity, which should raise production levels later in the year. Additional pipeline capacity coming online in major producing regions is also expected to support higher output.
Over the longer term, natural gas prices are projected to stabilize and ease. Forecasts show Henry Hub prices averaging just above $4 per unit in 2026 and 2027, slightly lower than earlier estimates. This outlook reflects expectations that increased production will help rebuild storage levels.
The energy outlook also shows mixed trends across fuel markets. Crude oil prices are expected to decline in coming years as global supply exceeds demand. Electricity demand is forecast to rise due to economic growth and expanding data center activity, with renewables meeting most of the increase.
Coal use rose during January as power plants increased generation to meet peak demand during cold weather. However, coal’s share of electricity generation is expected to continue declining gradually.
Overall, the outlook highlights how short-term weather events can strongly affect energy markets, while longer-term supply responses help restore balance.
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