MW Surging electricity demand is just one reason natural gas looks so appealing to investors this summer and beyond

By Myra P. Saefong

The gas market was highly seasonal and regional, but now it's 'globally integrated,' says portfolio manager

It's that time of year again, when the need for cooling in the summer heat lifts demand for natural gas - but that's not the only factor raising the risk for tighter supplies of the fuel, making natural gas that much more appealing for investors after a nearly 10% drop in prices so far in the second quarter.

Summer cooling demand, along with low U.S. storage levels, risks tied to the Atlantic hurricane season and growth in liquified-natural-gas (LNG) exports will all play a role this summer, but "not equally," said Henry Hoffman, co-portfolio manager of the Catalyst Energy Infrastructure Fund MLXIX.

"The gas market used to be highly seasonal and regional. Now, it's globally integrated," he said.

'The gas market used to be highly seasonal and regional. Now, it's globally integrated.'Henry Hoffman, Catalyst Energy Infrastructure Fund

The most significant driver for natural gas will likely be power demand, said Hoffman. Summer electricity demand is expected to be above the five-year average, and "across all regions, natural gas is expected to provide the largest share of net summer generation capacity," according to the Federal Energy Regulatory Commission's annual Summer Energy Market and Electric Reliability Assessment released on May 15.

"Natural gas remains the dominant fuel source for dispatchable generation, especially as renewables can be intermittent," said Hoffman. Renewable energy sources such as solar and wind, for example, aren't reliable because they are dependent on natural sources that cannot be controlled.

Power demand

Given the importance of natural gas as a key source for power demand this summer, it can potentially see a sustained drawdown from inventories and a rise in prices, particularly during heatwaves, said Hoffman.

A hotter-than-normal summer would lead to higher demand for natural gas, and that higher demand will "compete with the replenishing" of natural gas in storage for the winter heating season, driving prices higher, said Simon Wong, portfolio manager at investment firm Gabelli Funds.

On Wednesday, natural gas for July delivery (NG00) (NGN25) settled at $3.72 per million British thermal units, after settling Tuesday at the highest finish for a front-month contract in more than three weeks, according to Dow Jones Market Data. Prices have gained about 2.3% year to date, but have lost 9.8% in the second quarter.

U.S. supplies of natural gas in storage, meanwhile, have started the summer season lower than last year, with inventories at 2.476 trillion cubic feet for the week ended May 23, according to the Energy Information Administration. That's 316 billion cubic feet (bcf) below the same time a year ago.

Hoffman cited a colder winter and "ongoing production discipline" for the lower supply, adding that there's "less buffer if demand spikes or supply is disrupted."

Storm-related risks

Supply, meanwhile, has the potential to see disruptions tied to the Atlantic hurricane season - not just in terms of production, but also in infrastructure and consumption, said Hoffman. The hurrican season runs from June 1 to Nov. 30.

Production in the Gulf of Mexico currently is "small" - down from its 2009 peak of over 7 bcf per day to roughly 1.7 bcf per day - but "infrastructure vulnerability is still real," said Hoffman. In September of last year, the EIA expected natural-gas production in the Gulf to average 1.8 bcf in 2025, which it said would represent 2% of U.S. marketed natural-gas production.

LNG terminals like Sabine Pass, Cameron and Freeport are all Gulf Coast-based and hurricanes can delay cargoes, creating force majeure (a circumstance preventing the fulfillment of a contract) or reducing export capacity temporarily, Hoffman noted. "That affects both domestic prices and global supply," he said.

Gulf Coast LNG production is now around 15 bcf per day and rising, so storms may more likely have a downward effect on natural-gas prices, Hoffman added.

LNG exports

Overall, however, the U.S. is in a "structural ramp-up" in terms of LNG capacity, with facilities like Golden Pass and Plaquemines LNG expected to come online, Hoffman said. The next wave of projects - such as Corpus Christi Stage 3, which aims to expand LNG production capacity and is developed by Cheniere Energy Inc. (LNG), and export facility Rio Grande LNG, which is under construction by NextDecade Corp. $(NEXT)$ - will help grow exports, further tightening the domestic market into 2026 to 2028, he noted.

In turn, U.S. LNG exports will continue to grow significantly. The U.S. is already the world's largest LNG exporter and "we're only halfway through the buildout" of export capacity, Hoffman said. This is being driven by "long-term contracts with Europe and Asia seeking to diversify supply away from Russian gas and coal, respectively," he said.

Read: Natural-gas prices may predict when a Russia-Ukraine peace deal is near

Tariffs and taxes

The impact on natural-gas demand of both U.S. tariffs and President Donald Trump's tax bill is another key concern - and depending on how that pans out, it may actually put pressure on natural-gas prices.

U.S. tariffs are likely to put downward pressure on growth due to a reduction in trade as well as second-order job loss, further depressing prices, said Steve Hochman, managing director for North America at Nagarro, a global engineering and technology consulting firm.

He believes summer usage patterns have already been "baked into" oil and natural-gas futures, so he doesn't expect to see a major spike in prices.

The EIA said it expects the average U.S. electricity bill to be about 4% more this summer compared with last summer, largely due to an increase in natural-gas prices.

Front-month natural-gas futures are trading 43.7% higher than a year ago. Power generation from domestic natural-gas-fired plants is also forecast to fall by 3% this year from 2024 because of those higher prices, the government agency said.

Tariff and trade pressures are likely to stabilize or depress prices further, so the "big, beautiful [tax] bill," as Trump has called it, is unlikely to have much effect on natural-gas production or prices, according to Hochman.

If anything, the expected $2 trillion increase in the national debt due to the tax bill will "drive up interest expense, put further drag on the economy and drive down demand," he said.

On the other hand, a bill gaining steam in the Senate could place severe tariffs on any country that imports oil (CL.1) (BRN00), uranium or other energy products from Russia. That has the potential to raise prices on everything from gasoline to electricity.

Meanwhile, how artificial intelligence and data centers factor into all of this represents a "wild card" for the market, said Beth Sewell, president and chief executive officer at Quantum Gas & Power Services.

Some data centers are being proposed in areas of the country where it makes no sense, since the infrastructure to support them is not there, she noted. If that gets worked out, then the economics of natural gas will "swing towards the demand side and boost prices, but this is all a long ways away," Sewell said.

Still, when Catalyst's Hoffman was asked if he considered natural gas to be at a bargain, he said that while at current levels it's "historically cheap," that price is "misleading."

The forward curve, which represents the market's expectations of future prices, shows higher prices into late 2025 to 2026, he said, as LNG projects "go live and demand outpaces supply."

So near term, natural gas may seem cheap, but "structurally, we're headed for a tighter market," said Hoffman. That should support prices unless there's a surge in supply or mild weather surprises, he added.

Looking ahead to the winter, the January 2026 natural-gas futures contract (NGF26) has already topped $5, but Quantum's Sewell said she wouldn't be surprised if 2025's November (NGX25), December (NGZ25) and February (NGG26) contracts also break through $5 later this summer when traders start to focus on the winter months.

That would mean there's potential for front-month prices to top $5 later this year for the first time since December 2022.

-Myra P. Saefong

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

June 05, 2025 13:49 ET (17:49 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.