Dallas Fed Expecting Higher Natural Gas Prices

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--An increase in demand for natural gas and the rise in U.S. exports of liquefied natural gas are considerably bearish and will likely show up at the consumer level, the Federal Reserve Bank of Dallas said.

Henry Hub, the U.S. benchmark for the price of natural gas, was trading near $3.80 per million British thermal units (MMBtu) on Friday, compared to an average of $2.20 per MMBtu last year. Prices were tested in the early stages of 2025 by inclement weather, with early January storms followed by successive events that ended with rare snowfall along the U.S. Gulf Coast.

Though recently curtailed by the inclement weather in the U.S. south, exports of liquefied natural gas (LNG) have been record-setting and could increase even further given expectations of new infrastructure.

Both demand and exports have been supporting prices since at least November, the Dallas Fed found.

"This natural gas price increase--along with heating demand in both power and natural gas markets--likely drove an increase in the cost of power to residents since," it said.

The U.S. Energy Information Administration (EIA), the data arm of the Energy Department, expects Henry Hub to average $3.10 per MMBtu this year, and climb to $4 by next year.

Domestic supplies remain ample. EIA in its monthly market report for January put the 2025 total average production at 113 billion cubic feet per day (Bcf/d), driven largely by the Appalachia Basin spread out over parts of Pennsylvania, West Virginia, Ohio and New York. Total production is expected to climb to 114.5 Bcf/d by next year.

The EIA expects domestic consumption would be at about 80% of total production, though the United States does import natural gas. Data from IIR Energy show Canada delivered about 7 Bcf/d on average last year, though that's been closer to 10 Bcf/d this year.

Demand was up during a recent cold snap that brought below-freezing temperatures to parts of Texas. The Electric Reliability Council of Texas, which runs most of the state's grid, was able to keep the lights on, though winter weather presents unique challenges with early-day demand surges that can't be satisfied by the likes of solar power.

"In severe cold, even natural gas supplies can become strained as infrastructure freezes," the Dallas Fed added.

On top of the surge in demand during inclement weather, U.S. exports of LNG are starting 2025 at the top of the heap, long besting the likes of Australia and Qatar. As of Friday, data from IIR Energy show U.S. LNG exports were around 13.8 Bcf/d, and that's with weather-related curtailments.

Exports this year should be about 15% more than 2024. The expected price surge in the U.S. market, meanwhile, should be paralleled internationally, according to the Dallas Fed.

While the United States is the world leader in LNG exports, the Dallas Fed pointed to expectations of a tight market through 2025 as the international community works to address ongoing issues in Europe brought on by Russia's invasion of Ukraine.

Russia before the war in 2022 was a main supplier of natural gas to Europe, though it's now left to others to fill the void due to sanctions-related restrictions.

"All else equal, this would keep upward pressure on international natural gas benchmarks over that time," the bank's report read.

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