U.S. natural gas sinks 6.2% on storage surplus and Freeport maintenance

U.S. natural gas futures posted their steepest single-day drop in more than three months as a larger-than-expected storage injection coincided with planned maintenance at Freeport LNG, temporarily removing a key outlet for swelling supply.

"The unexpected maintenance at Freeport temporarily reduces confidence in LNG feedgas demand at a time when the market needed exports to help offset strong production and elevated inventories," Gelber & Associates said in a note.

Front-month Nymex gas for August delivery fell 20 cents, or 6.2%, to settle at $3.012 per million British thermal units, the lowest close since May 27. The EIA reported that working gas in underground storage rose by 61 Bcf to 2,983 Bcf for the week ended July 3, well above the 49 Bcf consensus in a Reuters poll and the 51 Bcf five-year average. The surplus over the five-year average widened to 185 Bcf from 175 Bcf the prior week.

The combination of robust production and reduced LNG export capacity threatens to keep the market oversupplied through late August, even as a heat wave across much of the U.S. drives power-sector demand. About 40% of U.S. power generation comes from gas-fired plants, and meteorologists forecast above-normal temperatures through at least July 24.

Freeport LNG told Reuters it plans to begin major maintenance at its Texas plant from July 10 through late next month. The facility is one of the largest U.S. LNG export terminals, and its temporary shutdown removes roughly 2 Bcfd of feedgas demand from the market at a time when total LNG feedgas flows have averaged 17.8 Bcfd so far in July, up from 17.4 Bcfd in June but still below the April record of 18.8 Bcfd.

NatGasWeather.com said in a note that surpluses are expected to drop toward 150 Bcf or slightly under after the next several EIA reports account for the current hot U.S. weather pattern. "However, as we have seen with today's EIA report, wind generation can significantly alter anticipated build sizes," the firm said.

Supply and demand dynamics

LSEG data showed average gas output in the U.S. Lower 48 states slid to 109.7 Bcfd so far in July, down from 110.0 Bcfd in June and a monthly record high of 110.6 Bcfd in December 2025. Total U.S. demand, including exports, is projected to slide from 109.8 Bcfd this week to 109.1 Bcfd next week, the financial data provider said.

The supply picture is further complicated by the first cargo from the 0.4 Bcfd initial phase of Sempra Infrastructure and TotalEnergies' Energia Costa Azul LNG plant in Mexico, which shipped its first cargo destined for Asia. Analysts have said California gas consumers will now compete with Costa Azul for supply from the Permian shale basin in Texas and New Mexico, potentially tightening regional balances.

Outlook and price forecasts

Bank of America Global Research raised its Henry Hub price forecast for the second half of 2026 to $3.80 per mmBtu from $3.60, with analysts Clifton White and Francisco Blanch saying that while gas production continues to grow, it has been more than offset by LNG feedgas demand and other factors. They kept their 2027 estimate at $4 per mmBtu.

Still, the immediate path for prices remains skewed to the downside. The 61 Bcf storage injection was the largest for the week ended July 3 since 2021, and the 185 Bcf surplus over the five-year average gives the market a comfortable cushion heading into the peak summer cooling season. If Freeport's maintenance extends beyond late August as previously scheduled, the inventory surplus could persist into the autumn injection season, delaying the seasonal tightening that typically supports prices.

This article is for informational purposes only and does not constitute investment advice.