As U.S. oil production continues to slow, the soaring natural gas prices have paved the way for a rebound in U.S. gas production this year. After several months of production cuts in 2024, U.S. gas producers are accelerating their drilling activities due to sharply depleting inventories, a surge in liquefied natural gas (LNG) exports, and skyrocketing prices, signaling a potential “production wave” for the industry.
Over the past year, U.S. natural gas benchmark prices have risen by 160%, surpassing $4.26 per million British thermal units (MMBtu) last week, more than doubling from under $2 last year. This surge is driven by multiple factors: a slowdown in gas production last year, increased heating and power generation demand due to harsh winter conditions, and record gas consumption at LNG export facilities.
According to the U.S. Energy Information Administration (EIA), while natural gas inventories were at their highest level since 2016 at the start of the winter heating season in November last year, they have rapidly depleted to levels below the five-year average after experiencing the coldest winter in six years, and they are considerably lower than at the same time in 2024 (at the end of a milder winter). Simultaneously, domestic consumption and LNG export demand have surged, driving the inventory withdrawal rate 25% higher than the five-year average.
Faced with rising prices, gas producers are responding swiftly. When gas prices fell to multi-year lows last spring, several companies voluntarily cut production to address market oversupply. However, some producers had already stocked “ready-to-go gas wells” in anticipation of a price rebound to release capacity quickly.
Recent industry activity confirms this strategy: Baker Hughes reports that as of the week ending February 25, the number of gas rigs in the U.S. increased to 102, up by 3 rigs in one week; the EIA reported a 2.1% increase in U.S. dry gas production for the week ending March 5, reaching an average of 10.62 billion cubic feet per day (Bcf/d).
On the demand side, robust growth in LNG exports provides long-term support for gas prices. In December 2024, Venture Global’s Plaquemines LNG project shipped its first commissioning cargo, while Cheniere Energy’s Corpus Christi Stage 3 liquefaction project also began operations during the same month. Although these facilities are still in the commissioning phase, they have started drawing natural gas and exporting it overseas.
The industry expects natural gas prices to strengthen further in 2025 with more LNG export facilities coming online and global demand rising. Analysts point out that the current U.S. energy market shows a “strong gas, weak oil” pattern. In contrast to the languishing international oil prices (WTI crude dipping below $70 per barrel) and political uncertainties dampening oil production willingness, the price signals in the natural gas market are clearer, providing strong motivation for producers to boost output.
Industry commentary suggests that the U.S. natural gas sector may enter a “Drill, Baby, Drill!” production cycle. If the inventory tightness and export demand continue this winter, this price-driven surge in production could reshape the landscape of U.S. energy supply.
