Skip to main content

Natural gas futures have struggled to rebound recently after back-to-back mild winters have suppressed prices and left inventories in both the US and Europe very well stocked. Moreover, elevated levels of supply are expected to remain until some kind of disruption initiates a more aggressive drawdown in stockpiles. That disruption may come in the form of hiked-up electricity demand from data centers backing the increasingly rapid adoption of generative AI applications. 

New estimates suggest that additional natural gas demand required to power data centers could be equivalent to nearly a quarter of the gas currently being utilized in the power sector. Though the growth of electricity use in the US had been slowing for many years, the expansion of AI data centers is expected to upend this trend. As it stands, the US relies more heavily on natural gas-fired capacity than any other source of power generation.

Related ETFs: Energy Select Sector SPDR Fund (XLE), Invesco DB Oil Fund (DBO), United States Gasoline Fund, LP (UGA), United States Natural Gas Fund, LP (UNG)

Natural gas futures have gained a bit of momentum in April after Henry Hub spot prices recorded their lowest monthly price on record in March, but a multi-year buildup of massive commercial stockpiles in the western hemisphere continues to loom large over any potential bullish outlook. The US Energy Information Administration (EIA) estimated working natural gas inventories at 2,290 billion cubic feet (bcf) on March 31 – the end of the winter heating season. That was 39% above the previous five-year average as the US concluded its warmest winter on record, which severely suppressed demand for heating across the country.

In the most recent data, covering the week through April 12, US gas storage was up 22.2% YoY and still more than 36% above the five-year average. It will take some time to work through this increase, leading the EIA to expect gas inventories to remain “relatively high” and spot prices to stay “relatively low” through 2025. Natural gas futures were trading around $1.73 per million Btu on Wednesday morning, down about a quarter from the same time a year ago.

European gas storage is also brimming with supply, as EU stocks ended their own heating season in March at nearly 59% full, according to industry body Gas Infrastructure Europe. That is about 3 percentage points higher than a previous record high set last year. Europe’s gas storage sites are mandated by law to be at least 90% full by the start of November, but supplies were so plentiful last year that this target was…

To read the complete Intelligence Briefing, current All-Access clients, SIGN IN

All-Access clients receive the full-spectrum of MRP’s research, including daily investment insights and unlimited use of our online research archive. For a free trial of MRP’s All-Access membership, or to save 50% on your first year by signing up now, CLICK HERE