Natural gas loses momentum despite geopolitical risks: Will prices recover?

Why Are Natural Gas Prices Under Pressure?

The primary reason behind the recent decline is abundant supply. The United States continues to produce natural gas at near-record levels from major shale basins, while new LNG export projects in the U.S., Qatar, and other producing nations have significantly increased global availability. The International Energy Agency expects global LNG supply growth in 2026 to be the strongest since 2019, helping to ease concerns about shortages.At the same time, storage inventories in key consuming regions remain healthy. Ample inventories have reduced fears of supply disruptions and limited speculative buying. Consequently, traders are paying greater attention to production and storage data than to geopolitical developments.

Why Have U.S.-Iran Tensions Not Lifted Prices?

Historically, geopolitical tensions in the Middle East have boosted energy prices, particularly crude oil. However, the natural gas market has become increasingly diversified. LNG supplies now come from multiple regions, including the United States, Qatar, Australia, and emerging exporters, reducing dependence on any single source. Moreover, modern LNG markets are highly flexible, allowing cargoes to be redirected quickly to regions facing shortages.Importantly, the current tensions have not disrupted major gas production facilities or LNG shipping routes. In the absence of actual supply losses, traders have been reluctant to add a significant geopolitical premium to gas prices.

Weather Remains the Key Driver

Weather continues to be the most important short-term factor affecting natural gas prices. The rally seen in late January was largely triggered by severe winter conditions in North America, which boosted heating demand and accelerated withdrawals from storage. Once temperatures normalized, demand weakened considerably, removing a major source of price support.## Role of Natural Gas in the Energy Transition

Despite current weakness, the long-term outlook for natural gas remains relatively strong. Many nations view gas as a transition fuel because it emits less carbon dioxide than coal while providing reliable power generation. As a result, countries continue replacing coal-fired power plants with gas-based facilities as part of their decarbonization efforts.Natural gas also complements renewable energy sources such as solar and wind by providing backup power when renewable generation fluctuates. Rising electricity demand from data centers, artificial intelligence infrastructure, and industrial electrification is expected to support gas consumption for years to come.

Demand Outlook in the U.S., Europe and China

The United States continues to witness robust gas demand from power generation and LNG exports. Expanding export terminals are creating new demand channels, helping absorb a portion of the country’s growing production.Europe remains heavily dependent on LNG imports following the decline in Russian pipeline supplies. Although economic growth remains modest, demand for LNG continues as governments prioritize energy security.

China remains one of the most important growth centers for global natural gas demand. Rising industrial activity and policies aimed at reducing coal consumption are expected to support higher LNG imports and gas usage in the coming years.

Storage, Production and Price Outlook

Global natural gas production remains abundant, while inventories are sufficient to meet near-term demand. Coupled with a surge in LNG capacity additions, the market appears comfortably supplied for now. This has capped upside potential despite geopolitical uncertainty.Looking ahead, prices will remain highly sensitive to weather patterns, storage trends, and LNG export demand. A colder-than-normal winter or unexpected supply disruption could trigger a recovery. However, if production remains strong and inventories stay comfortable, prices may continue to trade in a broad range. Rising LNG exports and stronger Asian demand should provide some long-term support, but a significant rally is unlikely unless the supply-demand balance tightens meaningfully.

(The author Hareesh V is Head of Commodity Research, Geojit Investments)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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