Natural gas prices have dropped sharply, falling from around $4.19 per million BTU in February 2025 to roughly $1.72 in February 2026, a decline of nearly 60%. The collapse is driven by a combination of record-breaking U.S. production, stagnant export growth, and mild demand conditions that have kept the market oversupplied.
Record Production Is Flooding the Market
The single biggest factor pushing prices down is how much gas the U.S. is producing. Dry natural gas production hit 107.7 billion cubic feet per day (Bcf/d) in 2025, the highest annual total on record going back to 1930. That was a 4.5% jump from 2024’s already elevated output of 103.1 Bcf/d. In December 2025 alone, daily production reached 111.6 Bcf/d, the highest for any single month since tracking began in 1973.
This surge happened even as the number of active drilling rigs fell. The natural gas rig count dropped 23% and bottomed out at just 96 rigs in September 2024, yet production kept climbing. The explanation is efficiency: producers are extracting more gas per well than ever before, thanks to longer horizontal wells, faster drilling times, and improved completion techniques. A lot of gas also comes as a byproduct of oil drilling in regions like the Permian Basin, meaning production continues regardless of gas-specific economics.
LNG Exports Failed to Absorb the Surplus
Liquefied natural gas exports were supposed to be the release valve for all this extra supply. The U.S. is the world’s largest LNG exporter, but export volumes in 2024 were essentially flat compared to 2023. Several unplanned outages at existing export terminals, lower gas consumption in Europe, and very limited new export capacity since 2022 all contributed. When gas that would otherwise leave the country stays in the domestic market, it adds to the supply glut and pushes prices lower.
Global dynamics also played a role. European and Asian gas prices have become tightly linked through LNG trade. The correlation between Europe’s TTF benchmark and Asia’s JKM benchmark reached 95% in 2024, an all-time high. When demand softened in both regions simultaneously, there was less pull on U.S. supplies from overseas buyers, leaving more gas competing for domestic buyers at lower prices.
Storage Levels and Seasonal Demand
As of late February 2026, working gas in underground storage sat at 2,018 billion cubic feet, roughly 141 Bcf higher than the same week a year earlier and nearly in line with the five-year seasonal average of 2,025 Bcf. That might sound balanced, but the context matters: storage being close to average while production is at record highs signals that demand hasn’t kept pace with supply growth.
On the demand side, several regions shifted their electricity generation mix away from natural gas in late 2025. The Mid-Atlantic, Central, Southeast, and Florida regions all increased their share of coal-fired power at the expense of gas in December 2025, likely responding to the relative economics of each fuel. When utilities burn less gas for electricity, it frees up supply that has to go somewhere, reinforcing lower prices.
What Analysts Expect Next
The Energy Information Administration’s latest forecast projects Henry Hub prices will average about $4.31 per MMBtu in 2026 and nearly $4.40 in 2027. Those figures may seem surprisingly high compared to the sub-$2 prices seen in early 2026, and they reflect an expectation that the market will tighten as the year progresses. New pipeline capacity coming online in the Permian Basin during the second half of 2026 is expected to help move gas to market more efficiently, while producers are forecast to ramp up drilling activity in response to the earlier price signals.
Overall U.S. dry gas production is projected to grow about 2% in 2026 and 1% in 2027, a slower pace than the 4.5% surge seen in 2025. The EIA expects price increases to moderate as that additional drilling activity brings more supply online, creating a feedback loop: higher prices encourage more production, which eventually caps how high prices can go.
Why Prices Can Stay Low Despite Low Rig Counts
One of the more counterintuitive aspects of the current market is that prices collapsed even though drilling activity dropped significantly. The natural gas rig count fell to 96 at its lowest point, yet production set records. This disconnect comes down to how much more productive each rig has become. A single well drilled today can produce several times what a similar well produced a decade ago. Associated gas from oil wells in shale basins adds further supply that isn’t sensitive to gas prices at all, since operators are drilling primarily for oil revenue.
This structural shift means the old relationship between rig counts and production has weakened. Prices can stay low for longer than historical patterns would suggest, because the supply response to falling prices is slower and less dramatic than it used to be. Producers don’t need to add many rigs to meaningfully increase output once conditions improve, which is exactly what the EIA forecasts for the second half of 2026.