EIA Raises Henry Hub Outlook But Spot Gas Lags the Forecast by 65 Cents
The July short-term energy outlook revised both 2026 and 2027 projections upward; mild weather and rising supply are keeping the front-month contract at $2.84.
The NYMEX Henry Hub front-month contract was trading at $2.84 per million British thermal units as of July 20 — roughly 65 cents below the EIA's full-year average forecast of just under $3.50/MMBtu for 2026. The gap has opened since the U.S. Energy Information Administration raised its Henry Hub spot price projections for both 2026 and 2027 in its July Short-Term Energy Outlook, released earlier this month.4,2
The immediate drag is weather. Eli Rubin of EBW Analytics Group said in a note sent to Rigzone on Tuesday (2026-07-15) that "milder weather" was undermining near-term fundamentals, compressing cooling-load demand and leaving the gas market with less physical tightness than needed to push prices toward the agency's annual average.4
Supply is adding to the pressure. Lower 48 marketed natural gas production averaged 117.2 billion cubic feet per day in the first quarter of 2026, up 4% year-on-year, according to EIA data. The agency forecasts L48 output to grow a further 3% for the full year against 2025, with gains weighted to the second half as pipeline constraints that compressed first-half volumes are expected to ease.1
The Permian Basin is the principal supply driver. EIA projections put Permian output at 29.2 Bcf/d in 2026, 6% above 2025 levels, before accelerating to 10% growth in 2027 as midstream infrastructure catches up. Haynesville, the dry-gas formation most sensitive to price signals, is forecast to grow 6% this year and 8% next year — a trajectory that will either be absorbed by rising LNG feed-gas demand or weigh on prices if export pull proves insufficient to clear the volume.1
The EIA's upward revision rests on the LNG export premise. New export capacity brought online through 2025 and into 2026 has raised U.S. feed-gas demand, providing a floor beneath Henry Hub prices and drawing volumes toward Atlantic export terminals. Without that offshore demand anchor, the supply increments from both formations would almost certainly keep prices well below the $3.50 forecast average.2
Morgan Stanley has staked out a position well above even the EIA's revised outlook. The bank has argued that Henry Hub could surge to $5/MMBtu under a scenario of stronger-than-expected LNG demand — roughly $1.50 above the EIA's forecast and more than $2 above the NYMEX front-month level as of July 20. That spread reflects genuine uncertainty about export terminal utilization rates and the pace at which new liquefaction capacity ramps to full throughput.2
But the EIA's own supply narrative contains a timing caveat. The agency expects pipeline constraints suppressing Permian first-half output to be "alleviated later this year," with associated natural gas from crude production also picking up as higher crude prices incentivize further drilling. If that relief arrives on schedule, total L48 supply could increase materially through autumn, capping any third-quarter recovery in spot prices before winter heating demand arrives.1
Higher Henry Hub prices would pass through into U.S. power market costs. Natural gas generation sets the marginal clearing price across large portions of the domestic grid on high-demand days, and a sustained move toward $3.50 would lift regional wholesale power prices accordingly. The current level is keeping gas-fired generation competitive and holding power costs in check.3
The consensus signal across 31 market indicators is mixed, with bearish weight at 1.81 outpacing bullish weight at 1.29 — a spread that reflects the same tension between EIA's annual average target and the current front-month reality. Production growth baked into the agency's own supply estimates points in the other direction: more gas is coming to market, LNG exports are the primary absorption mechanism, and whether that outlet can take the volume at prices above $3 will determine whether the July upward revision holds or yields to a further downgrade.4,1