The US natural gas market follows predictable medium-term cycles: periods of excess supply and low prices are regularly followed by periods of shortages and rising prices. Using data from 2007 to 2025, this article demonstrates how the state of the market and natural gas storage reserves reflects the dynamics of the transition between these phases.
By 2027–2028, the market is expected to exit its current surplus configuration and enter a structural deficit, triggering a new round of growth in natural gas prices in the US.
The price dynamics of the US natural gas market are clearly cyclical: periods of excess supply and falling prices are naturally followed by periods of shortages and growth, forming a multi-year “energy pendulum.”
Price cycles in the natural gas market: economic nature and patterns
The natural gas market, like most commodity markets, is subject to cyclical development laws. Natural gas prices don’t move in a straight line; they fluctuate, creating multi-year waves of ups and downs. These fluctuations reflect the natural dynamics of supply, demand, and capital investment in natural gas production and storage and transportation infrastructure.
This process is based on a simple but universal principle of commodity economics: high prices create surpluses, while low prices create shortages. When natural gas prices rise, producers invest aggressively, drill new wells, and increase production. After a while, the market becomes saturated, supply exceeds demand, and prices begin to decline. Falling prices, in turn, make production less profitable — producing companies scale back their operations and close unprofitable projects. After one to two years, this leads to a reduction in natural gas supply, and a recovery in demand pushes prices back up. This creates a vicious cycle of self-reinforcement and self-correction, characteristic of all commodity markets — from copper and agricultural commodities to natural gas.
Natural gas delivered through the Henry Hub is a particularly striking example of this pendulum-like price behavior. Here, the cycles are particularly pronounced because the natural gas market combines:
- high capital intensity of production and infrastructure (the price response is delayed by a year and a half)
- seasonal volatility of demand (heating in winter, air conditioning in summer)
- a complex storage system — natural gas cannot simply be "stored" without significant losses, so excess storage quickly puts pressure on the spot price
- long-term investment lags, which suggest that up to two years pass between the rise in natural gas prices and the commissioning of new capacity.
All this makes the natural gas market susceptible to periodic inflections. When production grows faster than demand, prices fall, creating a phase of surplus. When production fails to keep pace with consumption or exports, a phase of deficit ensues. These phases alternate with a characteristic amplitude every 3-5 years, creating recurring price cycles that are clearly visible on charts.
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If we look at the history of the US market over the past two decades, we can identify several such historical cycles of the US natural gas market.
Cycle 1. Surplus 2008–2012 → deficit 2013–2014. After the "shale revolution" of 2008–2009, gas production in the US grew explosively.
Supply exceeded domestic demand, leading to a sharp price decline — in April 2012, the price fell below $2/MMBtu, a decade-low. However, by the winter of 2013–2014, cold weather and rising heating demand had caused a severe shortage: inventories dwindled, and prices temporarily rose above $6/MMBtu. This cycle became the first clear example of a market self-correction following a glut caused by a technological leap in production.
Cycle 2. 2015–2016 Surplus → 2017–2018 Growth. Following the 2014 recovery, producers ramped up production again, leading to a renewed surplus in 2015–2016. A mild winter and full storage capacity pushed prices down to $1.7/MMBtu — the second significant low of the decade. A decline in drilling activity and rising LNG exports in 2017 gradually restored the balance. By 2018, prices stabilized in the $3–4/MMBtu range, and the market entered a moderate growth phase.
Cycle 3. 2020 surplus and low → 2021–2022 deficit. In 2020, the market faced an unprecedented combination of factors: a warm winter, a pandemic, and a decline in industrial demand. With record production and weak consumption, Henry Hub prices collapsed to $1.5/MMBtu — the lowest since the late 1990s.
However, the subsequent decline in drilling and the global economic recovery in 2021 quickly changed the picture. By 2022, due to rising LNG exports and the energy crisis in Europe, the US faced a tight balance sheet, with prices exceeding $8–9/MMBtu. This cycle became the sharpest in amplitude on record.
Cycle 4 (Current Situation). Surplus 2023–2025 → Projected Deficit 2027–2028. By 2025, the US natural gas market is in a phase of significant surplus, driven by the following factors:
- production remains at a historical high of about 107 billion cubic feet per day
- reserves exceed the norm and amount to 3.6 trillion cubic feet
- The structure of the futures curve remains in wide contango (around 30%), reflecting excess supply on the spot market.
Fundamental market forces are already laying the groundwork for a slow but structural contraction in supply and a transition to a new price shortage cycle in 2027–2028. Historical patterns show that such market conditions typically precede the transition to a new growth cycle, as occurred in 2016 and 2020.
Thus, the presented data indicate that the US natural gas market exhibits a repeating pattern: "surplus → balance → growth → overheating → excess".
Each downturn lays the foundation for the next upturn: low prices reduce investment in production, reducing supply. Rising domestic and export demand eventually transforms the surplus into a deficit. The historical periodicity of 4-5 years makes market behavior predictable in its structure, although the specific amplitudes depend on weather, macroeconomic conditions, and exports. In the fall of 2025, the market is in the late stages of the surplus phase. If this pattern continues, the US will enter a new deficit phase in 2027-2028, accompanied by rising natural gas prices and investment in production.
The Energy Pendulum Swings: How the US Natural Gas Market is Preparing for a 2028 Shortage
The US natural gas market is currently in a state of glut. Production is at an all-time high of approximately 107 billion cubic feet per day, inventories are above normal (3.6 trillion cubic feet), and the futures curve remains in wide contango — approximately 30% of the spot price to the near-out futures expiring in October 2025, which follows the closest October futures contract. This situation is putting pressure on spot prices (around $3.1/MMBtu) and creating the perception that cheap gas is here to stay.
However, market history shows the opposite: periods of abundance always become the starting point of the next price cycle. Let’s consider how the natural gas market will reach equilibrium in 2026 and the signs of a nascent shortage in 2027–2028.
Slowing production. After two years of record drilling, companies have begun to scale back. According to Baker Hughes, the number of gas drilling rigs in 2025 has fallen by approximately 15% compared to 2023. New wells are failing to compensate for the decline in flow rates from older wells, and overall production growth is slowing. Experience from past cycles — 2012, 2016, and 2020 shows that after a decline in drilling, the market typically transitions to a decline in production with a lag of 1.5 to 2 years. This means that production will likely begin to gradually decline in 2027.
Exports as a New Pressure Point. While US production is slowing, the export channel is expanding. Several large LNG plants — Golden Pass, Plaquemines, Corpus Christi Stage III, Port Arthur, and Driftwood LNG are scheduled to open in the US in 2026–2027. As a result, export capacity will increase by approximately 6–7 billion cubic feet per day, or nearly 6–7% of total US production. By 2028, total gas exports (in the form of LNG and via pipelines) could reach 20% of national production. In other words, every fifth cubic meter of US gas will go abroad, primarily to Europe and Asia, where prices are two to three times higher than domestic prices.
Growing Demand Within the US. Domestic gas consumption in the US continues to grow due to the energy transition. Gas is steadily displacing coal in the generation mix — its share in electricity production already exceeds 40%, and new gas-fired power plants continue to be commissioned. Industrial applications, including chemicals, fertilizers, and metallurgy, are also actively using cheap gas. This additional demand adds 1–1.5 billion cubic feet per day annually.
When these trends are combined, the picture becomes more predictable. Natural gas supply, amid declining drilling activity, is beginning to slowly decline, while exports and domestic demand are steadily growing. Meanwhile, gas reserves in storage facilities are decreasing slightly each year. Current estimates suggest that by the end of 2026, the market will exit excess supply and enter balance, and by 2027–2028, it will enter a phase of moderate but persistent deficit. By this point, production could decline to approximately 103 billion cubic feet per day, exports could rise to 20 billion cubic feet, reserves would fall below 3.4 trillion cubic feet, and natural gas prices would stabilize in the range of $4–5/MMBtu, with spikes to $7–8 possible during the cold winter months.
The proposed forecast dynamics are fully consistent with the patterns of past years and align with the historical logic of the cycle. This was the case in 2012–2014, 2016–2018, and 2020–2022, when the market moved from deep surplus and rock-bottom prices to deficit and sharp price increases over 24–36 months. Consequently, 2023–2024 can be viewed as the current cycle’s nadir, and 2027–2028 as the likely period for a new price rise.
Using Cyclical Patterns of the Natural Gas Market in the Algebra Auto-Following Strategy
Even under a moderate scenario, the market will be significantly more strained by the end of the decade than it is today. Natural gas inventories will decline, and the futures curve will flatten, moving from contango to backwardation. This is how a phase of shortage is taking shape — a natural response to years of excess supply and low prices. The history of the US gas market will likely repeat a familiar rhythm: excess → balance → growth → overheating → new excess.
Judging by the dynamics of current indicators, the next upswing will occur in 2027–2028, when the energy pendulum will swing back toward shortages and rising prices. For the Algebra auto-following strategy, such cycles are not just an analytical backdrop, but the foundation of the trading approach. The model tracks the shape of the futures curve and the statistical characteristics of the spreads between near- and far-term contracts (the nearest front futures contract NG1 and the following near-out futures contract NG2).
When contango reaches extreme values, the strategy considers the market oversold, locks in short positions, and gradually transitions to a neutral or long structure. Thus, Algebra uses the cyclical pattern not to predict future levels, but to systematically respond to market phases: widening contango signals excess, while narrowing and inversion indicate a shift toward rising natural gas prices.
Assessing and understanding the phase of cycles allows the Algebra strategy to remain resilient during both periods of surplus and reversals to deficit, minimizing the impact of short-term price noise in the natural gas market.
The market behavior assessments and price forecasts presented in this study are based on historical data and observed patterns and do not constitute direct investment forecasts or trading recommendations. However, understanding the recurrence of cycles and the ability to utilize this in trading algorithms remains a key advantage for effective natural gas futures trading.
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