Natural Gas Market Faces Headwinds as Storage Surplus Expands

The latest storage update from the U.S. Energy Department revealed a natural gas injection significantly surpassing both market predictions and the five-year average. This substantial build, coupled with reduced weather-driven demand and diminished LNG exports, exerted downward pressure on prices, resulting in a nearly 2% decline for the commodity over the week. Nevertheless, analysts maintain an optimistic outlook, citing that robust industrial consumption, steady U.S. production, and increasing LNG exports are likely to tighten supply-demand dynamics, potentially supporting stronger natural gas pricing as the market progresses into 2026.

At present, we suggest investors consider focusing on companies such as The Williams Companies (WMB), Cheniere Energy (LNG), and Excelerate Energy (EE).

Storage Report Exceeds Market Expectations

Underground storage facilities in the lower 48 states experienced an increase of 90 billion cubic feet (Bcf) for the week concluding Sept. 12, surpassing analysts' projections of a 78 Bcf addition. This increase exceeded both the five-year (2020-2024) average net injection of 74 Bcf and the previous year's growth of 56 Bcf for the corresponding period.

Following this latest injection, total natural gas inventories reached 3,433 Bcf, marginally below the 2024 level by 4 Bcf (0.1%), but 204 Bcf (6.3%) above the five-year average.

The aggregate natural gas supply averaged 111.8 Bcf per day, reflecting a 0.6 Bcf per day decrease on a weekly basis, attributed to a slight decline in dry production and reduced imports from Canada.

Conversely, daily natural gas consumption decreased to 98.5 Bcf from 99.6 Bcf in the preceding week, as diminished residential and commercial demand outweighed the uptick in power sector usage.

Natural Gas Price Movements

Throughout the week, natural gas futures exhibited volatility, fluctuating around the $3 threshold before ultimately closing lower. An injection exceeding expectations expanded the surplus above the five-year norm to over 200 Bcf, intensifying oversupply concerns. Milder weather patterns reduced cooling demand, while decreased LNG exports contributed additional downward pressure. October futures settled at $2.888 on the New York Mercantile Exchange last Friday, representing a 1.8% decline from the previous week. While the immediate outlook appears challenging for investors, long-term trends in LNG growth and industrial demand continue to suggest potential opportunities.

Market Outlook

Despite U.S. natural gas prices struggling to maintain levels above $3, the broader market context remains encouraging for investors. Although storage builds significantly exceed average levels, the resulting buffer mitigates downside risks and promotes market stability as we approach the colder months. Late-season heat waves have periodically boosted demand, moderating injections and providing some support for near-term pricing.

Looking ahead, industry experts anticipate a gradual upward trend in prices over the next 12 months, reflecting heightened LNG export demand and modest tightening as the shoulder season concludes. The long-term outlook continues to favor natural gas. Global demand growth, particularly in Asia, remains strong as countries prioritize electrification and grid reliability. Domestically, consistent production coupled with steady industrial consumption and expanding export capacity signals enduring opportunities. While short-term fluctuations may persist, the sector's role as a key transition fuel and its structural growth drivers should instill confidence in investors that natural gas is positioned for a more robust trajectory into 2026 and beyond.

For the time being, a cautious yet steady outlook appears warranted. Investors may wish to concentrate on companies with solid fundamentals and the adaptability to navigate short-term market fluctuations.

Three Stocks to Consider

The Williams Companies: As U.S. natural gas demand is projected to grow significantly in the long term, The Williams Companies appears well-positioned to capitalize on this trend, thanks to its impressive portfolio of large-scale, value-creating projects. With its extensive network handling a substantial portion of U.S. natural gas and significant expansion projects in development, the Zacks Rank #3 (Hold) company is poised to benefit from favorable industry dynamics and growth prospects.

The Zacks Consensus Estimate for the company's 2025 earnings per share suggests a 14.5% year-over-year increase. Williams has surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters, with an average beat of 2.5%.

Cheniere Energy: As the pioneering company to secure regulatory approval for LNG exports from its 2.6 billion cubic feet per day Sabine Pass terminal, Cheniere Energy enjoys a distinct competitive advantage. The company is well-positioned for substantial revenue and earnings growth, supported by robust operations and long-term contracts.

Cheniere Energy's Corpus Christi Stage 3 expansion is progressing well, with construction 68% complete and Train 1 scheduled for initial gas introduction by year-end. The Zacks #3 Ranked company's gas supply agreements for its Sabine Pass and Corpus Christi projects provide excellent cash flow visibility for the coming years.

Excelerate Energy: Headquartered in The Woodlands, TX, this company specializes in LNG infrastructure and services, with a focus on Floating Storage Regasification Units (FSRUs) and associated terminals. Operating across emerging and developed markets, Excelerate Energy represents a significant portion of the global FSRU fleet and regasification capacity. Established in 2003, the company aims to expand into LNG-to-power generation and gas distribution, offering reliable and flexible energy solutions worldwide.

The Zacks Consensus Estimate for Excelerate Energy's 2025 earnings per share indicates a 5.5% year-over-year growth. This #3 Ranked firm has demonstrated a track record of surpassing earnings expectations, with an average surprise of approximately 16.6% over the past four quarters.