As we continue into the winter season, Vicinity is evaluating weather patterns and trends in the natural gas market to inform our customers of price volatility and future predictions.
After a stretch of colder-than-average temperatures in December 2024 and January 2025, natural gas prices climbed steadily, driven by extreme cold, surging demand, and reduced storage levels. According to the National Oceanic and Atmospheric Administration (NOAA), January 2025 was the coldest month of January in the U.S. in 37 years, with temperatures averaging 0.89°F below the 20th-century norm.
Vicinity carefully considers and implements risk mitigation strategies to ensure both reliability of supply and the lowest possible commodity deployment to limit exposure to volatile energy markets. During the recent polar vortex, Vicinity was able to leverage backup distillate fuel supplies. As fuel prices fluctuate, district energy customers can rely on Vicinity’s multiple fuel sources to ensure reliable energy delivery and redundancy.
By the numbers: what we know and what we can expect
During the cold snap from January 18-21, natural gas prices in the Lower 48 soared, with the benchmark Henry Hub spot price more than doubling to $10.07/MMBtu. Grid operator PJM set a record winter peak load of 145 GW on Jan 22, 2025, breaking the previous winter seasonal peak record set in February 2015. The extreme cold drove a sharp increase in demand, while production well freeze-offs further tightened supply, pushing spot gas prices well above seasonal norms across much of the country. In January 2025, the Henry Hub spot price of natural gas averaged $4.62/MMBtu, marking an increase of $0.59/MMBtu compared to January 2024.
While the primary reason for increased gas prices is cold weather, there are several additional factors that also contribute to the recent price increases.
Natural gas storage levels are a critical indicator of natural gas prices, and this year’s trends highlight the market’s sensitivity to supply constraints and demand increase. Because last year’s winter was mild, storage levels were high. However, with this year’s weather events, increased demand for natural gas has been seen in power generation, residential consumption and LNG export sectors, contributing to larger natural gas withdrawals from storage than in previous years.
In January 2025, natural gas storage inventories shifted from a surplus to a deficit relative to both last year and the five-year average, highlighting the significant withdrawals driven by strong winter demand.
Additionally, the completion of two major LNG export terminals at the end of last year has further driven up natural gas demand. Venture Global’s Plaquemines and Cheniere’s Corpus Christi Expansion became operational in December 2024, adding over 2 Bcf of LNG feed gas demand to the market. Looking ahead, U.S. LNG exports are expected to rise even further, with ExxonMobil and Qatar Energy’s 2.05 Bcf/day Golden Pass LNG terminal slated to begin operations by late 2025 or early 2026.
Year-to-date U.S. natural gas production is averaging around 103 Bcf/day, marking a slight increase from last year. This growth is largely driven by expanded pipeline infrastructure that has improved producers’ access to markets. Notable projects include the Matterhorn Express in the Permian Basin and the Mountain Valley Pipeline (MVP).
Looking to the future
If colder-than-average temperatures persist, February and March 2025 could see upward price pressure. Sustained freezing temperatures can lead to production well freeze-offs and constrained interstate pipeline capacity, limiting supply on high-demand days and driving increased natural gas demand.
Based on the U.S. Energy Information Administration’s EIA’s February 11, 2025 Short-Term Energy Outlook, the EIA expects natural gas prices to average $3.80/MMBTU for 2025 and $4.20/MMBTU in 2026 up from historically low average of around $2.20/MMBTU in 2024.
The EIA projects steady growth in natural gas production, with output expected to reach 104.5 Bcf/day in 2025 and increase nearly 3% to 107.2 Bcf/day in 2026. This growth is largely driven by rising associated gas production in the Permian Basin and stronger price expectations in the Haynesville Shale, fueled by robust LNG export demand from both new and expanding projects along the U.S. Gulf Coast.
Electrification progress
Throughout 2024, Vicinity has remained committed to transitioning our district energy systems away from fossil fuels and has made significant progress electrifying our operations.
In November 2024, Vicinity officially began providing eSteam™, the first carbon-free thermal energy solution in the U.S., to our Boston and Cambridge system. This milestone followed a swift two-year journey from concept to execution, with the successful inauguration of Vicinity’s 42MW industrial-scale electric boiler, which is now operational at our Cambridge, MA, facility.
In the coming years, we will continue to transform our facilities across the country by electrifying our operations with innovative technologies such as industrial-scale electric boilers, heat pumps, and thermal storage systems.
The information in this blog post is for informational purposes only and is based on sources believed to be reliable. However, Vicinity does not represent or warrant as to its accuracy or completeness. This content does not constitute financial, investment, or trading advice. Any decisions based on this information are made at your own risk. Vicinity is not responsible for any errors, omissions, or reliance on this material.
