Gas Prices Fall After Warm Spell, Demand Still Strong

Key Moments

Natural gas and proxies such as US Natural Gas Fund ETF (NYSE: UNG) have dropped nearly 60% over the past five years after a war-driven price spike in 2022.
Warmer February weather expectations triggered about a 15% slide in natural gas prices on Sunday evening following a sharp, cold-driven run-up.
Rising AI data center power demand, expanding U.S. LNG export capacity, and coal-to-gas substitution are presented as key long-term bullish drivers.

Macro Backdrop: From War Rally to Supply-Heavy Pullback

Natural gas prices surged in 2022 after the war between Russia and Ukraine, but that rally has since reversed as the market contends with record-high U.S. output, milder-than-expected winter seasons, and improvements in drilling technology. These factors have contributed to a notable supply/demand imbalance.

Over the last five years, natural gas and related vehicles such as the US Natural Gas Fund ETF (NYSE: UNG) have fallen nearly 60%. This drawdown has reinforced natural gas’s long-standing reputation as a “widow maker” for traders and investors.

Weather Shift Hits Prices

After a recent, sharp advance driven by cold temperatures, natural gas faced a sudden reversal when forecasts turned warmer. A shift to milder expectations for February reduced short-term demand projections and triggered about a 15% drop in natural gas prices on Sunday evening.

Despite this setback, the article outlines several supportive forces that could underpin a significant rebound in natural gas, potentially resembling the dynamics seen in 2022. The case for a constructive long-term view centers on three main themes.

1. AI Data Centers Intensify Power Needs

The buildout of artificial intelligence data centers is described as the largest infrastructure expansion in history. Citing Grand View Research, the piece notes that the data center construction market reached more than $250 billion in 2025 as major “hyperscalers” such as Alphabet (NASDAQ: GOOGL) and Microsoft (NASDAQ: MSFT) compete for leadership in AI. Projections point to the AI data center construction market increasing to $450 billion by the end of the decade.

Recent commentary from Jensen Huang, the CEO of Nvidia (NASDAQ: NVDA), underscores this momentum. Huang spoke at the World Economic Forum (WEF) 2026 in Davos, Switzerland, where he dismissed concerns about an AI bubble, pointing to rising spot prices for GPUs – including older models – and the difficulty of securing rental capacity. He also stated that there are trillions of dollars poised to support the next generation of advanced AI models.

While hyperscalers accelerate AI investment, they face a critical challenge in securing sufficient power. Electricity prices are rising as AI data center power needs are expected to double by the end of the decade. Although there is significant attention on renewable and nuclear options, the article notes that these alternatives involve higher initial capital costs. For now, natural gas is framed as the most practical source of reliable, large-scale, and relatively low-cost electricity.

2. U.S. LNG Capacity Targets Global Markets

The article highlights the role of upcoming U.S. Liquefied Natural Gas (LNG) export infrastructure. Several large LNG export terminals are expected to come online in 2026, enabling U.S. producers to ship more natural gas to Europe and other international markets.

With domestic gas prices described as lower in the U.S. than in Europe, U.S. suppliers are viewed as well-positioned to increase shipments abroad. This redirection of supply could absorb more domestic production and, in turn, help establish a firmer floor under U.S. natural gas prices.

The policy backdrop is also mentioned. The Trump Administration is described as focusing on an “American Energy Dominance” strategy and securing multiple long-term LNG contracts with countries including Japan and Qatar. These arrangements are characterized as helping to create “sticky” demand for U.S. LNG.

3. Natural Gas Positioned to Replace Declining Coal

According to data cited from the U.S. Energy Information Administration (EIA), U.S. coal production fell 11.3% year-over-year, with the number of coal-producing mines dropping from 560 to 524. As coal capacity declines, many countries are turning to renewable energy sources such as solar.

However, the article argues that renewables alone are not yet sufficient to fill the gap left by coal. For now, natural gas is presented as the primary solution, largely due to its practicality, cost effectiveness, and the fact that it emits roughly half as much CO2 as coal.

Price Action and Technical Perspective on UNG

From a technical standpoint, the article points out that the US Natural Gas Fund ETF (NYSE: UNG) recently advanced from $10 to $16.90 over the past few weeks. The subsequent shift to warmer weather expectations has raised the possibility of a pullback.

UNG is described as likely to retest its 200-day moving average following the sudden change in temperature forecasts. Market participants with a bullish view are watching to see whether this 200-day moving average area can hold during the week.

Instrument / Metric	Recent Level / Change	Context
Natural gas & proxies (e.g., UNG)	Nearly -60% over past five years	Reversal of 2022 war-driven surge amid high U.S. production and warm winters
UNG price move (recent weeks)	$10 to $16.90	Rally prior to warmer-weather-driven pullback
Coal production (U.S.)	-11.3% year-over-year	Coal mines declined from 560 to 524

Strategic Takeaway for Investors

The article concludes that natural gas remains highly volatile in the short term and extremely sensitive to weather developments. Nonetheless, it argues that underlying fundamentals are shifting toward a more constructive long-term narrative.

Between escalating power requirements from AI data centers, rising U.S. LNG export opportunities, and natural gas’s role in replacing declining coal capacity, the piece suggests that structural demand for natural gas is poised to grow over time.

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This article originally published on Zacks Investment Research (zacks.com).