EIA March STEO: Henry Hub Forecast Cut 13% to $3.80/MMBtu as Mild Weather Resets Outlook

Why the Forecast Was Cut

Three factors drove the largest monthly downward revision in the 2026 STEO cycle:

• Milder-than-expected February temperatures: After Winter Storm Fern drove January spikes, February 2026 brought significantly warmer weather across most of the Lower 48. This resulted in higher-than-forecast storage levels entering the spring injection season, removing the supply tightness premium.
• Increased associated gas production: Recent rises in oil prices have lifted associated gas output from the Permian Basin. The EIA now projects U.S. dry gas production to grow 2% in 2026 and 3% in 2027 (the latter revised up from 1%).
• Limited Strait of Hormuz impact: While reduced LNG flows through the Strait of Hormuz have spiked European and Asian gas prices, the EIA projects minimal impact on U.S. domestic prices because U.S. LNG export facilities are already operating at near-maximum utilization rates. Additional U.S. export capacity won’t come online fast enough to absorb the arbitrage.

What This Means for Energy Buyers

The revised forecast creates a materially different procurement environment than existed just one month ago:

• Gas buyers: The spot-to-forecast spread has narrowed from 34% (at $2.83 vs $4.30) to 16% ($3.19 vs $3.80). Buyers who locked in at the February lows captured peak savings. The window is still open but closing as spring injection demand firms.
• Electricity buyers in gas-dependent ISOs: Forward electricity prices in PJM, ISO-NE, and NYISO are repricing around the $3.19 gas handle. Every $1/MMBtu move in gas translates to approximately $7-10/MWh in wholesale power costs. The lower gas forecast is net positive for power budgets.
• Budget planning: Any commercial energy budget built on the February STEO’s $4.30 assumption should be revised down 12-13%. This is material for high-consumption facilities.

Quarterly Breakdown

Source: EIA Short-Term Energy Outlook, March 2026; Natural Gas Intelligence; CME Group Henry Hub Futures.