Influence of Coal and Renewables on Gas Demand
Gas demand is increasingly influenced by competition from coal and renewable energy sources. In 2025, high gas prices forced many U.S. utilities to shift back to coal. U.S. Energy Information Administration (EIA) reported a modest uptick in coal-fired generation in late 2025, marking the first increase in three years. This trend could persist if gas prices remain high in 2026.
In Europe, weak wind and hydroelectric output led to increased gas-fired power generation throughout the winter. However, renewable capacity is expected to expand further in 2026. More solar and battery installations may reduce peak-hour gas needs. However, gas will remain the key baseload and backup fuel during weather-driven shortfalls in renewable energy.
What to Expect in 2026
Natural gas prices are expected to remain firm in early 2026. The EIA forecasts the Henry Hub natural gas spot price will average $4.30/MMBtu this winter. Colder-than-expected weather in December is driving higher heating demand.
However, prices are likely to ease after March. The milder temperatures and rising U.S. production will help cool down prices. For the full year, the average price is projected to be near $4.00/MMBtu. This marks a stable outlook compared to the volatility of 2025.
Moreover, electricity generation is expected to increase by 1.7% in 2026. This growth primarily stems from large-scale data centres in Texas and the PJM region. This adds steady support to gas-fired demand. Moreover, coal use is expected to decline next year as renewable energy sources expand. Power generators are expected to shift away from coal after a temporary rebound in 2025. This could strengthen gas’s role as the preferred baseload fuel.
Bottom Line
Natural gas enters 2026 with strong momentum. The strong winter conditions, LNG exports, and geopolitical disruptions supported prices into late 2025. Moreover, the technical structures indicate a completed bottom and favour further upside if prices clear the key resistance level of $5.50. At the same time, higher production and seasonal easing could cap gains later in the year.
Overall, the balance of macro drivers, related markets, and chart signals suggests strong prices early in 2026, followed by higher volatility as supply growth and weather conditions normalise. A sustained break above $5.50 would open the door for a surge toward the $10 level. However, if prices fail to break above $5.50, the market is likely to remain in a strong consolidation range between $2 and $5.
