US gas supercycle is coming: Bernstein
2025.01.16 11:27
Investing.com — Bernstein analysts laid out their view for a coming US gas supercycle, projecting a significant shift in the domestic gas landscape through 2030.
The firm has raised its long-term Henry Hub gas price deck to $5/mcf, which they believe is a conservative estimate, considering robust demand growth and constrained supply.
Given its bullish stance, the investment bank upgraded EQT Corp (NYSE:) and Devon Energy (NYSE:) stocks to Outperform.
EQT (ST:), a leader in Appalachia gas production, saw its price target lifted to $73 per share, representing 44% upside.
“EQT is clearly extremely levered to gas price,” Bernstein analysts led by Bob Brackett said in a note, emphasizing its potential to capitalize on higher mid-cycle gas prices.
Similarly, DVN’s exposure to domestic gas prices drove its upgrade, with a new price target of $45, implying a 21% upside. Analysts highlighted that Devon’s production profile, unlike peers with international gas diversification, is closely tied to US pricing dynamics.
Demand growth is a cornerstone of Bernstein’s outlook, with total US gas demand projected to rise from approximately 120 billion cubic feet per day (bcfd) in 2024 to 150 bcfd by 2030.
Key drivers include LNG exports, expected to add 10 bcfd by 2030, supported by projects already sanctioned and under development.
Power demand, particularly from data centers, is forecast to grow by 12 bcfd, with Appalachia gas expected to supply a significant portion of this increase.
“Appalachia gas is the lowest cost source of dry gas with significant inventory,” analysts noted. “If Appalachia doesn’t source half of the gas to meet power demand growth, gas price will be higher than we forecast.”
On the supply side, Bernstein highlighted the Haynesville and Midcontinent (Midcon) regions as key price-responsive gas suppliers.
The firm says Haynesville “is the poster child for a well-located and low-cost shale gas basin,” however, it acknowledges that achieving the projected 9% CAGR in Haynesville output through 2030 would be ambitious.
Midcon, encompassing Oklahoma and adjacent regions, is less defined but expected to see a surge in private activity at prices above $4/mcf, with modeled growth of 10 bcfd (20% CAGR) by 2030. Bernstein notes that even with these supply responses, prices could exceed $10/mcf, driving booms and busts.
To address this, Bernstein’s model incorporates demand elasticity, reducing demand growth from 30 bcfd to 25 bcfd by 2030.
The investment bank conservatively assumes a long-term gas price of $5/mcf, citing this as a one-standard-deviation upward move consistent with their forecasts. They highlight the US’s cost advantage in hydrocarbons and view this price assumption as prudent for equity modeling while acknowledging potential for higher prices.
