U.S. Gas Picture Looks Weak in 2023; Should Rebound in 2024

The U.S. gas price outlook looks weak in the short run, in our view, but the outlook should begin to improve in late 2023 and 2024. From a stock perspective, though, we think 2023 will present a potentially very good opportunity to acquire high-quality names leveraged to gas demand at a discount. We favor companies such as Kinder Morgan, Williams, Cheniere, and TC Energy TRP.

The near-term gas weakness is due to a combination of several factors:

1. The success the EU has had with reducing gas consumption. It has kept its storage levels high throughout the winter, reducing the short-term call on U.S. liquefied natural gas, or LNG, to close any supply/demand gap. The price decline has caused U.S.-EU gas spreads to collapse, reducing marketing profits for firms like Cheniere.

2. The lack of new U.S. LNG export capacity in 2023. The pending full restart likely in March or April of the Freeport LNG terminal should add back 2 billion cubic feet per day of U.S. LNG capacity that has been off the market since June 2022. Actual new capacity expansion is delayed until 2024 when the Golden Pass and Plaquemines trains come on line, which is about 3.6-3.7 billion cubic feet per day of feed gas demand (or 37 billion cubic meters).

3. Ongoing growth in U.S. gas production. This situation is a growing problem when the Energy Information Administration, or EIA, projects about a 2.2 billion cubic feet per day increase in U.S. gas supply this year, but a 1.6 billion cubic feet per day decline in U.S. gas consumption, leaving roughly 4 billion cubic feet per day stranded in the U.S. Unsurprisingly, U.S. natural gas storage levels are already spiking to well above last year’s levels. Gas storage is 395 billion cubic feet higher than last year’s levels already, per the EIA. We do not expect much, if any, short-term relief on this front.