AI will require over 17 bfc/d of natural gas-fired power globally, page-3

Today’s North American natural gas market bears no similarity to 2012. And yet, Henry Hub natural gas traded recently at a 75-90% discount to both the seaborne LNG and oil-equivalent price. Simply put, this is not sustainable. We believe natural gas-related equities represent exceptional value today.

While gas stocks have dramatically outperformed the gas price since the start of 2023, their valuations remain incredibly depressed. For example, Range Resources today trades 30% below where it did in 2012 when natural gas prices were comparable. Over that period, proved reserves per share increased by 138% and the balance sheet improved. We calculate that the debt-adjusted SEC PV-10 per share increased nearly five- times since 2012. At current levels, we calculate Range Resources is pricing in a realized price of $2.62 per mcf, in line with the depressed spot price. If Henry Hub gas prices rebounded to only $4.00, Range’s debt-adjusted SEC-PV10 value would exceed $80 per share compared with $36. At $8.00 gas, in line with world prices, Range would be worth over $200 per share.

Although we have been very early, we believe North American natural gas, with less liquefaction and transportation, will converge with the global price, currently $10 per mcf. Investors are extremely bearish after two back-to-back mild winters but are neglecting the bullish shifts in both supply and demand currently underway. This is the most asymmetric investment we can recall.