The implications are profound. With U.S. gas production facing...

The implications are profound. With U.S. gas production facing structural headwinds, the pricing dynamics that dominated the past decade are likely to shift. A market long defined by oversupply and low prices may soon find itself grappling with a very different reality.

With production growth now definitively slowing, the stage is set for a significant spike in natural gas prices. The long-standing disconnect between U.S. and international natural gas prices—currently sitting at approximately $16 per MMBtu—appears poised to narrow.

For the past two years, natural gas bears have been rewarded by an extraordinary stroke of luck: two consecutive, near-record warm winters across North America. These unseasonably mild temperatures have dramatically curtailed heating-related demand, masking the underlying tightening of supply. Following the exceptionally warm 2022–2023 winter, U.S. natural gas inventories swelled, adding nearly 600 Bcf of excess storage relative to the 10-year average. But that inventory cushion did not last. By the end of the 2023 injection season, strong gas demand had worked off most of the surplus, bringing storage levels back toward balance.

A similar pattern repeated in 2023–2024. Another abnormally warm winter once again pushed inventories to near-record levels relative to historical averages. Yet, despite the mild weather, demand remained resilient, and by the start of the 2024–2025 withdrawal season, 70% of the prior year’s excess inventory had already been drawn down. With production growth stagnating and inventories no longer building at the pace they once did, the market’s ability to absorb even a modest weather-driven demand surge is weakening.

The balance that has kept U.S. prices suppressed may soon give way to the kind of volatility and price spikes that have defined global gas markets in recent years. After an unseasonably warm start, winter conditions in December and January have turned colder than normal, and as a result, natural gas inventories now stand below average.

The past two injection seasons began with storage levels at abnormally high levels due to back-toback warm winters, but unless temperatures turn sharply mild for the remainder of the season, a repeat of that bearish inventory overhang is unlikely.

Meanwhile, demand for natural gas is set to surge in 2025. The commissioning of three new LNG export facilities alone is expected to add nearly 6 Bcf per day of incremental demand. All three projects were originally slated to come online in 2024, but construction delays have now pushed their start dates into 2025.

Against this backdrop—falling supply, the first true normalization of inventories in two years, and a major new source of structural demand—the long-standing disconnect between U.S. and international natural gas prices looks increasingly unsustainable. U.S. prices have lagged global benchmarks for years, but as these forces take hold, the case for convergence strengthens significantly. Given the scale of the supply-demand imbalance forming, the risk is no longer just that U.S. prices catch up to international levels—it is that they could overshoot them at some point in 2025.

Yet, despite all of this, investors remain strangely indifferent to the most direct beneficiaries of a coming natural gas bull market. There is now broad recognition that natural gas will play a central role in powering the surge in AI-driven electricity demand. But rather than buying the commodity itself—owning the gas molecule in the ground—speculative money continues to flow into pipelines, utilities, and even gas-fired power generation.

If we are correct, and North America is in the midst of a transition from a long-term structural surplus to a long-term structural deficit in natural gas, these capital allocations could prove deeply misguided. Infrastructure investments that depend on purchasing cheap natural gas could find themselves on the wrong side of a market shift, with rising input costs eroding their economics.

Once it becomes clear that natural gas has become structurally scarce, we believe a scramble will ensue—commercial users and investors alike will realize they must secure control over supply, rather than just access to it. At that point, natural gas production companies, which today trade at deeply discounted valuations, will become the focal point of a bidding war.

These stocks remain astonishingly cheap if one is willing to value their reserves at just $6 per Mcf.

Right now, conventional wisdom holds that a sustained bull market in natural gas is impossible. But as the reality of shifting supply fundamentals takes hold, we expect that consensus to unravel.

The market is changing—quietly, but decisively. And when recognition comes, it will come quickly.