Low inventory levels and an improving long-term demand outlook have driven henry hub gas (NG1:COM) prices to their highest seasonal level in over a decade. Hub gas rallied 15% last week to $5.50/mmbtu, while natural gas producers rose ~22% on the week.
Natural gas inventory levels fell less-than-expected Thursday; however, balances are ~17% below the 5-yr average:
Morgan Stanley sees decelerating natural gas demand in 2023-2024 as LNG terminal capacity growth slows; however, the recent uptick in political support for the industry could improve LNG export demand on a 3-5yr horizon. With US exporters set to meet with customers in Berlin this week, additional demand-related news could be coming from the likes of Cheniere (LNG) and Tellurian (TELL).
Despite high prices and the improved demand outlook, Morgan Stanley says gas stocks are “pricing in” ~$3.40 natural gas prices. That is to say, if natural gas prices fell ~40% from current levels, natural gas stocks would then be “fairly valued.” Natural gas stocks have been on a big run year-to-date, with Antero (AR) up ~80%, EQT (EQT) up ~60% and Chesapeake (CHK) up ~40%. However, Monday’s report from Morgan Stanley sees another 20%+ upside for the sector from here.