US upstream gas sector poised to gain from higher Henry Hub prices

Shale gas tends to slip under the radar compared with tight oil, its more glamorous fracking sibling. But that could change as surging gas demand drives Henry Hub gas prices higher. I asked Alex Beeker, Director, Corporate Strategy and Analytics Service, and Dulles Wang, Director, Gas Research, what this means for gas producers.

Why has WoodMac turned bullish on Henry Hub?

We forecast prices will rise from the current US$3.50/mmbtu to average US$5.00/mmbtu (nominal) in 2030, and to US$6.00/mmbtu by 2035. It’s a meaningful change from our flatter projections just six months ago, driven by the scale of incremental demand in our latest, upgraded data centre forecasts adding to the anticipated growing demand from LNG exports and domestic manufacturing. What’s surprising is that the gas market appears completely unfazed by the brewing dynamic.

Which companies are most leveraged to rising prices?

US Lower 48 gas production is a fairly concentrated space with the Top 10 players accounting for 30% of supply. For some US Independents, US Lower 48 is almost everything – over 90% of production for the two biggest, Expand and EQT; over 80% for Ascent and over 60% for Antero. These are the most leveraged plays in WoodMac’s Corporate coverage. At almost one-third of US Lower 48 oil and gas production it’s still material even for giants ExxonMobil, Chevron and ConocoPhillips. 

Is there enough gas to meet higher demand?

There’s plenty of gas resource, it just depends on operators’ willingness to invest and on the cost of bringing the gas to market. Gas producers near term are adhering to capital discipline, spooked by the potential impact of US trade tariffs on steel, fluids, chemicals and cement so are keeping investment on a tight rein. Tight oil producers are also cutting budgets, which will lead to less low-cost associated gas in the coming months. Our analysis suggests the biggest gas players have sufficient inventory to meet demand but will need Henry Hub at least at US$5.00/mmbtu by the end of the decade to deliver the supply.

Are higher prices already ‘in the market’?

No, far from it. The forward curve is currently flat as a pancake, essentially rising with inflation to US$3.51/mmbtu in 2030. A second gauge is the M&A market, where assets have been changing hands at an implied long-term Henry Hub price of around US$3.35/mmbtu, using data from Wood Mackenzie’s M&A Service. Third, publicly listed US gas-weighted stocks including EQT, Expand, Antero and Range are trading broadly in line with the forward curve but at an average discount of 25% to 50% to Wood Mackenzie’s Henry Hub forecast.

Is it the right time for Big Oil to buy into US gas resource?

We think there’s a strong argument on value grounds to play the commodity price upside. But buying US upstream gas makes most sense for companies that already have a platform in the market. These include ExxonMobil, Chevron, ConocoPhillips and BP, which can all integrate Henry Hub gas with their US LNG portfolios. TotalEnergies and Equinor are among those that have made acquisitions as a hedge for US LNG offtake. Others, including newish entrants to US LNG such as ADNOC (via XRG) and Saudi Aramco, might also consider upstream positions.

What are the downside risks?

The duration of higher gas demand to power data centres is one. It’s the go-to option in the near term, but, ultimately, solar and nuclear will own that market if the policy support (and costs) is right. Another risk is the additional supply of gas that might emerge when Henry Hub prices rise. Shale operators have improved capital and drilling efficiency by 70% over the last decade, and there may be more volume to come with the right price signals. Higher prices could also lead to constraints on LNG exports or persuade regulators to bring more supply into the market by greenlighting pipeline infrastructure for more distant gas plays, including Canada.

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