RJ Update on U.S. Natural Gas Market - June 1

[dan_s]

Raymond James Energy Stat 6-1-2020

Hydrocarbon demand headwinds from the COVID-19 pandemic are now well known across the market. While the pandemic has impacted the demand for oil more heavily than natural gas, disruptions have still been great enough to put the global LNG market into a tailspin. Further, with significant domestic oil and associated gas shut-ins/curtailments now expected to come back online relatively soon, we've seen another evolution in equity investor sentiment around natural gas market players - back to a very bearish near-term view. We generally agree given our below strip price forecasts for the rest of 2020. However, the more interesting story, in our view, is the stark headwind to oil and associated gas production next year after steep cuts in E&P spending this year. We remain convinced that current oil/gas strip pricing would drive a massive domestic gas supply decline and leave us dramatically short natural gas in 2021!

As a result, we're reiterating our Street high 2021 price forecast for Henry Hub ($3.50), with just a moderate normalization in economic activity. Today's Stat addresses: 1) our latest model updates for U.S. gas production (primarily the speed of return of shut-in U.S. oil/gas production); 2) changes to our assumptions on the U.S. demand side of the equation (mainly lower U.S. LNG and industrial exports); 3) what this means for U.S. natural gas prices; and 4) what the price outlook means for the stocks (with the most direct impact on U.S E&Ps).

If you'd like to read the full report, send me an email dmsteffens@comcast.net