Natural Gas "Supercycle" Ahead: Bernstein Upgrades EQT and Devon Energy

TradingKeyJan 16, 2025 10:13 AM

TradingKey - Wall Street’s renowned investment firm Bernstein anticipates the arrival of a natural gas “supercycle” and has upgraded its ratings on EQT Corporation (EQT.US) and Devon Energy (DVN.US).

Since January 2025, Ukraine has halted the delivery of Russian pipeline natural gas to Europe, increasing reliance on alternative suppliers.By the end of 2023, U.S. natural gas accounted for over 50% of Europe’s total natural gas demand. Meanwhile, As Europe entered colder winter months in December, natural gas prices soared due to heightened demand and inventory pressures. U.S. liquefied natural gas (LNG) exports have been accelerating to fill Europe’s supply gap.

Cold in northwestern Europe is expected to further strain regional gas inventories. Dutch TTF natural gas futures surged in January to their highest levels since November 2023. Analysts on Wall Street suggest that European natural gas prices may continue to rise in early 2025, driven by Asian demand, further pushing global LNG prices higher.

“Arctic air will sweep across the U.S. early next week, with temperatures in the southern states dropping to 0-30°F,” NatGasWeather.com reported on Wednesday. The recent cold snap in the U.S. has significantly increased heating demand for natural gas and heightened expectations of a sharp inventory drawdown in the U.S. Energy Information Administration’s (EIA) weekly storage report on Thursday.

Analysts believe artificial intelligence (AI) is also a significant driver of LNG demand growth. Major data centers operated by Google, Microsoft, and Amazon AWS have shown a strong appetite for natural gas as a clean energy source. This trend aligns with the global push for decarbonization, particularly in developed European nations, where renewable resources like wind and geothermal energy are prioritized alongside natural gas—a cleaner and more efficient energy source. As a result, natural gas is expected to remain a critical energy source for data center power systems in the coming years.

While nuclear energy has been considered a key contributor to powering data centers and supporting AI development, former President Donald Trump has emphasized the risks associated with nuclear power, potentially opening more opportunities for natural gas. Bernstein forecasts that from 2024 to 2030, the massive power demands of large AI data centers will drive global natural gas consumption to at least 12 billion cubic feet per day.

Both EQT and Devon Energy focus on the exploration, production, and supply of natural gas resources. Rising natural gas prices and increasing demand are expected to significantly boost these companies' revenues. Bernstein highlighted that these favorable market conditions prompted the firm to upgrade its ratings for EQT and Devon Energy from "Market Perform" to "Outperform."

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