Evaluating ONE Gas, Inc.'s Strategic Position in the Evolving U.S. Gas Utility Sector

The U.S. gas utility sector in 2025 is at a pivotal crossroads, balancing the demands of energy transition with the enduring reliability of natural gas as a transitional fuel. For investors, companies like ONE Gas, Inc. (OGS) stand out as exemplars of how regulated utilities can navigate this complex landscape while creating long-term value. With a 100% regulated business model, strategic capital expenditures, and a proactive approach to emissions reduction, ONE Gas is well-positioned to capitalize on regulatory tailwinds and infrastructure modernization trends.

Financial Resilience and Regulatory Certainty

ONE Gas's 2025 financial guidance underscores its resilience. The company projects net income of $254 million to $261 million and earnings per diluted share (EPS) of $4.20 to $4.32, with adjustments made in Q2 and Q3 to reflect operational performance. These figures are bolstered by its regulated cost-of-gas recovery mechanism, which allows the company to pass through natural gas costs to customers without a profit margin, ensuring stable cash flows. Regulatory approvals, such as new rate effectiveness in Oklahoma, Kansas, and Texas starting in June 2025, further reinforce revenue visibility. This regulatory certainty is critical in a sector where capital expenditures-planned at over $750 million in 2025 for pipeline integrity and system modernization-are essential for maintaining infrastructure and meeting growing demand.

Strategic Infrastructure and Competitive Advantages

ONE Gas's competitive advantages are rooted in its operational and geographic positioning. The company's proximity to natural gas reserves reduces transportation and storage costs, a key differentiator in a sector where logistics can significantly impact margins. Additionally, its customer base is heavily residential (92%), providing stable demand and predictable earnings compared to more volatile commercial or industrial segments. This stability is further enhanced by its focus on infrastructure modernization, including a 51% reduction in leak-related emissions through pipeline replacement programs. Such initiatives not only align with decarbonization goals but also demonstrate environmental stewardship.

Energy Transition and Emissions Reduction

While natural gas remains a cornerstone of the U.S. energy mix, ONE Gas is proactively addressing decarbonization pressures. The company is on track to achieve a 55% reduction in Scope 1 emissions by 2035, supported by renewable natural gas (RNG) partnerships and hydrogen blending pilots. These efforts align with broader industry trends, where natural gas is increasingly viewed as a complement to renewables rather than a competitor. For instance, rising electricity demand driven by data centers and industrial electrification is creating a need for flexible, low-carbon backup power-a role natural gas utilities are uniquely suited to fill.

Industry Tailwinds and Valuation Attractiveness

The U.S. gas utility sector benefits from structural tailwinds, including a 20% forward P/E discount to the S&P 500 and an average dividend yield of 3.6%. These metrics reflect undervaluation relative to broader markets, driven by the sector's stable cash flows and infrastructure investment needs. ONE Gas, in particular, is poised to benefit from policy shifts favoring natural gas infrastructure, such as accelerated LNG export permits and midstream consolidation. As global demand for U.S. LNG grows, companies with robust distribution networks and regulatory alignment-like ONE Gas-stand to gain from both domestic and international market dynamics.

Risks and Mitigants

Challenges remain, including seasonality in demand and competition from clean energy sources. However, ONE Gas mitigates these risks through its regulated rate base model, which allows for predictable CapEx recovery, and its focus on customer growth in residential markets. Additionally, digital transformation initiatives, such as AI-driven energy management, are being adopted to optimize operations and manage costs.

Conclusion

ONE Gas, Inc. exemplifies how a regulated utility can thrive in an evolving energy landscape by leveraging regulatory tailwinds, strategic infrastructure investments, and proactive sustainability initiatives. Its financial discipline, competitive advantages, and alignment with industry trends position it as a compelling long-term investment. As the U.S. gas utility sector navigates the transition to a lower-carbon future, companies like ONE Gas will remain critical to ensuring energy reliability and affordability.