Goldman Sachs: Strong 'Secular Demand' Drives Natural Gas Price Surge

Goldman Sachs has raised its estimates on two industry players, Antero Resources Corp. (AR) and National Fuel Gas Co. (NFG), as it anticipates a strong 'ecular demand' for natural gas. The investment bank's bullish outlook is supported by surging liquefied natural gas (LNG) exports and a structurally strong demand outlook, which are setting the stage for higher natural gas prices.

Analyst Neil Mehta, in a note shared Wednesday, delivered a bullish outlook for AR and NFG ahead of their fourth-quarter earnings. Mehta stated, "We view the secular demand outlook for natural gas as strong, with significant catalysts ahead in LNG export capacity ramping in 2025." Natural gas prices, as tracked by the U.S. Natural Gas Fund LP (UNG), have already staged an impressive rally, with Henry Hub futures more than doubling in the past six months to near $4 per million British thermal units. However, Goldman Sachs sees more room to run, particularly for companies with exposure to key export hubs.

Goldman Sachs reaffirmed its 'Buy' rating on AR, raising its 12-month price target from $39 to $44. The company is positively positioned to capture the inflection in natural gas prices due to its unhedged position and exposure to Plaquemines, a key LNG export hub. With direct access to Gulf Coast markets via the Tennessee Gas Pipeline 500L, AR is set to benefit as U.S. LNG export capacity ramps up in 2025. The bank now expects AR to generate free cash flow at an 8.5% yield in 2026, down from a previous 9.5% estimate, reflecting higher valuation confidence. AR's 2024-2026 EBITDA forecasts were raised to $872 million, $1.52 billion, and $2.31 billion, respectively, adjusting for commodity price movements.

Goldman Sachs maintained a 'Neutral' rating on NFG but raised its 12-month price target to $76 per share from $71. The bank also lowered its 2026 free cash flow yield estimate to 6.5% from 7%, reflecting improved confidence in natural gas demand and its impact on the company's non-regulated earnings. NFG is expected to remain more defensive relative to other upstream natural gas companies, trading at a 7% free cash flow yield for 2026, below the 9% peer average. NFG's 2024-2026 EBITDA estimates were increased to $1.19 billion, $1.37 billion, and $1.61 billion, respectively, based on updated commodity pricing and regulatory developments.

The strong secular demand for natural gas, driven by surging LNG exports and a structurally strong demand outlook, is expected to continue in the coming years. This bullish outlook, supported by Goldman Sachs' estimates on AR and NFG, suggests that natural gas prices may have further room to run, particularly for companies with exposure to key export hubs.