Natural gas prices approaching $3.25 per million British thermal units could begin to reduce supply expectations and eventually support gas equities despite persistent 2027 headwinds, TPH Energy said in a note on Monday.
Front-month natural gas dropped sharply late last week, falling below $3/MMBtu, while the 2027 strip weakened to an average of about $3.35/MMBtu, the firm said.
Investors largely attributed the selloff to maintenance at Freeport, where gas flows averaged 1.5 billion cubic feet per day on Sunday compared with 2.2 Bcf/d over the previous 30 days.
Golden Pass Train 1 also continued to weigh on the market, as the facility consumed only 400 MMcf/d to 500 MMcf/d, well below its modeled 800 MMcf/d capacity, the firm said.
Pipeline flows of about 110 Bcf/d matched TPH's July forecast, although last week's storage report came in weaker than expected. The firm also cautioned that Texas flow data remains unreliable.
Strengthening Waha pricing and the startup of the Gulf Coast Express expansion suggest regional gas supply may prove stronger than reported. Channel checks also indicate previously shut-in Permian gas production has resumed, TPH Energy said.
The firm has largely remained on the sidelines for gas-focused equities following downgrades issued last year and earlier this year. However, it believes most macro risks tied to 2027 are now reflected in share prices.
Gas-focused stocks have fallen about 30% from recent highs over the past six months, with equity valuations implying a long-term natural gas price of roughly $3.50/MMBtu, the note added.
Producers remain focused on 2027 and have largely dismissed weakness in the 2026 futures curve because restarting drilling programs later would prove difficult.
TPH believes sustained prices below $3.25/MMBtu are more likely to reduce supply than demand. With the 2027 strip now only about 10 cents to 15 cents above that level, additional price weakness could lower production forecasts and ultimately establish a floor for gas equities, the firm said.