Whether The Weather: Natural Gas Strength to Persist

What You Need to Know:

• Natural gas continues to be a beneficiary of artificial intelligence (AI)-related power demand.
• The broader narrative includes increasing liquefied natural gas (LNG) capacity, infrastructure challenges that limit supply and superior inventory depth.
• We see a multi-year sweet spot persisting for gas weighted equities that effectively conforms to a "stronger for longer" dynamic; price needs to incentivize new supply as growth remains subdued.
• We see a high degree of likelihood that gas can sustain over $4 per thousand cubic feet (Mcf) long term and $5/Mcf in 2026.
• This estimate equates our gas coverage to over 16% free cash flow (FCF) yields in 2026 and 80% of their enterprise value (EV) in FCF by 2030.

The TD Cowen Insight

Natural gas continues to dominate exploration and production (E&P) conversations given multi-year outlooks for demand growth, questions on supply, and the intervention of commercial LNG and power agreements.

In our full report, we evaluate the pushes and pulls to the natural gas ecosystem, wherein we believe that the equities continue to have compelling upside.

Our Thesis

We see a multi-year sweet spot persisting for natural gas that effectively conforms to a "stronger for longer" dynamic. With demand growth from LNG, industrial needs and datacenter-driven power, we expect supply to struggle amid subdued associated gas growth and conservative operator activity in a segment of the energy market that is heavily consolidated.

What Is Proprietary?

Our U.S. natural gas supply model through 2030 suggests a requirement of 175+ additional rigs from current levels over time to increase productive capacity by 18 billion cubic feet per day (Bcf/D). This report includes proprietary outlooks from the TD Cowen U.S. and Canadian E&P teams, Midstream team and the TD Securities Global Commodities Strategy team to examine the key variables for an increasingly complex natural gas market.

In our full report, we dive into variables including:

• our in-house outlook for LNG demand,
• power demand,
• data-center demand incentive cost of supply,
• well productivity trends,
• midstream and storage infrastructure support,
• operator behavior and
• evolving commercial agreements between suppliers and end customers.

Financial and Industry Model Implications

Heading into 2026, our natural gas supply model shows an approximate 10% deficit to 5-year averages for storage in the second half of 2026, supporting a view that natural gas pricing should stay north of $4.50/Mcf to incentivize new supply.

What To Watch

There are over 16 Bcf/D of LNG projects under construction with additional capacity planned for 2030 onwards. As LNG exports shift from 11% of U.S. demand in 2021 to 22% by 2030, historical dynamics between U.S. pricing and global pricing will be challenged. With a flurry of datacenter power projects focused on renewable sources to date, the next leg may rapidly accelerate towards natural gas solutions, further accelerating the call on natural gas supply. Operators to date have been cautious on activity additions, and associated activity is down 60+ rigs since early 2025 – or 30% – cannibalizing a critical source of supply that supported the market over the previous several years.