Natural gas prices (NG=F) are down nearly 40% year to date amid a glut in supply and a milder-than-expected winter. But analysts see an upside for the commodity going into the end of the year — in part due to growing electricity demand from artificial intelligence.
JPMorgan's Natasha Kaneva writes natural gas is poised to be the No. 1 performer among commodities this year, ahead of gold (GC=F).
"Although we still very much like gold as a structural multiyear bullish story with an updated price target of $2,600/oz, US Henry Hub natural gas has moved to the top of our list. We believe no other commodity can match its return potential this year," wrote Kaneva and a team of researchers. Louisiana's Henry Hub is considered the US benchmark since it's the largest trading point for natural gas in the country.
Part of the bullishness stems from electricity demands related to artificial intelligence.
"The rapid ascent in AI usage is a boon to US natural gas consumption, and its impact should be seen already this summer," said Kaneva.
The analyst noted renewable technologies are unlikely to satisfy most of the growing electricity demand, despite the push by the US government to move away from fossil fuel-generated energy.
"The fact remains that there are various disconnects within the US power grid that will likely make it difficult — namely through transmission — for renewable energy to satisfy a majority of this growth in demand," said Kaneva.
"This is where natural gas is already filling the void as it continues to play its part as a transition fuel," she added.
Goldman Sachs analysts also see rising natural gas demand, given surging power requirements stemming from AI.
"Driven by AI, broader demand and a deceleration in the pace of energy efficiency gains, global data center power demand is poised to more than double by 2030 after being flattish in 2015-20," Carly Davenport and her team of analysts wrote on Sunday.
"We believe supporting data center driven load growth will require investment by Utilities of $50 bn in new power generation capacity. We assume a 60/40 split between gas and renewables," the note said.
The analysts highlighted 16 Buy-rated stocks poised to benefit from growing energy demand, including pipeline operator Kinder Morgan (KMI), natural gas delivery utility Xcel Energy (XEL), and gas and utility holding company The Southern Co. (SO).
Natural gas prices were trading below $2 per million British thermal units for much of February, March, and April given milder-than-expected weather. The commodity was down roughly 20% year to date on Monday.
"Because price is already comfortably below $2/MMBtu, the move could look quite sharp this year. We anticipate US natural gas price to reach $4/MMBtu by 4Q24," wrote JPMorgan's Kaneva and her team.
Goldman Sachs analysts see prices going to $4 per million British thermal units in the next 12 months.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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