Bernstein is bearish on natural gas and analyst Jean Ann Salisbury sees evidence the firm’s bearish thesis has already begun playing out in the market. Bernstein is calling for natural gas prices of $2.50/mmbtu as soon as mid-2018.

The Bearish Thesis

According to Salisbury, each part of the firm’s three-part bear thesis is has already started to unfold.

First, Bernstein expects natural gas demand to grow by less than what bulls are expecting. The firm is calling for only a 17 bcfd or less increase in demand from 2016 to 2020. Salisbury said Mexican exports are already running slower than expected, and gas power demand hasn’t picked up as much as bulls had hoped. Salisbury says investors should be watching the LNG market closely in 2018 for signs of global oversupply.

Second, as oil prices rise from $50/bbl to $65/bbl by 2020, Bernstein predicts associated gas production will also rise by 10 bcfd, including a 7 bcfd increase from the Permian Basin. Salisbury says rig count has held up better than expected and additional gas is on its way.

Finally, Bernstein expects Marcellus/Utica production will increase significantly due to take-or-pay contracts reaching 36 bcfd by 2020. Salisbury says several new projects have been approved and rig Haynesville rig counts remain above 2016 levels.

“In total, we believe that the latest data continues to support our bearish thesis,” Salisbury concluded.

A Second Opinion

However, not all firms are as bearish on gas as Bernstein is. This week, Citi upped its 2018 price forecast from $3.05/mmbtu to $3.10 mmbtu.

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