Natural gas is a highly volatile energy commodity that is traded on futures exchanges in the United States and Europe. U.S. natural gas futures (NGX24) declined on Friday, breaking a five-week winning streak due to a weaker demand outlook, despite a federal report indicating that utilities added a smaller-than-normal amount of gas to storage in the week ending Sept. 27.
Nonetheless, Mizuho analyst Gabriel Moreen recently expressed a positive view on the overall U.S. natural gas demand outlook, noting that there are also significant tailwinds benefiting the compression industry. For those unfamiliar with natural gas compression, it is a process that increases the pressure of natural gas to enable its transportation. This is essential for facilitating the movement of natural gas through pipelines and other infrastructure. The analyst said that strong demand for compression services, coupled with limited spare capacity, has pushed utilization metrics to unprecedented levels, thereby enhancing pricing power. As a result, Mizuho initiated coverage of two leading contract compression providers, Kodiak Gas Services (KGS) and Archrock (AROC), with “Outperform” ratings and price targets of $36 and $24, respectively.
