A comprehensive theoretical analysis is presented and validated for the instability achievable for a THz frequency reference by using phase modulation spectroscopy to lock a THz local oscillator to an absorptive reference consisting of the rotational transition of the molecules. The analysis and validation focus at room temperature at the range of frequencies at the water window near 300 GHz. Hydrogen Iodide (HI), Carbonyl Sulfide (OCS) and Carbonyl Selenide (OCSe) molecules are promising with 1-s instability in the 10−13 decade for molecules in a waveguide, and 10−14 for molecules in free space.