Natural Gas Is Just Starting to Fire Up
Thanks to the Trump administration and hot energy demand, natural gas producers and pipeline operators can expect to prosper in the coming years.
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There are several powerful and long-term tailwinds developing for the natural gas industry. First, the new administration is clearly much more supportive of the industry than its predecessors. All-energy government largess and mandates are on their way out while the current administration is pursuing a much lighter and supportive regulatory touch with the fossil fuels complex. It was just announced that decisions involving solar and wind energy projects on federal lands must undergo stricter reviews by the Department of Interior. The goal of the new process is to end the preferential treatment that subsidized alt-energy projects were getting under the previous administration and level the playing field for oil and natural gas projects.
New tariffs also are making things tougher for alt-energy as many of their key components like wind blades, solar panels and electric battery components are sourced overseas, primarily from China. Natural gas should, to a large degree, be a beneficiary of new trade policies. There are only a few ways a country with a trade balance with the U.S. can quickly narrow that gap by purchasing more American goods. They can ramp up their defense spending and buy more products from the U.S. defense complex, which Europe is in the process of doing. Nations can buy more big-ticket items like commercial airliners. The first two of these benefit Boeing BA given the company is one of two primary airplane manufacturers and also has a large defense business.
The third option is to import more liquid natural gas or LNG from the United States. I expect LNG export capacity will grow substantially along the Gulf of Mexico, I mean Gulf of America, in the coming years. Natural gas should also benefit from the AI revolution. Goldman Sachs has projected that electricity demand for the massive AI data centers being built across the nation will grow by more than 150% by 2030.
How will this additional demand be satisfied? Coal is too dirty, at least in the West. While nuclear energy might be the longer-term answer, it takes many years -- more than a decade in some cases -- for a new nuclear plant to come online. Solar and wind are too unreliable sources as they are not available 24/7. That leaves oil and natural gas, with the latter being the cleaner alternative.
Fortunately, for the United State, the country has vast natural gas reserves. The country also has nearly three million miles of various pipelines crisscrossing the nation -- two key reasons why natural gas prices are so much lower in the United States than in Europe, Japan or China. This could be a key factor determining what country wins the AI race. For these reasons, if one looks out for a few years, natural gas will have key drivers of demand for the foreseeable future.
There are many companies that should benefit from the improved demand dynamics for natural gas, including exploration and production companies, as well as pipeline and midstream operators. In my column on Wednesday, I will highlight some of the names in my portfolio that will benefit from these factors in the years ahead.
At the time of publication, Jensen was long BA.
