How I'm Playing the Important Natural Gas AI Story
Natural gas demand and capacity are set to surge in the coming years. Here's what to know about this long-term AI winner.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
In my column on Wednesday, I highlighted how natural gas is going to be a longer-term winner from the huge AI infrastructure buildout taking place throughout the United States This fuel will be needed for electrical generation to meet the fast-growing demand from massive data centers that will come online at an accelerated pace in coming years.
Solar, wind and other renewable sources for electrical generation do not offer the 24/7 availability needed by these large facilities. New natural gas capacity can also be brought online much, much faster than by erecting new nuclear reactors, although smaller modular reactors have some promise.
Massive new liquefied natural gas (LNG) trains are being built along the Gulf Coast as the U.S. is moving to replace Russian supplies in Europe that have been curtailed from sanctions due to the ongoing conflict in Ukraine. These facilities will cement the U.S. as the number one LNG exporter on the globe. In response to this, more miles of natural gas pipelines are due to come online throughout the Gulf Coast region in 2026 than any year since the shale boom of 2008. This infrastructure buildout is a nice economic engine in the region.
Natural gas might even get a bit of short-term boost from the polar vortex that is predicted to hit much of the country. It was a crisp 52 degrees when I walked my Golden Friday morning in Delray Beach, Fla.
One of the winners from the buildout of natural gas pipelines in states such as Louisiana, Oklahoma and Texas are the E&P plays in the Permian Basin. This should substantially boost the prices they get for their natural gas production as current pipeline capacity is maxed out.
Major Permian producers including EOG Resources (EOG) , Occidental Petroleum (OXY) and Devon Energy (DVN) should see tailwinds from this new pipeline capacity. I have covered call positions in all of these names.
I also hold and like a smaller name in this space, aptly named Permian Resources (PR) . The company reported a solid third quarter earlier in November and bought back some $30 million of its own stock during Q3. Permian Resources recently entered into transport and sales agreements covering most of its natural gas production starting in 2027 into premium markets.
Kinder Morgan (KMI) , The Williams Companies (WMB) and Energy Transfer (ET) all have new pipelines coming online next year in the Gulf Coast. I also have a small position in NextDecade Corp. (NEXT) and it is one of the higher risk/reward plays in my portfolio.
NextDecade is in the process of building massive LNG trains that will export natural gas from the Eagle Ford and Permian Basins. These huge projects are being supported and financed by 15–20-year contracts. If all goes well, exports should start in 2027, and the company should be cash flow positive the following year.
At the time of publication, Jensen was long DVN, EOG, NEXT, OXY and PR.
