Midstream companies are generally unaffected by the current round of daily tariff updates. Their stock prices may gyrate with the rest of the market, but nobody is revising guidance. It’s worth remembering that these are toll businesses, focused on volumes not commodity prices.

Consumption of petroleum products is remarkably stable. It’s been between 20 and 21 Million Barrels per Day (MMB/D) for the past two decades other than falling to 19 MMB/D in 2020 due to the pandemic. This remarkable stability is the result of improved energy efficiencies offsetting growth in GDP and population.

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Changes in the supply/demand balance of oil are routinely absorbed by price changes. The value of what’s moving through pipelines sometimes fluctuates widely, but as the consumption chart shows, the quantity hardly budges. This is why midstream infrastructure is such an attractive sector for investors.

It’s behind the robust outlook for dividend growth. Wells Fargo increased their forecast to a sector-wide 5% increase this year. When investors ask me about long term return prospects, the 4-5% dividend yield combined with long-term dividend growth and buybacks each of 2-3% adds up to 9-10% in total. Recent sell-side forecasts suggest that cash returned to shareholders may run somewhat higher than this over the next few years.

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Electricity consumption follows a similarly stable pattern to crude oil, at just under 4 trillion kilowatt hours annually. It’s barely moved for over twenty years, although it will move sharply higher over the next few years because of data center demand. As with petroleum products, energy efficiency has neutralized growth in the past.

Natural gas consumption has been rising since the late 1980s. The shale revolution enabled coal to gas switching for power generation. Climate extremists agitate to keep gas in the ground, but without it US CO2 emissions would be higher. That wretched little girl Greta is fortunately sinking into oblivion while switching her attention to support Palestinian terrorists.

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The 90 Billion Cubic Feet per Day (BCF/D) of natural gas consumption doesn’t include exports. We produced just over $103 BCF/D last year, with the excess going to our trade partners.

Consumption is going to continue higher because of the need from data centers for reliable power and increased LNG exports. If there’s any sensitivity to prolonged tariffs, it might be here. Signs of weaker growth have not yet curbed the capex plans of hyperscalers to invest in AI. But presumably if downward revisions to growth become meaningful data center construction may moderate somewhat.

LNG exports are for the most part underpinned by long term purchase agreements, which are often required to obtain financing to build the liquefaction terminals. The world wants more energy and the rate at which the US adds LNG export capacity will determine the volumes we send to our trade partners.

I must confess that the FT headline US backtracks on Canada-Mexico tariffs in latest sharp shift on trade left me confused – were we backtracking on softening the tariffs to include all USMCA-compliant goods, or backtracking on the hard line? In this case it was the latter, but the tariff trip is starting to feel as if there’s no strategy and a new twist on import taxes is possible every morning based on one guy’s opinion.

Check the date and time on each tariff story before considering its impact.

Venture Global (VG) has been a challenging stock for sell side analysts. On Thursday they missed expectations on Adjusted EBITDA with $688MM, but the range of forecasts was from $900MM to $2,851MM. Full year EBITDA guidance of $7.1BN disappointed the market, which was looking for $6.2-11.4BN.

JPMorgan lowered their price target from $25 to $16 and Wells Fargo stuck with $18.

Modelling VG is not yet a task of precision.

Having been uninvolved as the stock sank 60% below its $25 IPO price, we thought the EV/EBITDA multiple of 8X was a reasonable discount to best-in-class Cheniere at 11X, and made a modest investment. VG will continue to be a volatile stock.

The tit-for-tat tariffs with Canada have exposed weaknesses in New York’s energy strategy. They have shunned independence in favor of relying on exports of hydropower from Ontario, whose premier Doug Ford responded in Trumpian style by saying, “We will not hesitate to shut off their power as well.”

By next year New York City plans to rely on Canadian imports of hydro, nuclear and solar power for as much as a fifth of its electricity. This is assuming the Champlain-Hudson high voltage transmission line goes into service by then. New York’s Independent System Operator has warned of a power shortfall to the Big Apple by 2033, and by next year if Champlain-Hudson isn’t operating.

If the lights flicker in New York because of their left-wing energy policies, the White House won’t be too bothered.

We have two have funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Last week I gave a lunchtime presentation to a local investment club organized by Elliot Miller, a friend and long-time investor in midstream energy. Afterwards one of the participants came up to me and, disclosing that he used to work as a nuclear physicist, asked me what I thought of the prospects for Small Modular Reactors (SMRs).

We recently received similar questions in response to a video (watch Why Not Nuclear?). Given my interlocutor’s background, I thought his opinion of SMRs was more relevant than mine, so I turned the question back to him. He was hopeful but not optimistic. SMRs have offered promise for many years. They could power some of the many data centers that are being built. Modular construction has lowered costs in many areas. Venture Global (VG), the LNG exporter that recently IPOd, has shown that modular construction of LNG export terminals can cut costs and construction time in half.

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VG’s public flotation was a bust for investors, with the stock soon losing 40% of its initial value. But few dispute that the company has demonstrated excellence in construction.

I’ve sometimes mused that the US Navy, with 99 SMRs powering aircraft carriers and submarines, might have something to teach the civilian sector on the topic. This is not an original thought, and I learned some of the key reasons why it won’t work.

One is that military vessels use highly enriched uranium, as much as 70%. This is far above the levels deployed in civilian reactors and presents the risk of theft by terrorists. It’s covered under nuclear non-proliferation agreements, and there are no civilian reactors anywhere (apparently not even in China) that use this.

Trying to steal weapons grade uranium from an aircraft carrier or submarine would likely be brief and fatal.

There are other challenges. Military SMRs aren’t designed with cost per Megawatt Hour as a major consideration. They also operate under different regulations than the civilian nuclear sector. And they often use proprietary technology. It seems it’s impractical to copy what the US Navy has done.

Returning to VG – we continue to research the stock but haven’t yet invested. As we’ve noted previously, VG upset some of the world’s biggest LNG buyers. Their interpretation of “fully commissioned”, the point at which an LNG export terminal is ready to begin shipments under long term agreements, was different than buyers including Shell, BP, Galp and Repsol (see Nothing Ventured, Nothing Gained).

Arguing that some remaining project elements were not yet resolved, VG sold LNG shipments themselves at the high global prices that followed Russia’s invasion of Ukraine. Their long term contract partners felt those shipments, along with the outsized profits, should have gone to them. The case is now in arbitration. It may cost VG up to $5BN. But they reaped $BNs in profits which they plowed into added capacity.

Perhaps worse than the potential settlement is the reputational hit. There’s aren’t hundreds of LNG buyers out there, and they know each other. Future contract negotiations are likely to eliminate the ambiguity VG relied upon. TotalEnergies CEO Patrick Pouyanné recently said they rejected overtures from VG due to a lack of trust. Pouyanné added, “I don’t want to be in the middle of a dispute with my friends, with Shell and BP.”

Unlike Cheniere, which is the leading LNG exporter with half of US volume, VG doesn’t plan to rely heavily on long term contracts. Cheniere enjoys good cash flow visibility since 90% of its capacity is committed, which eliminates most of their exposure to gas prices. By contrast, VG plans to retain 50% of their capacity for resale in the spot market.

This is similar to Charif Souki’s strategy with Tellurian. If you believe a wide spread will persist between US prices and those in Europe/Asia, it can be attractive to retain this risk. However, Tellurian found it hard to obtain financing, because commodity price exposure can run in both directions. Higher US prices could eliminate the arbitrage, leaving an LNG business reliant on the spot market stranded with no customers.

As it became clear Tellurian couldn’t line up the financing to proceed, Souki memorably confessed in a video that he’d made a big mistake. He was soon forced out and the company was acquired by Australia’s Woodside Energy last year for $900 million.

VG has implemented Souki’s strategy with more success, albeit at the cost of relationships. Perhaps keeping more spot market exposure fits with a more limited set of potential long term customers anyway. Souki must be watching enviously, perhaps claiming insight as the architect of that strategy if not the successful practitioner.

VG remains an interesting stock but with high volatility given their history and embrace of gas price movements. We’ll be watching them closely.

We have two have funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Daniel Yergin is right to call it the Energy Addition. In an essay in Foreign Affairs called The Troubled Energy Transition, he notes that since 1990 hydrocarbons have dropped from 85% of primary energy to around 80% today. That can hardly be called a transition. Since 2000 global energy consumption has increased from 397 Exajoules (EJs) to 620 EJs.

Renewables, including hydropower, have met only 27% of this increase. They’ve gone from a 7% to 15% share, but Greenhouse Gas Emissions (GHGs) have gone from 24 to 35 Gigatonnes.

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Climate extremists will argue that without the growth in solar and wind it might have been worse, but the numbers show that the strategy of relying fully on these intermittent sources has been a huge failure. And yet renewables promoters continue to assert that solar and wind are the cheapest form of power generation.

The Biden administration sought a 50% market share for EVs by 2030. It’s currently stuck at 10% and no longer an objective of the Federal government. Every EV owner I know keeps a second car for long journeys. This is hardly a transportation strategy for the masses.

Offshore windpower targeted at 30 Gigawatts by 2030 will be missed by at least half.

As Yergin points out, past energy transitions have never seen the displacement of the old by the new (ie wood for coal). The developing world’s six billion citizens want to use more energy. They’re not going to readily swap coal for wind turbines, and the $TNs in subsidies necessary from rich countries to pay for this aren’t forthcoming.

Promises of abundant cheap renewable energy with well-paid union jobs were an empty promise. Perhaps Biden’s dementia was already affecting his judgment when he spoke those words.

Critics argue that prolonging the use of natural gas risks embedding its use and GHG emissions in our energy systems for decades to come. Bill Gates made this flawed argument in his otherwise thoughtful book, How to Avoid a Climate Disaster: The Solutions We Have and the Breakthroughs We Need.

But to reject natural gas is to embrace the fantasy that solar and wind will fully replace them. This has led to an enormous misallocation of resources and subsidies to promote energy sources simply inadequate to the task.

Instead developing countries should be encouraged to prioritize gas, which emits around half the GHGs as coal and is a ready substitute for power generation, heating, cooking and many industrial uses. Emissions will fall, which under current policies they’re not.

There are encouraging signs that commercial choices around the world are pre-empting enlightened policymaking by already moving in this direction. Forecasts for exports of Liquefied Natural Gas (LNG) continue higher. This is aided in part by Trump’s sensible removal of the LNG export pause imposed by Joe Biden in a desperate move to excite progressives about his re-election. The US is leading The Natural Gas Energy Transition.

The US and Qatar are planning increased LNG export capacity. Russia may even manage to export more following peace with Ukraine, although surely the Europeans will have the good sense to shun such a fickle supplier.

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What receives less attention is the growth in import terminals to receive LNG. Natural gas is liquefied to 1/600^th of its volume before being loaded onto an LNG tanker. At the other end a regassification terminal restores it to its gaseous form for use by customers.

There are often articles projecting a surplus of LNG in years to come, warning that export terminals will struggle to use all that capacity. Less is written about regassification capacity, which is on track to be twice as big. In other words, if every LNG export terminal projected to be operational by 2030 runs at 100% capacity, only half the regassification availability would be needed. It seems more likely that future LNG exports may yet be inadequate to the demand.

For example, India’s LNG imports from the US reached another all time high last year.

The US has reduced emissions by over 15% in the past fifteen years, mostly by coal to gas switching for power generation. The growth in LNG exports will at least keep emissions below where they would otherwise be and may even reduce them if developing countries take advantage of the opportunity to reduce coal use.

In a few years once Energy Secretary Chris Wright gets his hands on the numbers, don’t be shocked to see President Trump lay claim to being the most consequential climate change president in history. Progressives will be left in stupified silence by such a claim, but it’ll be based on promoting what works, which is natural gas.

We have two have funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Suppose for a moment that the Sierra Club was a political party, with candidates running and elected officials in government. They might look like Germany’s Green Party, which has drawn support from idealistic German voters since the 1980s. They are politically left, view everything through the narrow prism of environmentalism and have a history of pacifism although in recent years have become less so.

In other words, they promote wholly impractical solutions to the big problems of today. For Germans worried about economic growth, cheaper energy and national security, the Greens have little useful to say.

In 2011 the Greens’ fervent desire to shut down all nuclear power became a reality when Chancellor Angela Merkel led the Bundestag to do just that, forming the cornerstone of the world’s dumbest set of energy policies.

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In this weekend’s election their share of the vote slipped by 3.1% to 11.6% compared with 2021. Few other countries are so burdened (see Germany’s Costly Climate Leadership).

European energy companies have adopted more aggressive renewables targets than their US counterparts, which has hurt operating performance and caused their stock prices to lag. BP recently abandoned their target to increase renewables generation 20X by 2030. Despite the claims by many environmental extremists that solar and wind are cheap, profits are elusive in this area and electricity prices where renewables dominate are high.

The only energy transition of any consequence in the US is the one from coal to gas (see The Natural Gas Energy Transition). One of my favorite charts shows the increase in energy output from natural gas consistently running 8X higher than renewables over the past couple of decades.

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Many commentators are distracted by % growth rates which always appear impressive from a low starting point, creating the impression of dramatic change. They mistakenly think the country is rapidly shifting to solar and wind, which wasn’t happening even before the election.

Wood Mackenzie offers an interesting perspective on the drivers of natural gas demand in different regions of the world. In the US its reliability in power generation is seen as key to developing the most sophisticated AI models. Data centers are wholly avoiding weather-dependent power, which is useless to them and prohibitively expensive with or without costly back-up for when it’s dunkelflaute (German for calm and cloudy).

In Europe, Wood Mackenzie finds gas-fired power is gaining support to compensate for renewables’ intermittency and seasonal needs. This is where the world’s most expensive power is found. In this blog post, Robert Bryce listens to a London cab driver complaining that his energy bill has more than tripled in four years. The UK is “hurtling toward net-zero oblivion.”

Wood Mackenzie adds that in SE Asia gas is a vital source of baseload power to reduce their reliance on coal, which pollutes and generates as much as 2X the greenhouse gas emissions as natural gas. The US can help lower emissions with LNG exports that displace coal, allowing the region to emulate our success in cutting CO2.

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Chris Wright, our new energy secretary and former CEO of Liberty Energy, has a view that’s shared by vast numbers of voters. Human-induced rising CO2 levels are real. But it’s just one of several major global challenges including energy poverty, malnutrition and endemic diseases. In spite of billions of words spilled in the media, our lives haven’t been much affected. It’s hard to maintain a permanent crisis that lasts for generations.

The International Energy Agency (IEA) has morphed into a cheerleader for renewables in recent years. Their annual forecasts omit the most plausible scenarios in favor of absurdly unrealistic ones. Perhaps in response to criticism, the IEA is contemplating restoring the Current Policies Scenario in their next publication. This is the only one remotely worth consideration and restoring it may bring back an element of credibility.

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EVs are undergoing a reality check. German automaker Porsche is spending over $800 million this year on traditional engines and hybrids as their EV sales continue to plummet. The most successful EV market is China where a new EV costs under $10K. This seems the right approach. At that price in the US range anxiety wouldn’t matter because households could make 95% of their trips on an overnight charge and still keep a regular car for longer journeys.

The rollout of US charging stations under the Inflation Reduction Act NEVI program has been painfully slow. Politico Energy reports that only 56 new stations were added last year, and now the Administration has ordered states to pause any such spending. With the outlook for EVs uncertain, I can’t see the point in buying much more than the road-worthy golf carts that glide around places like Naples, FL.

We have two have funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

It seems a lifetime ago, but in the latter stages of the capital bust that was the shale revolution, capex plans were often poorly received. In late 2018 Targa Resources (TRGP) drew the ire of investors when then-CEO Joe Bob Perkins dismissed criticism by calling their spending plans “capital blessings” (see 4Q18 Energy Infrastructure Earnings Wrap Up).

It was around this time that Energy Transfer CEO Kelcy Warren said, “A monkey could make money in this business right now.” following a strong quarter earlier in the year.

Nonetheless, capex plans often failed to draw enthusiasm, and the pandemic was yet to come. On March 20, 2020 when MLP closed end funds were self-immolating (see MLP Closed End Funds – Masters Of Value Destruction), TRGP traded as low at $3.66. Last Wednesday it traded at $211. Your blogger doesn’t regret missing that buying opportunity – I’m happy enough not to have had to sell at the time.

Since then, capital discipline has provided a tailwind for sector performance. Investors cheered reduced spending plans. That wretched little girl Greta and her miserable cohort helped by protesting against reliable energy, which motivated companies to trim spending. Leverage fell, dividends grew and companies began buying back stock.

Hug a climate protester and offer to drive them to their next protest

The sector is moving into a new phase. Climate protesters with their dystopian world view have been discredited. Traditional energy is back in fashion. Trump promotes US oil and gas exports at every opportunity. Data centers are spurring growth in gas-generated power.

Reflective of this emerging trend, Energy Transfer (ET) surprised with an increase in growth capex to $5BN for 2025 along with $1.1BN in maintenance capex. Prior expectations had been for around $4BN in total capex. Among their projects was the first of eight gas power plants that are supporting their own operations. They’ve received requests from 62 power plants and 70 data centers to date.

Williams Companies (WMB) announced two small acquisitions totaling $632MM. Although they have yet to announce a specific data center related deal, the company expects to meet significant new natural gas demand from data centers.

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Given the almost 58X recovery in TRGP since the 2020 low, Joe Bob Perkins can probably claim that he was right and his critics, including your blogger, were wrong. Targa became fully integrated from the Permian basin to the Gulf of America in 2019 with the completion of its Grand Prix Natural Gas Liquids (NGL) pipeline.

Subsequent investments including the Daytona NGL Pipeline to expand the Grand Prix system further improved vertical integration. This allowed them to provide services to E&P companies all along the value chain from gathering and processing to fractionation, storage, transportation, and across their export docks. Midstream companies call this multiple opportunities to “touch the molecule.”  TRGP’s Grand Prix network moved 872K barrels per day of NGLs during 4Q, with capacity estimated at 1.1 million.

TRGP’s 2025 capex was increased above the $2.3BN expected figure to $2.6-2.8BN. JPMorgan reported this as bringing forward later years’ spending in response to increased producer activity, which sounds like a good thing. They recently announced Delaware Express a 30-inch, 100mile pipeline expansion of Grand Prix into the Delaware Basin in Texas.

Wells Fargo calculates that over the past five years TRGP has invested $13BN to earn a 20% return on invested capital. Only WMB and Cheniere can boast higher returns.

To quote my partner Henry Hoffman, “TRGP is just a wonderful example of how this franchise model works with full integration.”

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In spite of these examples, capex is not growing across the sector. Wells Fargo sees little if any increase over the next several years. The opportunities are limited to companies in the natural gas business and others like TRGP that have created a uniquely integrated value chain that is drawing additional demand. Growth spending remains tied to clearly identified projects, which should assure attractive returns.

In other news, President Trump is using every opportunity to promote exports of US oil and gas. At a recent lunch with his Japan counterpart they discussed sending LNG from Alaska. This would require completion of an 800-mile pipeline across Alaska’s north slope, a difficult project that has been contemplated many times over decades but not yet attempted because of difficult terrain.

High level discussions have also taken place with India. Currently there are no US LNG export terminals on the Pacific, although Sempra’s Costa Azul project in Mexico, fed by U.S. gas, is expected to start commercial operations next year.

Given the attention Trump is lavishing on LNG exports, it still seems to us that any indication Europe is planning to increase gas imports from Russia will be poorly received in the White House.

We have two have funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Among Winston Churchill’s many memorable quotes is, “An appeaser is one who feeds a crocodile, hoping it will eat him last.”

This applies to some European countries’ posture towards Russia. The Economist recently asked, Will Europe return to Putin’s gas? Could they return to their reliance on Russian energy? The question has been buffeting LNG stocks in recent days. It would appear inconceivable that the continent should go back down that road, after Russia weaponized its gas supply following the invasion of Ukraine.

Volumes through Nord Stream gradually fell throughout 2022 until an explosion ruptured three of the four pipes that make up Nord Stream 1 and 2 in September. Germany scrambled to lease Floating Storage and Regasification Units (FSRUs). Europe’s LNG benchmark TTF soared by over 10X.

Even today, the TTF benchmark trades at over $15 per Million BTUs (MMBTUs) versus $3.60 in the US.

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High energy prices are a headwind to GDP growth. Euro-area growth of 0.7% last year and this compares unfavorably with the US which is chugging along at 2.8%. Europe has lagged the US for many years and their green energy policies are partly to blame for persistent underperformance.

Germany has the worst energy policies of any country (see Germany’s Costly Climate Leadership). Their energy transition, or “Energiewende” has seen a huge focus on solar and wind even while they’ve shut down nuclear. Dependence on Russian gas was another strategic blunder. They’ve even coined “dunkelflaute”, the name for cloudy, calm days when renewables are just expensive junk. Germany has endured periods of dunkelflaute in recent years, forcing them to use more coal and gas (see Lemming Leadership).

Gas prices have remained high since the invasion. This has caused many companies to complain that they can no longer manufacture profitably in Germany (see Germany Pays Dearly For Failed Energy Policy).

Russian gas imports have fallen but not disappeared. Europe’s stance towards Ukraine’s efforts to repel its invader is one of qualified support. They’re providing money and certain weapons in a calibrated manner intended to avoid causing too great offense. They’d like to constrain Russian energy exports but still need some natural gas so prices don’t go too high.

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US direct negotiations with Russia over Ukraine therefore open the question of what Russian gas exports will look like following the end of hostilities. Much of the gas Russia used to send through Nord Stream has remained in place in Siberia, although they have been able to increase LNG exports.

Negotiations with China on building the Power of Siberia 2 pipeline have dragged on for years. This would more than double the pipeline’s current capacity, but China has shown little urgency to reach an agreement.

Since Europe never completely stopped buying Russian gas, they’d presumably be open to buying more. This has caused some to consider whether the sabotaged Nord Stream pipeline could be repaired and re-opened.

There’s no precedent for such a project. The pipeline runs from northern Russia across the Baltic to Germany. It’s made of steel 1.6 inches thick, with another 4.3 inches of concrete wrapped around them. There are around 100,000 sections of pipeline each weighing 24 metric tonnes.

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Following the explosion in 2022 three of the four pipelines flooded with seawater. It’s not clear this could ever be restored to service. The pipelines have been suffering corrosion for the past two and a half years. Repairs would mean either replacing the damaged sections  or patching them up in place.

This would require specialized ships with cranes strong enough to lift the components. The pipeline would then need to be laboriously inspected along its entire length. Scores of divers would be required. Much of the pipeline lies at depths of 250-300 feet.

The seawater would need to be pumped out, not a trivial task since the pumps and compression stations were designed to move natural gas, not much heavier water.

Two years ago the owners (majority owner Gazprom along with Wintershall, Engie, Gasunie and E.ON) met to discuss how to preserve the pipeline for possible re-use in the future. E.ON has already written its stake to zero. It’s currently mothballed. Many observers think it’s beyond repair.

Assuming technical solutions could be implemented to restore gas supplies on Nord Stream, would this mean a political agreement? In his first term President Trump railed against Germany’s planned construction of Nord Stream, rightly asking why US troops were stationed in Germany offering a defense again their gas supplier.

It’s hard to imagine Europe increasing gas imports from Russia without Trump raising the same issue. US LNG exports to Europe surged following the loss of Russian supply. It’s no exaggeration to say that America kept the lights on in Europe over the past couple of years. Nonetheless, so far this year Europe’s LNG imports from Russia are running at record levels.

Trump has been a vocal proponent of growing US oil and gas exports. He’s suggested to the EU that LNG exports could be linked to tariff negotiations.

Markets have been interpreting a Ukraine cease fire as causing Russian gas exports to Europe to displace those from the US. We don’t think that’s likely.

We have two have funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

On Thursday morning Williams Companies released their earnings without the rumored announcement of a Behind The Meter (BTM) deal. The stock briefly dipped as algos reacted to the news release but was soon rallying because the broad outlook for natural gas demand remains strong.

It’s turning into a global high tech arms race. Proliferation of data centers is driven by two factors: (1) every country wants to control the physical location of the AI that’s increasingly viewed as crucial to growth (2) keeping the physical distance between data centers and users short enough to eliminate any noticeable latency.

Last week French President Macron announced that 1 Gigawatt of nuclear power would be dedicated to support $BNs in investments in AI projects. Along with other initiatives from Brookfield Asset Management and Middle Eastern investors, these will be part of $113BN in commitments that Macron will unveil next week.

The reliance on nuclear power, which provides over 60% of France’s electricity, is the European way of building data centers while maintaining fealty to their green ambitions. Macron even offered his own version of drill baby, drill: “Plug baby, plug.”

Vice President JD Vance was at a French AI summit warning  against Europe’s desire to impose regulations that would affect US technology companies.

The proliferation of new data centers is making it hard to estimate the growth in global power demand. The Energy Transfer deal with Cloudburst announced on Monday promised 450 Billion BTUs of natural gas every day to run a gas turbine. This is almost 0.5% of daily US gas production, a huge amount (see AI Demand Ramps Up).

However, there was some confusion because reports estimated this would produce 1.2 Gigawatts (GW) of power daily, whereas most observers would expect the amount of natural gas contemplated to produce three times as much power.

ET’s earnings call includes the term “data center” 27 times, reflective of the mix of questions the management team fielded from analysts. They’ve received requests from 70 prospective data centers across 12 states. If each one was the same size as the Cloudburst BTM agreement (ie 0.45 Billion Cubic Feet per Day, BCF/D) that would add up to 31 BCF/D of gas demand.

It shows the uncertainty around forecasts related to data centers. Wells Fargo revised their ten year growth forecast for US natural gas consumption from 12 BCF/D to 11 BCF/D in the wake of the DeepSeek news a couple of weeks ago (see Pipelines And The Jevons Paradox).

The 1 BCF/D reduction by Wells Fargo suggests a precision that doesn’t exist for 2035 gas consumption. They’re simply registering their view that DeepSeek is a net negative to earlier projections.

Data centers need 24X7 power which is why they’re not planning to rely on solar and wind. Even combined cycle natural gas plants have downtime for maintenance – typically around 5%. Diesel generators and batteries are typically planned for back-up. Using batteries 5% of the time seems much more sensible than the 60-70% that they’re needed for weather-dependent solar and wind.

ET’s CEO Marshall “Mackie” McCrea couldn’t resist commenting: “How wonderful is life after this election when we have a President and an administration that loves this country that fully recognizes how blessed we are with…fossil fuel resources.”

The International Energy Agency (IEA) published a report forecasting global electricity demand will grow at 4% per annum to 2027. 85% of this growth is expected to be in emerging economies. The additional 3,500 Terrawatt Hours of power needed is equivalent to adding a new Japan every year.

The US is expected to continue the 2% growth of last year following a couple of decades of flat consumption. GDP and the population grow, but energy efficiencies offset the increase in power demand that would otherwise result.

In 2023 EU power demand slumped to the levels of two decades ago and only managed 1.4% growth last year. European industry still pays around 2X the US price for electricity and 50% more than China.

The IEA is forecasting 1% annual growth in global natural gas power generation through 2027. This is probably too low. Last year was +2.6%. The IEA retains their cheerleading role for renewables.

We’ve been bulls on natural gas demand for years. We think even we underestimated the potential.

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Finally, we were very saddened to lose long-time friend Austin Sayre who died peacefully at the age of 94. Austin asked me to manage his portfolio back in 2009 when I wasn’t giving any thought to managing other people’s money. He was our first client.

Austin was witness to my early efforts at golf, having generously offered to sponsor me at our local club in New Jersey. When I once took seven strokes on a par 3, he memorably commented, “You sure got your moneysworth on that hole!”

Austin was an unfailingly charming and upbeat man. I feel privileged to have known him. Austin will be sorely missed by many people. A life well lived.

We have two have funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

On Monday Energy Transfer announced the first Behind The Meter (BTM) agreement of the AI era. They’ll provide up to 450 Million Cubic Feet per Day of natural gas to a data center being built by CloudBurst Data Centers in central Texas.

This represents 0.45 Billion Cubic Feet per Day (BCF/D), almost 0.5% of US gas production and a staggeringly large amount for a single location.

As we noted recently (see Hyperscalers Plow Ahead), BTM arrangements don’t spread the cost of new power infrastructure across existing users. This avoids triggering a political backlash since data centers generate few jobs.

A couple of weeks ago DeepSeek cast doubt on the forecast increases in power demand that have helped boost natural gas infrastructure stocks (see Pipelines And The Jevons Paradox). Since then, companies such as Meta and Amazon have reaffirmed their capex budgets on data centers.

Morgan Stanley estimates that the first data centers to support the $500BN Stargate project that President Trump recently announced with require 0.66 BCF/D if fully supported with natural gas driven electricity.

Most observers have concluded that ten-year energy forecasts are uncertain and therefore not much different. Just the Cloudburst and Stargate deals could consume 1% of US gas output and suggest that natural demand forecasts could be revised higher.

The climate extremists’ view of the energy transition is undergoing a reassessment. The Army Corp of Engineers has temporarily paused 168 permits for renewables projects. Total CEO Patrick Pouyanne stopped investment in offshore US wind following the election, although allowed that it could resume after four years.

Shell recently wrote off their investment in the Atlantic Shores wind project that was planned off the coast of New Jersey. Even though New Jersey is unfortunately a very blue state, offshore wind turbines are wildly unpopular with Republican residents of the Jersey shore. Their complaints include the spoiled view and the construction required for high voltage cables to bring the power through beachfront communities.

Atlantic Shores now looks unlikely to progress, cheering the red part of the garden state where we have a summer home. Newark Airport’s Terminal A still sports ads promoting the project. I expect they’ll soon be removed.

We don’t make a living forecasting EV sales, but if pressed would suggest they’re going to be soft. The rollout of charging stations funded under the Inflation Reduction Act has been slow, with only 176,000 in place by October, just 22% more than a year earlier.

The White House wants to stop building new charging stations. Withholding funding may ultimately be over-ruled by the courts, but the uncertainty about charging availability is likely to dissuade many potential EV buyers since range anxiety is one of their biggest concerns.

Volkswagen is slashing capacity at its EV factory in Zwichau, Germany only five years after it was hailed by former Chancellor Angela Merkel for being an EV-only facility. Meanwhile BMW plans to continue investing in internal combustion engines, hedging its bets.

Last year Ford lost $5.1BN on EVs and expects this year to be worse. Western auto companies are switching to EVs faster than consumers, with deleterious financial results.

Many Republican voters were drawn to Trump’s promise to “drill baby, drill” during the election. Energy investors are less enthusiastic. They remember the poor returns under Trump 1.0 that were reversed under Biden, even though in 2019 he pledged to end fossil fuels.

So it was mildly surprising to see Enterprise Products Partners (EPD) cancel their plans to build the Sea Port Oil Terminal (SPOT) off the coast of Texas. This would have accommodated some of the largest crude tankers, but EPD found insufficient customer interest to proceed.

Energy infrastructure usually gets built only when firm commitments to use it are in hand. This shows that in spite of Trump’s pledge to boost oil output, financial returns need to be there. E&P companies are less enthusiastic. Financial discipline continues, which should appeal to energy investors.

Finally, a follow-up to our recent video (watch Why Not Nuclear?). The International Energy Agency found that nuclear plants delivered since 2000 in the US and Europe were on average eight years late and cost two-and-a-half times their original budget.

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The nuclear industry desperately needs to settle on standard designs that will allow economies of scale in components and simplify the regulatory process. Britain’s Sizewell C plant is designed to match as closely as possible the Hinckley Point C reactor where construction began in 2016.

US nuclear manufacturer Westinghouse was forced into bankruptcy in 2017 because of cost overruns at its Vogtle plant in Georgia, where completing units 3 and 4 took twice as long at double the projected cost.

Having learned from this experience, newly capitalized Westinghouse is negotiating to build plants in Ukraine, Poland and Bulgaria based on its AP1000 design. No modifications are allowed. Determined to control costs by sticking with what they know works, CEO Patrick Fragman says, “Basically, you can choose the color.”

The nuclear industry needs more of that.

We have two have funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

On Friday both the Wall Street Journal and the Financial Times ran stories about planned capex on data centers by the big US tech companies. The DeepSeek news of two weeks ago hasn’t resulted in any discernible change. The case for increased power generation remains intact.

On Wednesday Williams Companies will report their quarterly earnings. They have hinted that they may announce a “behind the meter” (BTM) deal to provide natural gas for a dedicated power station co-located with a new data center. They have in the past said there are numerous discussions under way. BTM arrangements bypass the existing grid, which speeds up approvals and installation.

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Electricity grids operate with high fixed costs that are broadly shared across customers, commensurate with their usage. Adding significant new infrastructure to accommodate growth in demand spreads that new expense across the user base, in effect subsidizing the new users at the expense of the existing ones. Regulators will look carefully at this to ensure rates don’t go up unreasonably.

Talen Energy and the PJM grid plan to provide nuclear power to a new data center being built by Amazon Web Services. FERC rejected the agreement, finding it was potentially adverse to utility customers because it would require additions to the existing grid infrastructure and possibly increase rates for everyone. BTM is a way to avoid that.

However, it means the data center is exposed to downtime on its co-located power source. Natural gas combined cycle power plants typically run 95% of the time, far better than the 20-35% common with solar and wind, which is why renewables aren’t much use to data centers. Nonetheless, even 5% downtime for maintenance leaves a coverage gap that a grid connection could otherwise alleviate. As further announcements are made we’ll see how the industry is addressing the challenge.

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Liquefied Natural Gas (LNG) stocks slipped last week on reports that the White House is negotiating directly with Russia to end the war in Ukraine. There’s some speculation that the conclusion of hostilities could prompt a resumption of EU imports of natural gas from Russia, reducing the need for US LNG.

The Nord Stream gas pipelines that sent Russian gas to Germany rank up there among the dumbest energy policies in history. Trump railed against this dependency during his first term in office, rightly asking why US troops were stationed in Germany to protect against an attack from their gas supplier. Since the invasion Russia’s natural gas exports have fallen by more than half. It has struggled to find buyers and to get its gas to market.

We think any natural gas agreement as part of a Ukraine ceasefire is more likely to embed EU imports from the US not Russia. Thoughtful European policymakers won’t want to repeat the misplaced trust in Russia of former German Chancellor Angela Merkel, who should be spending her retirement giving speeches apologizing for her strategic blunders.

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Venture Global (VG) has traded off sharply since its IPO. The market is applying a management discount based on how they’re perceived by customers. Last week Total CEO Patrick Pouyanné said they decided not to become a long term buyer of LNG from VG because they didn’t trust the company. This was in spite of the attractive terms being offered.

Once an LNG “train” or export facility is fully commissioned it is generally expected to begin shipping LNG under the terms of its long term contracts. VG’s interpretation of commissioning for its Calcasieu Pass terminal has resulted in a dispute over $BNs in profits that Shell, BP, Galp and Repsol believe they should have earned. VG said the terminal wasn’t complete, allowing them to reap huge profits following the spike in gas prices after Russia invaded Ukraine (see Nothing Ventured, Nothing Gained).

The dispute is in arbitration. Even if VG prevails, their reputation is in shatters. Some of the biggest buyers of LNG won’t do business with them. Even if they do, it’s likely that they’ll negotiate from the perspective that good faith isn’t in the VG lexicon.

Add to this VG’s initial IPO price target which would have valued the company at over $100BN, more than double Cheniere who handles half of America’s LNG exports. Even at its greatly reduced IPO price it was still, briefly, the most valuable publicly listed LNG company. Since then it’s slumped, to the chagrin of IPO buyers who are down by a third.

It seems that if VG shows you an attractive LNG export proposal, you’re supposed to be wary. And if the founders want you to buy some of their stock, the profitable move is to go short.

Founders Michael Sabel and Robert Pender have become billionaires while alienating a lot of key industry figures. VG’s management discount to its valuation is going to be around for a long time.

We have two have funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Although the US is energy independent and a net exporter of petroleum products, we still import certain blends of crude. Canadian tar sands oil is the heavy type for which American refineries are configured as is Mexican oil. Shale oil is lighter. So we buy what we are set up to handle and sell what we’re not. This is just one example of the complex set of trade ties that bind the North American continent together.

There’s unlikely to be any economic benefit from tariffs, which can also correctly be termed import taxes. They can further non-economic goals, such as Mexico’s agreement to station 10,000 troops on our border to prevent illegal immigration. Opinions vary as to whether they’re inflationary, although most analysts agree that they’re a net negative on GDP growth. Much depends on whether retaliation leads to a ratcheting up and extended period of trade friction.

Based on the rhetoric leading up to Saturday’s announcement, they’ll be more impactful on Canada and Mexico than the US. Both countries’ currencies initially weakened vs the US$. Theoretically our trading partners could fully absorb the cost of the tariffs. In practice, as with sales taxes, it will be split between producers and consumers.

Goldman Sachs estimates that the 10% import tax (ie tariff) on Canadian crude will be 2/3rds absorbed by Canadian producers and 1/3^rd by US refineries which will presumably pass this on to consumers via price hikes for gasoline and other refined products. Last year we imported 3.8 Million Barrels per Day (MMB/D) of crude and 0.3 MMB/D of refined products from our northern neighbor. Mexico provides just under 0.5 MMB/D of oil.

Canada has long struggled to get its crude oil from Alberta to export markets. They don’t have any good alternatives to shipping to the US for now. The Keystone Pipeline which runs south to the Gulf of America (Chevron recently adopted this new name) runs at close to 100% capacity. It’s why TC Energy tried for years to build the Keystone XL, which Biden ultimately quashed when he took office in 2021.

The Transmountain pipeline runs west to British Columbia. Its expansion project was completed in 2024 at substantial increased expense and after long delays by the Canadian federal government who bought it from Kinder Morgan in 2018 (see A Closer Look At Canada’s Newest Pipeline). This also operates at close to full capacity. Crude oil can move by rail, but that’s substantially more expensive and not as safe. In 2013 a train carrying crude exploded in Quebec, killing 47 people (see Canada’s Failing Energy Strategy).

Canada’s crude oil options are limited.

The Administration’s goals with tariffs aren’t completely clear. Canada’s not a big source of illegal immigration or fentanyl, and there’s zero chance Canadians want to be the 51^st state. Trump has claimed that we subsidize Canada in the form of our deficit with them, but that’s not the right way to think about the purchase of goods in a free market.

If the US is pursuing a narrower trade deficit, a consequence not so far considered publicly is its impact on our fiscal deficit. Over the past twelve months our trade deficit is $879BN. Those US$ that foreigners accumulate have to be invested back in the US, and a significant portion wind up in treasury securities. Canada owns $374BN. Japan owns $1.1TN and China $769BN. If our trade deficit shrinks, foreign countries will have fewer US$ to invest back in the US.

Absent a lower fiscal deficit, US savers will need to provide more of the financing which will require higher bond yields. Today’s interest rates are inadequate to induce sufficient domestic saving. Coupled with this is that an extended period of trade conflict intended to reduce our trade deficit will probably cause some countries to deem US bonds less attractive anyway for political reasons. China has been lowering its US holdings in recent years as trade tensions have risen.

There’s little reason to expect any improvement in the fiscal outlook. Elon Musk’s Department of Government Efficiency will hopefully uncover some savings, but nothing is likely to change about the trajectory without policy changes. Strong GDP growth is our best near term option.

A weaker economy due to trade friction might lower bond yields. Tariffs might be inflationary. But we’ll need people to buy our bonds, and if there are fewer foreign buyers we’ll need to own more here, which will require lower consumption and more saving by US households.

In an unintended consequence, it may turn out that running a trade deficit keeps interest rates lower than they would be otherwise. We may be on track to find out.

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We have two have funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF