Supplies of crude oil were already set to increase by 2.6 Million Barrels per day (MMB/D) year-on-year before the OPEC+ announcement on Monday. Demand is growing in emerging economies across Asia, Africa and South America, but not fast enough. This has led to forecasts of stocks increasing by 2 MMB/D this year.

Last year we noted that the International Energy Agency (IEA) was consistently promoting a politically motivated outlook for global energy based on strong growth in renewables (see Serious Energy Forecasts Are Rare). They expect an 8 MMB/D imbalance between supply and demand in 2030.

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Meanwhile the world’s producers of oil expect the opposite and have been increasing output. Spending by international majors on upstream capex in the Middle East this year is likely to be double the low hit during the pandemic, led by TotalEnergies and Exxon. The UAE will add 0.4 MMB/D of capacity over the next couple of years and Iraq 0.3 MMB/D.

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North American output is also increasing, with US production forecast to rise around 0.3 MMB/D and Canada by 0.2 MMB/D. However, the enthusiasm with which energy executives received Trump’s win in November is moderating with lower prices, and forecasts of US output will likely be trimmed. In a sign E&P companies are becoming more cautious about capital allocation, Chevron cut 2Q25 stock buybacks by around a third versus the previous quarter. Shale operator Diamondback Energy just cut their output forecast.

Drill baby, drill isn’t resonating. Lower prices are needed to bring the market back into balance, and this will further stimulate demand.

The contrast between the oil and gas business is striking. Because crude oil is a global market, its price reflects energy sentiment around the world. Oil is relatively easy to transport and the cost of doing so is a small percentage of the value of the commodity.

Natural gas moves through pipelines or on an LNG tanker if going overseas. The combined cost of liquefaction and transport can exceed the cost of the gas, which is why it’s around $4 per Million BTUs (MMBTUs) in the US and $11 in Europe. That gas can be shipped to Europe for much less than the $7 difference is driving the sharp rise in US LNG export capacity.

Natural gas trades as regional markets because it’s so difficult to transport. Its price moves rarely reflect any change in sentiment by energy investors. At times crude oil and pipeline stocks have been correlated, although declining company leverage has weakened the relationship. Last year was a good example, with oil down and midstream up strongly. Gas prices rarely share any relationship with pipelines

Natural gas feedstock to LNG terminals is running at 15 Billion Cubic Feet per Day (BCF/D), up from 12.5 BCF/D last year. By 2030 exports will have doubled from 2024.

Australian LNG giant Woodside Energy bought Tellurian last year as it was teetering towards bankruptcy, or “circling the drain” as RBN Energy puts it. Tellurian’s fatal error was to favor contracts that retained price risk. This reflected then-CEO Charif Souki’s long term bullish view on gas prices but impeded financing because of their increased risk profile.

Woodside just announced Final Investment Decision (FID) on the LNG Louisiana terminal, formerly called Driftwood when it was Tellurian’s chief asset. Ironically, they’ve moved ahead with only 1 Million Tons Per Annum (MTPA) of capacity contracted out, from a total of 16.5 MTPA. This is rare because LNG terminals are only good for one thing, so most operators ensure they’ll have enough long-term customers before starting construction.

Woodside believes they’ll negotiate better terms by assuring buyers the LNG really will be delivered. It’s a choice that was never available to Tellurian, whose failure to raise capital and reach FID meant some contracts were later voided. Woodside is a much bigger company but nonetheless S&P changed their credit outlook from stable to negative on the news. They may also calculate that competing projects that have not yet reached FID may now face increased hurdles to line up financing.

The news does assure that gas flows to the Gulf will continue higher.

Tariff uncertainty has caused many companies to suspend earnings guidance for the year, most recently Ford who estimate a $2.5BN impact. Contrast this with Williams Companies, gliding through the market turmoil with equanimity. Much of the gas feeding Gulf coast LNG terminals will pass through their pipeline network. They raised full year guidance by $50MM to $7.7BN.

The energy sector is diverse. Gyrations in crude prices and fears of slower growth are impacting the big integrated oil companies. But the outlook for domestic gas infrastructure remains positive with no visible impact from the macro issues driving equity markets. It’s free of drama from oil prices or tariffs, the calm port in the storm.

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

Energy Mutual Fund

Energy ETF

On Friday the market achieved a welcome milestone in that the S&P500 rose above its pre-Liberation Day level. The unemployment report suggested that we’re not yet falling into a recession. Signs that trade negotiations with China may start was encouraging.

Midstream earnings have been coming in with little discernible impact from the tariff trauma. Worth noting is that TC Energy (TRP) is investing $0.9BN adding capacity to their ANR gas pipeline which connects Texas and Louisiana to the midwest. It’s to provide power for data centers and TRP estimates a 6X EBITDA multiple which is pretty accretive. AI-driven demand for natural gas still seems robust. They don’t see much near-term impact from tariffs.

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Oneok reaffirmed 2025 full year guidance of $8-8.45BN and is close to a 10% EBITDA growth forecast for 2026. Targa Resources modestly beat expectations and reaffirmed full year EBITDA guidance of $4.7-4.9BN. 1Q adjusted EBITDA was +22% versus the prior year. They noted that they had accelerated purchases of steel to limit the exposure of capital projects already under way to tariffs.

On the Enterprise Products earnings call, co-CEO Jim Teague spoke to the uncertainty caused by tariffs. Many companies have suspended earnings guidance for the year, although no midstream companies have. Teague said, “I have the core belief that when the dust settles the aim of this administration’s policies, laws and regulations is intended to promote U.S. energy, not just for the next four years, but for decades.”

EPD is one of America’s biggest exporters of hydrocarbons. Along with Energy Transfer and Targa Resources they own 90% of the LPG export capacity along the US gulf coast. EPD is a significant exporter of ethane, and China is a significant buyer as feedstock for their petrochemical industry.

EPD said they have no contracts with any Chinese entities, which will come as good news to EPD investors. Volumes are typically routed through international trading companies. Moreover, the ethane tariffs that China initially said they’d impose look set to be lifted, since there are few near term alternatives to buying ethane from America.

What’s notable about all these companies’ earnings is that when asked about tariffs they focused very narrowly on the possible impact on their own purchases. Midstream executives are not overly concerned about declining volumes of hydrocarbons. As we’ve noted before, energy quantities are surprisingly stable (see Midstream Is About Volumes). In addition, if China imposes tariffs on US imports, flows will generally be rerouted to minimize the impact. And in the case of ethane, China’s dependence makes an import tax self-defeating.

The Tony Blair Institute for Global Change published The Climate Paradox: Why We Need to Reset Action on Climate Change last week. Tony Blair became a political pariah after leading the UK into the 2^nd Iraq war in 2003 on a futile search for weapons of mass destruction. He’s been repairing his reputation ever since.

The Climate Paradox is a welcome addition. In the US neither political party has much useful to say on the topic. Democrats beholden to left-wing progressives maintain that solar and wind will solve everything. Republicans generally ignore the issue entirely. Blair has upset fellow left-wingers, which is usually time well spent, by asserting that rising CO2 levels prove the current approach is failing. His policy prescriptions include accepting that hydrocarbon use will continue to rise and we need to invest heavily in carbon capture.

Most significantly, he notes that regardless of the past history of CO2 emissions, the growth is coming from emerging economies led by China and India. Therefore, efforts to reduce emissions should start there.

Like the EU, the UK’s energy policies mean they’ll incur the cost of decarbonization without seeing the benefit, a sure way to lose popular support. California is following a similar path. Cutting emissions while China raises theirs was embraced by left-wing climate negotiators but never made sense to the rest of us.

Spain’s recent blackout was likely caused by over-reliance on solar power whose volatile output crashed the system. The all-renewables advocates keep losing credibility with voters worldwide.

Tony Blair has made a refreshing contribution to the climate change debate, one that aligns with our conviction that natural gas consumption will continue to grow for the foreseeable future.

Finally, most journalists and bloggers occasionally struggle for a topic but usually come up with something. I recently came across this BBC report that is a contender for least newsworthy story of the year. Rest assured that if your blogger ever plumbs such journalistic depths, readers will be sure to let me know.

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

Energy Mutual Fund

Energy ETF

It’s too early to say what caused the loss of power across Spain and parts of Portugal, but early signs are that it was linked to a disruption in solar supply. Some will soon blame it on global warming. But reducing greenhouse gas emissions (GHGs) requires increased electrification of energy systems. European governments are pushing heat pumps and EVs, all with the goal of increasing the use of electricity, more of which will come from solar and wind.

Spain gets 21% of its primary energy from renewables, significantly higher than Europe’s 15%. Red Eléctrica de España, which operates Spain’s grid, estimates that 56% of power generation was from renewables last year, significantly above the EU which was about a third.

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Whether or not Spain’s heavy reliance on renewables is to blame, the bigger lesson is that increased electrification means the grid needs to work all the time. EV penetration is relatively low in Spain, but the country’s extensive public transport system runs largely on electricity. Travelers were stranded. Those pushing decarbonization will be increasingly marginalized unless they’re honest about the importance of grid reliability.

Across the US, independent system operators are warning that reserve margins are declining. This measures the amount of excess capacity that is available during peak demand, which typically occurs during hot summer days when AC units are cranked up.

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The North American Electric Reliability Corporation’s (NERC) most recent Long-Term Reliability Assessment makes for grim reading. Throughout the continent, the margin for error is decreasing. The Midcontinent System Operator (MISO) is projected to have no reserve margin at all by 2034, which means that it will be unable to meet peak demand. On current trends, power outages on such days are virtually certain.

The PJM system, which includes New Jersey where your blogger resides when it’s warm enough for golf, will see its reserve margin drop from 35% to 10% by 2034. NERC warns that, “Resource additions are not keeping up with generator retirements and demand growth. Winter seasons replace summer as the higher-risk periods due to generator performance and fuel supply issues.”

We heat our home with natural gas, which is always available. A heat pump would increase our exposure to the grid, which looks increasingly ill-advised.

There’s no doubt that increased use of renewables is causing this. Natural gas power plants typically operate 95% of the time. Solar and wind are 20-35%. Moreover, if it’s cloudy solar output in a region can drop to zero, whereas it’s rare for gas power plants to all stop production at the same time.

In places where renewables are a significant source of electricity, consumers are increasingly facing compromises on reliability and cost.

Electrification is leading to a concentration of risk on a single energy system. During Superstorm Sandy in 2012, the basement of a house we owned flooded because the loss of power meant the sump pump didn’t work. We now have one that relies on water pressure.

The NERC is warning that we’re likely to endure more power outages in the future. Climate change has lost its political relevance in the US for a host of reasons, and energy reliability will displace CO2 levels as a concern if it’s not there 100% of the time.

Declining grid reliability is a good reason to stick to natural gas for heating rather than heat pumps. Otherwise, a power outage in the winter assures residents of northern states burst water pipes.

After Sandy, sales of gas-powered home generators soared. Some diversification of energy sources seems sensible.

Gas production in the US continues to grow. In their Annual Energy Outlook 2025, the US Energy Information Administration (EIA) forecasts 1.6% annual growth through 2030. They expect Residential, Commercial and Industrial demand to all grow, but see declining use for power generation.

Unlike the EIA, we think power generation will use more gas, not less. It’s reliable and not weather-dependent. It’s what data centers will favor. It’s cheap, and it’s here in the US. Unlike the EU, American voters are not going to sacrifice reliability or price to accommodate China’s relentlessly increasing GHGs.

Cheniere Energy trades at 12.6X Enterprise Value/EBITDA (EV/EBITDA), marginally above the sector median but with double-digit projected growth in Distributable Cash Flow (DCF). Williams Companies is a little more expensive at 13.2X EV/EBITDA but offers DCF growth in the mid-teens. With these rates of cash flow increase, over time their valuations will normalize.

Both companies are levered to increased consumption of natural gas both in the US and via exports.  This is a better bet than assuming increasing dependence on stretched power grids.

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

Energy Mutual Fund

Energy ETF

Midstream energy infrastructure is offering solid defense during a period when Presidential ruminations on tariffs or Jay Powell’s career prospects regularly cause 2% daily market moves. Operating a pipeline business is dull by comparison. These companies are largely immune to trade wars. They just keep generating cash and raising dividends.

Last week Energy Transfer (ET) announced a distribution hike of over 3%. Western Midstream came in with 4%. Earlier in the month Kinder Morgan announced a 2% dividend hike. Enbridge reaffirmed 3% annual increases that were originally forecast in December.

It’s not just that midstream is mostly a domestic business with limited exposure to foreign markets. China was only 5% of US LNG exports last year. If they dropped to zero, we’d just ship to other countries.

Kinder Morgan estimates that more expensive steel imports will add 1% to the cost of new projects. But capex isn’t a big driver of most midstream companies’ profits anymore, in part due to persistent lawsuits from climate extremists weaponizing the legal system and causing delays. Lower capex has boosted free cash flow, supporting dividend hikes, buybacks and reduced leverage.

If you meet a climate protester (and there seem to be fewer of them nowadays), hug them and offer transportation to their next event.

When you combine this limited exposure to tariff turmoil with the inherent stability of energy volumes, it’s hard to see why the fundamental values of these companies have changed at all over the past month. So far none has revised earnings guidance.

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The American Energy Independence Index (AEITR) has sustained its positive return since the election, even though it was already widely believed that Trump would be good for the energy sector. Although still down since “Liberation Day”, it has retained its outperformance versus the S&P500.

Apart from China, across the rest of Asia countries are increasing their imports of US Liquefied Natural Gas (LNG). Japan, South Korea, India, Taiwan and Vietnam have all either set new records or indicated a desire to buy more. It’s a good way to reduce their trade deficits with the US.

Last week we were in Tennessee, dubbed “The Volunteer State” for its strong tradition of military service. In Memphis my wife fulfilled a lifelong dream to visit Elvis Presley’s Graceland while I enjoyed meeting clients over lunch. The next day another client lunch in Nashville afforded a brief opportunity afterwards to visit Andrew Jackson’s Hermitage. Jackson’s consequential life included leading the American army to victory at the Battle of New Orleans, concluding the War of 1812 and ejecting the British from US soil.

I’m glad it turned out that way.

I always enjoy fielding questions from potential investors, as they often reveal concerns others may have about the sector. The meetings in Tennessee provided plenty. The upside for natural gas consumption from data centers is well understood, but nuclear power still causes some to ask whether this will become the solution of choice. The Vogtle nuclear plant in nearby Georgia took fifteen years to complete and cost more than 2X initial estimates.

We should be adding nuclear, but critics argue that the Nuclear Regulatory Commission is excessively bureaucratic and demands multiple redundant safety systems. There are always opponents able to use the court system to slow construction, raising costs and scrambling IRR projections.

Absent changes, investing in nuclear energy remains unattractive. Small Modular Reactors (SMRs) continue to inspire hope, but so far haven’t moved beyond pilot projects designed for proof of concept. Three years ago NextEra CEO John Ketchum called SMRs, “an opportunity to lose money in smaller batches.”

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The impact of the LNG permit pause often draws questions. When the Biden administration imposed this in January 2024, it didn’t impact projects that were already under construction. New projects needing a permit to begin construction had to wait. Three to five years is the typical timeframe to completion, although Venture Global’s modular approach has reduced this.

Trump canceled the pause as one of his first official acts upon taking office. But as the chart from Shell shows, there never was any discernible impact on our increasing LNG export capacity.

The case for midstream continues to be underpinned by demand growth, valuation and White House support. The sector isn’t as cheap as late 2023, but Enterprise Value/EBITDA (EV/EBITDA) recently dipped back below its ten year average following the ongoing tariff turmoil. Given the positive fundamentals which include dividend hikes, amply covered payouts and declining leverage, there doesn’t seem much to prevent valuations moving higher.

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Since the industry roughly finances itself with equal amounts of debt and equity, a one turn improvement in EV/EBITDA from, say, 10.7X to 11.7X (i.e. +9.3%) would push equity values up around twice that. Alternatively, adding the sector’s dividend yield (5%), long-term dividend growth (3%) and buybacks (2-3% of market cap) implies a 10-11% total return without any change in valuation.

These solid fundamentals are what’s behind strong relative performance. They remain in place.

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

Energy Mutual Fund

Energy ETF

Tariff turmoil and the market’s gyrations have elicited more than normal feedback on recent blog posts. Politically, our readers and investors tend to be Republican so many are inclined to look for positives in Liberation Day and the subsequent policy switches. Some echo Trump’s claim that foreign countries have been exploiting the US for years. Canada’s banking market and EU autos are two examples cited.

But the majority of responses express dismay if not alarm at the tariffs – mostly at their unexpected magnitude and unpredictable execution. History shows that Trump usually attempts to implement his campaign rhetoric, so 60%+ tariffs on China should not surprise anyone who followed his campaign last year.

Anecdotal evidence of the disruption is starting to emerge. An importer of cotton bathrobes from China is scouring the world for alternative suppliers since no US manufacturing capability exists. A small company that relies on textile imports and another that manufactures safety equipment with foreign sourced parts are both facing existential threats to their margins. A major manufacturer of paper cups faces tariffs on its exports to Canada, where insufficient domestic capacity exists to provide a replacement.

There persists this romantic notion that America would benefit from making more stuff here. Some critical supply chains should be domestic. We found we were overly reliant on personal protective equipment from China during the pandemic, ironically the source of the outbreak. Polls show that Americans overwhelmingly believe more of us should work in manufacturing as long as it’s someone else.

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The public criticism of Fed chair Jay Powell and pressure to cut rates have not been well received by markets. One especially strong Trump supporter told me that, “The US is now universally viewed as an increased credit risk.”

The upside case for investors requires that Trump 2.0 will measure results by the stock market, like Trump 1.0. Our investors largely voted for him, and their happiness is being eroded with each decline of the S&P500. This theory suggests that eventually a combination of now-less-wealthy donors and fears of a mid-term voter reaction against chaos will ameliorate said policies before they do too much harm. I do sense among some readers growing fatigue over chaotic policy and falling markets.

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It’s best not to rely too heavily on politics in committing capital. Clean energy bulls learned this lesson when Joe Biden won the presidency in 2020. Assuming that their political views and desired returns were in alignment, investors poured money into a sector that has become a serial disappointment.

Even limitless government subsidies couldn’t offset the intermittency of weather-dependent power and the range anxiety of EVs. Betting on profits from the energy transition has been a fool’s errand. A Democrat in the White House couldn’t alter the physics.

Voters care about combating climate change as long as it doesn’t cost them money. Democrats have failed to convince them that it’s worth paying more for low-carbon power. Climate change barely registered as a concern during the last election, far behind unchecked illegal immigration and inflation.

This blog has taken the pragmatic view that it’s worth reducing emissions and increasing cleaner-burning natural gas consumption as a coal substitute is the most impactful way forward. The science and investment returns vindicated this view.

Elections haven’t historically caused us to change our investment approach. More recently, neither has tariff turmoil. That the world is going to use more energy and that US natural gas will play an important role have always been enduring themes.

Trump’s robust advocacy of US oil and gas exports is a welcome change from Joe Biden. I listened to Larry Summers on an All-In podcast last week criticizing the Biden administration both for canceling the Keystone XL pipeline in 2021 and for the pause on new LNG permits in 2024. Summers was Treasury Secretary under Clinton from 1999-2001. His criticism of Biden shows how Democrat policies have shifted left in recent years.

The midstream sector’s prospects were good anyway, but the new Administration’s support for LNG exports has helped. Energy Transfer’s recent Heads of Agreement (HOA) with MidOcean Energy to jointly develop their Lake Charles LNG export terminal is an example of how the Trump Administration’s refreshing support for energy exports is attracting capital.

In another case, the Army Corp of Engineers granted national energy emergency status for Enbridge’s (ENB) Line 5 oil pipeline tunnel project. Environmentalists have opposed this even though owner ENB is seeking to replace the existing pipeline which they say may leak.

It’d be a shame for the tariff turmoil to detract from other more constructive policies.

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

Energy Mutual Fund

Energy ETF

On Wednesday during Q&A following Jay Powell’s speech to the Economic Club of Chicago, he warned that the near-term impact of tariffs is likely to be rising unemployment and rising inflation. The Fed’s twin mandate is one of maximum employment consistent with price stability. Powell said, “I believe that for the remainder of this year, we may deviate from these goals, or at least not make any progress, and then we will restore progress as much as we can.” 

Slower growth with higher inflation is stagflation, a word Powell managed to avoid but nonetheless described. The Fed can’t address both simultaneously and will generally prioritize whichever variable is farther from their long-term goal.   

The White House has made no secret of its desire for lower rates. Trump has mused openly about firing Jay Powell, but in any event his term as chair runs out in May of next year. The pool of replacements who can satisfy both the president and bond market vigilantes is a small one. Trump’s a real estate guy, and in that business inflation and low rates are a great combination.  

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Given the choice, the White House would prefer low rates with debt issuance heavily weighted towards short maturities. Interest expense will exceed $1TN next year, 3.2% of GDP. The budget outlook and interest rate policy are becoming inextricably entwined. Political leaders will increasingly be able to blame the Fed for our budget deficit through pursuing needlessly tight monetary policy.  

The obvious casualty of pursuing the lowest possible short-term rates will be inflation. But we have a lot of debt and its trajectory is no secret. Financing it at negative real rates has been the time-honored solution of profligate governments for centuries. 

In 2013 I made the case that the US was going down this road in Bonds Are Not Forever: The Crisis Facing Fixed Income Investors.  

We still are.  

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Part of that process involves debt monetization via the Fed expanding its balance sheet. Their holdings almost reached $9TN three years ago as part of the pandemic response, but since then have declined by over $2TN. Nonetheless at $6.7TN the Fed holds $5-6TN more than needed for the smooth operation of monetary policy.  

Oddly, long term yields have risen during the tariff turmoil. Theories why include liquidation of a huge basis trade by a Japanese hedge fund and concerns about unstable US policy, but there’s no consensus. A reduced trade balance will mean less foreign demand for our debt, since exporting countries will have fewer dollars to invest. This need not matter if we reduce our budget deficit commensurately, but absent that Americans will need to buy more bonds which will require higher yields.  

China’s holdings are declining and will probably continue to. I doubt they’ll sell aggressively because it would be highly disruptive. But if yields move too high the Fed will conclude it must restart quantitative easing. And if it ever looks as if China is dumping bonds, Trump is just the guy to note that when you owe someone $784BN (China’s holdings as of February) it’s really the lender’s problem.  

Another move from the real estate playbook. 

None of this is intended to criticize. Aggressive debt management might be our best strategy when we’ve issued so much. You take the world as you find it. But surely, nobody can seriously believe in 2% inflation.  

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The University of Michigan consumer survey shows long term inflation expectations of 4.1%, similar to the levels reached during the pandemic. A quarter of respondents think it will exceed 10%. We have a president and budget outlook both acutely sensitive to interest rates.  

Pipeline tariffs – not to be confused with import taxes – are mostly regulated to prevent unscrupulous pipeline owners from exploiting their position. Wells Fargo estimates that around half the EBITDA of the industry benefits from annual price hikes linked to the PPI. Following the 2022 inflation spike, increases of 13% were not uncommon in 2023.  

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This supported 5% distribution growth in 2022, a level which has continued up until today. It’s why the American Energy Independence Index (AEITR) was +21% while the S&P500 was –18% that year.  

 Import taxes are having a modest impact on new construction projects. Kinder Morgan recently estimated it at around 1% of major project costs on their earnings call. But the dominant inflation impact is on companies’ ability to raise prices.  

This is why we believe midstream infrastructure offers one of the most attractive ways to own inflation-protected assets. I’ve been invested in the sector for over two decades, partly because of my long term debt-fueled inflation outlook described in Bonds Are Not Forever. We’re probably facing an imminent bout of inflation. This is a sector that showed its resilience in such a scenario just three years ago. 

Last week President Trump said the EU should close its trade surplus with the US by buying $350BN of US energy. The Administration’s spontaneous policy switches on tariffs have been unpleasant for investors. But at least for those exposed to the energy sector, there’s a gratifying consistency in that oil and gas are invariably part of the solution.

It won’t be easy for the EU to satisfy this demand. Their total imports of oil, gas and coal last year were $420BN, and this is the place where decarbonization at any price drives energy policy. The EU’s green desire to cut hydrocarbon consumption conflicts with increased LNG imports and is unlikely to draw much sympathy from the White House.

Moreover, EU policy is often disjointed. Imports of Russian LNG reached a new record last year. They have a non-binding goal of eliminating Russian supplies by 2027 although some German politicians would like the opposite.

Meanwhile, German Chancellor Friedrich Merz said he would be willing to transfer German Taurus long-range missiles to the Ukrainian Defense Forces. Perhaps imports of Russian LNG generate the electricity that is used to manufacture the missiles?

Coherence is an accusation rarely hurled at EU policy.

Meanwhile, the buildout of US LNG export infrastructure continues to attract capital.

Energy Transfer announced an agreement under which MidOcean Energy will finance 30% of the development of its Lake Charles LNG export terminal.

NextDecade (NEXT) agreed a 1.2 Million Tonnes per Annum (MTPA) 20 year deal with Saudi Aramco, to be supplied from Train 4, part of Stage 2 of their Rio Grande LNG terminal in Brownsville, TX. On Monday TotalEnergies exercised an option to take 1.5 MTPA over 20 years. With these two deals in hand, NEXT expects to move ahead to a final investment decision on Train 4 and begin construction.

NEXT is a highly volatile stock that is risky by the standards of midstream energy with its reliable cashflows.

From a recent, pre-tariff intra-day high of $9.71 on March 25^th NEXT slumped and briefly touched $5.16 on April 7 as markets absorbed the enormity of Liberation Day. A 47% two week decline is only tolerable for those holders willing to overlook the market’s occasional bipolar disorder – which is to say, unlevered long-term holders.

As regular readers know, we count ourselves in that group and believe the upside is commensurate with the risk.

I was in London and Belgium for the past two weeks. I had the opportunity to attend a presentation from a venture capital firm seeking financing for Ukraine’s growing armaments industry, most importantly drones.

I have no military background, but it’s inescapable that UAVs, UGVs and UMVs (respectively, Unmanned Aerial, Ground and Marine Vehicles) have changed the battlefield. The flagship of Russia’s Black Sea fleet was sunk by a UMV last year.

I learned that Ukraine produced 2.5 million drones last year compared with Germany’s 1,000.

The US has underwritten Germany’s defense for decades, enabling their ruinously expensive energiewende (energy transition). The need to boost defense spending and counter the Trump tariffs will force some overdue realism on Germany’s political leaders.

Wherever I travel I’m always looking for contrasts in how different regions use energy. Our hotel room in Belgium had a slot for your room key, without which the lights wouldn’t work. It stops guests going out and leaving the TV on. Dark corridors light up as you enter, triggered by motion sensors that ensure they’re only lit when needed.

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This is because on average Belgians pay twice what the US does for electricity. The shale revolution has kept prices down here, and renewables have pushed them up in the EU, especially in Belgium.

London’s congestion charge on vehicles entering the city center has reduced traffic and emissions. It’s also ensured that most of the cars you see in the west end are either black taxis or expensive toys (Ferraris, Bentleys, Porsches etc), the latter often driven by Arabs presumably spending some of their oil wealth.

To be in Europe means being ready to defend US policies. My friends raised the issue of tariffs – gently, because our long friendships will outlive many more presidencies. But this is mostly how foreigners are experiencing the new Administration.

Republican presidents rarely play well in western Europe, because our political middle ground is to the right of theirs. Uncontrolled illegal immigration, fiscal profligacy that fueled the 2022 inflation spike and a centrist that, once elected, veered left set the stage for November’s result.

Few outside the US appreciate this, as my gentle reminders explained. But I also allowed that the tariffs have revealed no presidential advisors willing or able to explain basic trade economics in the Oval Office.

I like Trump’s energy policies. But tariffs as implemented are capricious and may lead us into a recession.

In the vein of aligning with government policy, investing in hydrocarbon infrastructure and especially LNG export terminals is, in our opinion, one of the best ways to achieve acceptable returns through the current uncertainty.

Dimitri Alperovitch co-founded CrowdStrike, the cybersecurity firm whose faulty software update on the Windows operating system last year led to worldwide IT failures. Alperovitch was no longer with the company, having left four years earlier to launch a nonprofit called the Silverado Policy Accelerator.

In April 2024 he published World on the Brink: How America Can Beat China in the Race for the Twenty-First Century, a thoughtful book on how the US should approach China.

World on the Brink opens with a hypothetical 2028 scenario in which China attacks Taiwan. This resonated with me more than anything else. The rest of the book chronicles the history of the west’s engagement with China, from Nixon’s visit in 1972 through the strategic ambiguity with which subsequent US presidents have spoken publicly about Taiwan.

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Jimmy Carter said, “The Government of the United States of America acknowledges the Chinese position that there is one China and Taiwan is part of China.” Note that we didn’t agree with their position, simply acknowledged it. Joe Biden, when asked in 2022 if the US would defend Taiwan in one of his more lucid exchanges with a reporter, said, “Yes, if in fact there was an unprecedented attack.”

The book goes on to present thoughtful recommendations for US policymakers.

America’s long, ambiguous support for Taiwan has always struck me as not clearly in our national interest. We have a history of favoring democracies over dictatorships, but Taiwan has always complicated relations with China.

It’s like our decades-long military presence in Europe to protect them from Russia. This has passed its expiry date. US defense spending has enabled Europe’s generous government funded healthcare and a ruinously exorbitant pursuit of decarbonization, neither of which would have been possible without American troops stationed in Germany. That’s now changing.

It’s easy to see that this administration’s worldview will assess Taiwan as not worth fighting over.

In 2027 Chinese Premier Xi Jinping will probably be re-elected as leader of the Chinese Communist Party (CCP). At the age of 75, he’ll be in his third decade in power and the oldest leader since Deng Xiaoping. It’ll likely be his last term in office. While US presidents have issued carefully vague statements on defending Taiwan, Xi routinely asserts that reunification of the island with mainland China is inevitable. For the CCP, it’s only a matter of when.

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To westerners, Taiwan looks like an island off the east coast of China. But tilt the map on its side as World on the Brink does and it blocks the gap between the Philippine and Japanese archipelagos. A hostile power could limit the access of China’s blue water navy to the deep waters of the Pacific.

Alperovitch argues that late 2028, with the US presidential election leading to a domestic focus and perhaps even a contentious transition, might be Xi’s best and last opportunity.

It’s a compelling scenario. One can imagine the “If not now, when?” argument as Xi considers whether to seal his legacy with a final crowning achievement.

Most of us have no influence over US geopolitical strategy, but as investors we need to think about the potential for a major conflict like this one. Alperovitch explains why it might be closer than we think.

US foreign policy has suddenly become transactional rather than strategic. Article V of the North Atlantic Treaty which governs NATO says “…will assist the Party or Parties so attacked by taking … such action as it deems necessary.”  The treaty itself leaves room for maneuver, and who doubts that any US military action will be preceded by a negotiation.

It’s not clear that Russian tanks invading Poland would be met with US boots on the ground. Taiwan has no more assurance. They look a lot like Ukraine – vulnerable to the regional superpower without their security being in the US national interest.

In the Middle East, Iran continues to develop its nuclear weapons capability. Deeply buried and dispersed, eliminating their growing missile launch capability represents a complex military challenge beyond Israel’s capability. Their only chance to take out this developing threat requires US support. Will they ever have a better opportunity than during the next four years, with a US administration that is unabashedly pro-Israel?

If not within the next three and half years, then when?

World on the Brink made me think differently about the odds of conflict over Taiwan. I now assess it as more likely than not. My partner Henry pointed out the Israel/Iran analysis and believes a US-aided attack on nuclear launch sites is virtually certain during the Trump presidency.

We don’t make a living from geopolitical prognostications. We’re not changing our investment posture. It does seem that global defense spending is on an upward path as the world adapts to America’s strategic shift.

We think domestic energy infrastructure is among the best investments you could choose at any time. Over the next four years, even more so.

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

Energy Mutual Fund

Energy ETF

Last year luxury car sales in Singapore collapsed. Sales of new Bentley, Ferrari, Jaguar and Rolls Royce models were down by as much as three quarters compared with 2023. This wasn’t caused by an economic slowdown. Singapore’s government clamped down on money laundering.

Most buyers of such cars are Chinese nationals. Car dealers are required to verify sources of financing for new buyers, following a money laundering scandal linked to the Chinese mainland. Vehicles obtained with illicit funds have been seized.

“Pig butchering” refers to a lonely victim who is befriended online and eventually persuaded to transfer money into an investment account – often crypto – at which point the online friendship or romance evaporates, along with the money. The rather graphic term dates back to 2016 or earlier in China.

The Chinese government eventually reacted aggressively, since its own citizens were usually the victims of schemes run by Chinese gangs. Today, a suspicious text message in China is often accompanied by a warning from the government to be careful. Police routinely visit recipients of phishing emails to verify that they haven’t been duped. Public information messages warn people to be vigilant.

Such is the intrusion of China’s security services into everyone’s life that they’re able to protect the vulnerable.

As a result, China has become a harder place for such scams. So, in recent years the industry has gone global. With English being so ubiquitous and America so rich you, dear reader, are the new target.

Scam Inc is an illuminating eight-episode podcast published by The Economist. Journalist Sue-Lin Wong describes a business sector that includes small towns dedicated to scam factories in lawless Myanmar. English-speaking Asians are held there after being kidnapped when applying for a job.

The series opens with the extraordinary story of the CEO of a small community bank in Kansas being duped into transferring $47 million to Bella, a woman he believed to be in Perth, Australia.

Heartland Tri-State Bank CEO Shane Hanes was eventually convicted of embezzlement and sentenced to 24 years. During the investigation and before he was charged, Hanes was so convinced he was involved in a legitimate business deal that he traveled to Australia to look for Bella, who was by now no longer responding to his calls or text messages.

The scamming industry is estimated by some to be worth several hundred billion dollars annually, which puts it in the same league as the illegal drug trade. Many scams go unreported because the victim is too embarrassed or believes pursuit to be futile.

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This brings us to Bitcoin and the rest of the crypto industry, since without it a great deal of criminal activity could not exist.

I last criticized Bitcoin in July 2022 (see Bad Investment Ideas Still Flourish (Part 1)) when it was trading at around $24K. I have many friends who have remained that way because they ignored my advice on Bitcoin. They have sensibly concluded that any insights I might have are limited to energy infrastructure.

The list of profitable investments I have missed is a long one, and Bitcoin would not be at the top. Fortunately, I am not afflicted with FOMO (Fear Of Missing Out). Returns from energy have been more than satisfactory and I stick to what I understand.

Nonetheless, it must be said that none of the original supporting arguments for Bitcoin remain. It is not a store of value: it’s too volatile. It is not a medium of exchange: transactions costs are too high. It is not a haven during inflation: in 2022 it fell while US inflation reached 9%.

It is not safe – Tether was recently hacked for $1.5BN, reportedly by the North Korean government. But it’s also not safe from our government. In 2021 the ransom paid following a cyber-attack on the Colonial pipeline was partly recovered by the US Justice Department.

In fact, there is no point to Bitcoin except that it goes up more than down. That’s the only surviving investment case. Tether, anchored as it is to the US$, doesn’t even offer that.

Nonetheless, Bitcoin’s ascent has been sufficient to draw institutions such as Emory University to invest and the Rockefeller Foundation to consider an allocation. Rockefeller’s CIO Chun Lai, CFA said, “We don’t want to be left behind when their potential materializes dramatically.”

CFA course materials omit a chapter on FOMO, but Mr Lai thinks outside the box.

The scale of the industry uncovered by the Scam Inc podcast suggests that a substantial part of crypto activity supports scams and drugs. Victims often have to buy Bitcoin.

Chainalysis estimates that illicit crypto addresses received $40.9BN last year. This is up from 2023 but still only 0.14% of total transaction volume. However, their original 2023 estimate was $24.2BN which they now recalculate at $46.1BN. They eventually expect the 2024 figure to exceed this.

My guess is that it’s much higher, but well hidden. Bitcoin’s most valuable feature is that it’s hard to trace ownership. It was probably supporting Singapore’s luxury car market, until awkward questions were asked about source of funds.

Scams, illegal drugs and other illicit activity will probably keep increasing, along with Bitcoin. That is the investment case. Just not with my money.

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

Energy Mutual Fund

Energy ETF

A new administration took office determined to change the economy’s direction with overhauled policies. The leader and key advisers huddled, drawing up their plans in relative secrecy. Once ready, they were unveiled with great fanfare, heralding a new dawn in economic stewardship.

Markets, caught by surprise without having had the opportunity to assess them via leaks, reacted with horror as the looming hit to GDP, unanticipated by the new administration or investors, was immediately reflected in prices.

This was how the new UK government under then-Prime Minister Liz Truss began in September 2022. In her case the UK gilt market was shocked by the scale of proposed borrowing. Yields rose. Sterling fell. The government’s unrealistic plans were widely criticized, including by many in her own Conservative party.

A tabloid famously wondered whether her time in office would outlast a lettuce and helpfully posted a photo of Truss next to one, continuously broadcast via a webcam. The lettuce visibly decayed, but her time as PM was shorter still at 49 days.

The UK parliamentary system can change its PM with a speed and brutality unmatched in the US. The British Conservative party has historically shown its leaders less loyalty than the US Republican party, and our political system doesn’t offer the same flexibility. If not, Thursday’s tariff-induced $3TN loss of equity market value would be the beginning of the end.

The exit ramp could be Congress withdrawing the emergency powers which President Trump has invoked that give him the ability to impose tariffs. We have no insight into how far markets must decline to induce such. The US Senate passed a resolution, but a veto-proof two thirds majority in both chambers will be required.

There’s a scale of equity market losses that will be sufficient, but we’re not there yet. Given the unpredictability with which tariffs have been used, the president’s current autonomy over their implementation will remain in Damoclesian fashion to limit any animal spirits to the upside.

To quote my friend and former head of bond trading, in the meantime, “Down’s a long way.”

The economy, financial markets and even the president will all be better served if Congress reasserts its authority in this area. Republicans may care to recall that after Liz Truss the UK Conservatives never regained their reputation for competent economic stewardship and suffered a thumping electoral defeat to the Labour Party last year.

While investors endure more tariff trauma with its associated equity market volatility, it’s worth remembering that demand for US natural gas has historically been virtually impervious to fluctuations in GDP growth. We think this will continue, supporting volume throughput across the related infrastructure.

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Since the shale revolution released enormous amounts of domestic gas, consumption has grown. The 2008 financial crisis was barely a blip. Even during the 2020 pandemic when crude oil prices briefly went negative because of lockdowns, natural gas volumes fell 1.7% but quickly recovered. Within a couple of years they were 3.7% higher. Over the past decade consumption has grown at a 2.2% compounded annual rate.

The US Energy Information Administration expects production to grow at 2% this year and next.

It’s not hard to see why.

Coal to gas switching has resulted in cheaper, cleaner power over the past fifteen years. Pennsylvania’s Homer City coal burning power plant is being converted into the natural gas Homer City Energy Campus. It’ll produce 4.5 GW, enough to power 2-3 million homes although local data centers will be the main users. That will require around 0.8 Billion Cubic Feet per Day (BCF/D) of natural gas, around 0.7% of US output. When operational in 2027 it’ll be the biggest natural gas power plant in the country.

Demand from data centers and LNG exports will continue to underpin natural gas demand growth.

In one bright spot a few days prior to Liberation Day, Vietnam announced it was cutting its import tax on LNG from 5% to 2%. The White House is assuming that our trade partners will generally not engage in rounds of reciprocal tariff hikes. We need more examples like this.

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I was in London last week where I reconnected with several people from high school that I had seen once or not at all in the ensuing 45 years. We had much to catch up on. Satisfyingly, people whose company I enjoyed as a teenager remain that way today. I’ve never regretted emigrating to the US but always enjoy returning to where I grew up.

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

Energy Mutual Fund

Energy ETF