The revenue and earnings outlook for the energy sector has deteriorated this year. Alone among the S&P 500’s eleven sectors, FactSet shows declining revenues of –9.6% when companies report for the second quarter based on bottom-up analyst forecasts.

2025 opened with high expectations following Trump’s election victory. And while the White House has followed through on pro-energy policies, these are generally targeted at boosting output, not profits.

Tariffs have also acted as a headwind to growth. The Economist recently published a podcast titled Teflon Don: can the economy withstand a Trump shock, which expressed surprise at the resilience of the global economy to the evolving regime of import taxes.

Nonetheless, crude oil is down over 10% this year. Bombing Iran did not lead to the feared yet unlikely blocking of the Strait of Hormuz. For energy investors, Trump’s second term has continued the pattern of his first one – his love for oil and gas doesn’t boost the industry’s profits.

Energy was notably weak on Monday. The only meaningful news was that S&P once again declined to add Cheniere to their flagship index when presented with the opportunity by Chevron’s acquisition of Hess.

Had they done so, energy would have become a slightly bigger component of the S&P500, potentially benefiting many more energy names not currently in the index. Betting on a corresponding lift to the energy sector was evidently a popular idea, because unwinding it caused some startling drops. Cheniere was –7.3%, reinforcing the old adage about the market being a voting machine in the short run and a weighing machine over the long run.

Cheniere’s business prospects didn’t change at all, just their stock price.

Factset expects 2025 energy profits to be down 13.3% this year, the worst of the eleven S&P500 sectors.

At the sub-sector level, four are projected to drop: Integrated Oil & Gas (-34%), Refining and Marketing (-33%), E&P (-20%) and Equipment and Services (-14%). By contrast, Oil and Gas Storage and Transportation, otherwise known as the midstream energy infrastructure sector so lovingly followed by this blog, is expected to report 2Q25 profits +14% compared with a year ago.

Next year energy sector profits are forecast to rebound, +20.5%. In spite of recent weakness, 74% of stocks carry a “Buy” rating from Wall Street analysts, the most of any sector.

Midstream businesses will perform with less drama, demonstrating the low correlation with commodity prices that is once again proving valuable to pipeline investors.

LNG exports continue to take an increasing share of total US gas production. RBN Energy reports that feedgas demand to lower 48 LNG export terminals is running at 15.6 Billion Cubic Feet per day (BCF/D), with Sempra’s Cameron LNG facility and consortium owned Freeport both back up after brief disruptions earlier in the month.

The Philippines saw its first decline in coal use for 17 years due to increased LNG imports.

Spain, which suffered a nationwide blackout three months ago because of its over-reliance on renewables, is now using more natural gas to stabilize its grid.

Later this week the White House is expected to release their AI Action Plan, which should support the rapid construction of data centers and their need for reliable power. As New Jersey residents have found, demand from data centers can drive up residential electricity prices.

The Garden State’s mandate that 100% of electricity be zero-carbon by 2035 hasn’t helped (watch Progressive Energy Policies Are Costing New Jersey). The independent watchdog for the region’s grid operator PJM says there’s no capacity available for any more data centers.

Some expect that the opening of public lands for more gas extraction will be part of the solution. Around 90% of oil and gas production takes place on private land, usually regulated by states. Trump is for energy dominance, but the Federal government doesn’t have many ways to influence output. Allowing more drilling on Federal land is one of the few.

Electrical grids are struggling to adapt to a surge in demand for electricity. Business models that spread the cost of new infrastructure across all customers are designed for annual growth of 0.1-0.3% or so. When demand grows 10X as much as in the past, spreading the costs of growth widely is more noticeable and unfair. Data centers create few jobs – indeed, some think AI may eliminate vast swathes of employment across the country.

Placing them in lightly populated regions with their own dedicated supply of energy (known as “Behind The Meter” or BTM) may be a necessary political expedient to avoid an upswell of popular opposition.

Natural gas demand will keep rising.

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

Energy Mutual Fund

Energy ETF

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