Productivity growth in American oil and gas industry has been unprecedented, record production of crude oil, natural gas and natural gas liquids (LGN) stimulating transport, storage and transformation volumes throughout the intermediate sector. At this stage of the cycle, we think it is natural to ask the question: “Can growth continue?” We think it can. If it is difficult to predict the future consumption trends precisely, we think that there are a multitude of key opportunities to stimulate growth. These are in particular themes such as the rise in American exports of liquefied natural gas (LNG) and the recent increase in energy demand linked to AI. We believe that oil and gas in the middle of the race remains well placed to benefit from these trends for the years to come.
Main to remember
- US electricity demand is expected to increase by 47% by 20401; We believe that natural gas will continue to maintain its position as a dominant energy source, supporting continuous growth in North American energy infrastructure.
- The demand for natural gas abroad has given rise to a booming export market for North American LNG, with an export capacity planned more than double by 2028.2 An American support administration still improves our prospects for the sector.
- The influx of expansions of the Data Center focused on AI has had an unexpected peak in demand growth, stimulating a wave of new energy investments. Recent calls for mid -road gains corroborate the rise in natural gas demand.
Natural gas: an essential element of the electrical network
The United States is under an unprecedented increase in energy consumption. After three decades of almost stable demand for demand, American electricity demand is planned to grow up to 47% by 2040. This peak has significant challenges for grid infrastructure and energy security, requiring a complete energy response – with natural gas playing a central role in satisfaction of the request.
Among the main sources of energy, we believe that natural gas remains the most profitable solution to meet power needs. Its established distribution network, its relative abundance and its reliability in the production of electricity place it among the most practical options. Natural gas serves both as the basis for the power of the basic load and a supplement to inexpensive but intermittent renewable energies, providing versatile applications on various grid systems.
Over the past decade, natural gas has captured the majority of the gradual growth in energy demand. Its market share increased from 28% in 2014 to 42.5% in 2024, mainly to the detriment of retired power plants, which increased from almost 50% of the American electricity production capacity in 2008 to only 16 , 2% in 2023. From 2016 to 2023, natural, natural, gas represented approximately a third of the progressive growth in electricity demand, capturing almost 33.4% of all new electricity production capacities.3
We believe that the North American industry in a median environment is optimally positioned to capitalize on the recent increase in energy consumption and the ascent of the United States as the largest LNG exporter in the world. In recent years, the sector has generated substantial available cash flows, driven by record energy production. This cash flow has been returned to shareholders through share buybacks and distribution increases, while also being reinvested in strategic growth opportunities, such as expanding the treatment and export capacity for meet the growing demand for LNG and NGL. Although intermediate assessments have developed in recent years, we believe that they remain justified by robust income, attractive distributions and the promising growth opportunities that we see in advance.
LNG climb strengthens the domination of American energy
GNL global demand is expected to increase by almost 50% by 2040,4 Pushed by the increase in consumption among Asian markets, geopolitical changes in Europe and the growing needs of the main business partners. Asia remains the largest consumer, representing approximately 70% of global LNG demand in 2024.5 In Europe, US LNG exports compensate for almost half of the loss of Russian gas supply following the invasion of Russia-Ukraine, stressing its importance as a strategic component of American policy. Regional supply shortages, combined with geographic and political constraints, have further amplified the global demand for LNG.
We believe that the strong international demand for American LNG exports is most clearly illustrated by significant price differences between the title transfer installation (TTF) in Europe and Henry Hub in the United States, which serve the main benchmarks prices for their respective regions. As of January 22, Dutch TTF prices remain significantly higher than Henry Hub Henry prices at $ 14.57 MMBTU against $ 3.89.6 Similar price differentials can be observed through the UK natural gas and Asia, highlighting the lucrative profit opportunities for American LNG players, which include notable names in a median environment like Cheniere Energy and Global Venture.
According to basic S&P basic case forecasts, more than 100 million metric tonnes per year (MMTPA) with an additional global LNG supply capacity will have to meet growing global demand by 2040.7 The United States is well placed to meet this increase in demand. After the break of the previous administration on the new LNGs allowed, American LNG projects should advance, double the capacity by 2028. Among the main exporters of GNL, including Australia and Qatar, the United States is expected to represent almost 75% of LNG final investment decisions (FID) in 2025, potentially doubling its market share by 2030.8
Finally, we believe that the inauguration of the new American administration inaugurates a new positivity period for the North American environment. While the new LNG projects take years to deploy, we believe that the abolition of the Biden Age ceilings on the LNG license will allow the use of existing requests, thus increasing the overall growth prospects of the industry . The permissive position of the new administration towards LNG presents safer management teams in the medium -term, which facilitates regulatory concerns that could otherwise hinder the decisions of the project; We believe that this could introduce the additional investment potential that growth growth persists.
The extensions of the data center announce a new source of request
Data centers can see their share of American power demand drop from 3% to 8% by the end of the decade, equivalent to an annual growth rate (TCAC) of approximately 15% compared to 2023 -2030.9 In our Post of July 2024We noted that primary data centers in the United States were to exceed 3,500 megawatts (MW) in the construction activity for 2024,10 marking a record. In the fourth quarter, this forecast was adjusted up between 3,800 and 5,000 MW,11 a large part of which is likely to be supplied by natural gas.
Public electricity services know the construction of natural gas factories and can easily use existing distribution networks, directly supplied via pipeline networks operated by intermediate companies and main limited partnerships (MLP). A conventional natural gas plant can be built as little as a year,12 A crucial consideration in the face of the relentless increase in energy consumption.
We believe that the general trend in natural gas demand remains upwards and that intermediate pipelines are well placed to capitalize on a disproportionate part of this request. While hyperscalers prioritize the reliability and scalability of their accumulations of data centers, there is an increasing preference for background arrangements, where data centers are built near energy sources. Intermediate companies have increasingly quoted short side connecting to existing pipelines as a profitable and easy -to -deploy strategy to meet a new demand.
Supporting this point, TC Energy stressed that almost two thirds of the data center projects envisaged in the United States fall within 50 miles of their pipelines.13 Likewise, corporate products partners have observed a significant change in the dynamics of the supply chain, operators of data centers increasingly circumventing local gas distributors, the acquisition of their own capacity natural gas and the approach of pipeline suppliers directly for connection requests. We believe that this supports an underlying trend in which data centers opt for rapid and evolving solutions to meet the growing energy needs.
Goldman Sachs provides that almost 60% of the rise in power in the energy demand from the data center will be satisfied with sources drawn from natural gas, which results in almost 3.3 billion cubic feet per day ( BCF / J) additional request by 2030.14 The Global S&P notes put this estimate between 3 and 6 BCF / J, leaning towards the upper end of these forecasts.15 Intermediate companies have also noted the increase in demand for data centers in recent profits. The energy transfer (and) has reported receipt requests to connect 40 data centers projects in 10 states, representing 10 BCF / D in potential consumption of natural gas.16 Collectively, we believe that these testimonies highlight the urgency of power needs in the technological sector.
Conclusion: the many sails propelling the environment
While some sectors live or die on a single theme; We believe that North American Midstream has the advantage of several tail winds that stimulate its performance. These include structural trends, such as the expansion of data centers, the electrification of energy networks worldwide and the rise in American LNG exports. In addition, the continuous growth of petrochemicals, as well as the increase in export volumes of oil and LGN, represent parallel drivers who will probably continue to increase the demand for intermediate services. With this confluence of support trends, we believe that the North American sector is positioned for sustained growth and has a lot of momentum to feed its performance.