Hello, Reader.
Election Day is done, without the chaos many were predicting. We now have a fairly clear picture of the composition of the U.S. government over the next two years.
Donald Trump is on his way back to the White House. And while the House is still undecided, we know that Republicans have taken the Senate.
This will allow President Trump to largely execute his economic plan over the next two years without much pushback.
Of course, that has major implications for the U.S. economy and the stock market.
So, you are probably wondering what industries will thrive over the coming years.
On Wednesday, stocks celebrated the news, with the market rallying more than 2% across the board, paced by huge gains in tech and AI stocks, financial stocks, and small-cap stocks.
That celebration continued – if a bit less heartily – on Thursday, especially after the Federal Reserve confirmed their expected rate cut.
But looking ahead, you are probably wondering what industries will prosper during a Trump presidency.
So, in today’s Smart Money, let’s take a look at an industry that I consider to be a “Buy.” Maybe not for the next few weeks, or for the next few months… but for the next few years.
Then, I’ll share how you can position yourself well for the years ahead.
Let’s dive in…
The Transformation of Natural Gas
I believe that natural gas is a “Buy.”
Now, it must be first stated that not all natural gas is created equal. Its location greatly affects its value.
Today, for example, natural gas fetches $2.75 per million British thermal units (MMBtu) at the Henry Hub in Louisiana, whereas gas at the Waha Hub near the Delaware region of the Permian Basin “sells” for minus $2.46/MMBTU.
In other words, producers near the Waha Hub literally pay companies to truck away natural gas. The Delaware Basin’s natural gas, much like a long-distance sweetheart, is geographically undesirable.
Because of these vast pricing disparities, one company may receive an average of only 40 cents per thousand cubic feet (Mcf) for the gas it pulls out of the ground, while another rakes in more than five times that amount for its gas, on average.
Location matters.
But the pricing structures in place today are not etched in stone. They can shift over time in response to localized shifts in the supply-demand balance.
Today, natural gas prices in the Delaware Basin are depressed for one obvious reason: Gas has nowhere to go. The pipelines that run from the upper Permian Basin to hubs near the Gulf of Mexico do not have enough “offtake capacity” to transport all the gas the region produces.
In the parlance of the oil & gas industry, this excess production is called “stranded gas,” and it is so worthless that producers must find ways to dispose of it. The producers who have permits to burn off the gas simply “flare” it at drilling sites. Otherwise, they must pay companies to truck it away, like dumpsters full of old mattresses.
But the economics of producing natural gas in the Delaware Basin may be on the verge of a major transformation – one that will flip today’s negative gas pricing into solidly positive pricing.
How to Position Yourself for the Years Ahead
As a leading oil & gas production company, my latest recommendation for the paid-up members of Fry’s Investment Report is ideally positioned to benefit from that prospective transformation. You can read more about this company in the November issue of Fry’s Investment Report (subscribers only), which I released just yesterday. (Click here to learn how to join us at the Investment Report.)
This company might also benefit from a new “wildcard” source of natural gas demand: data centers.
As the big tech companies build ever-larger and ever-more-numerous data centers, they are struggling to secure the dedicated power supplies these centers require.
Over the near term, natural gas will take the lead in supplying the additional power. According to Goldman Sachs, natural gas will satisfy 60% of the power demand growth from AI and data centers, while renewables will provide the remaining 40%.
As a result of this growth, data centers could boost the demand for natural gas to fuel U.S. power plants by 20% to 45% over the next five years, according to Wells Fargo research. The midpoint of that estimate would be equivalent to doubling the current production from the Delaware Basin.
The natural gas market offers three major advantages over competing technologies…
- It is abundant.
- It is cheap, especially in the Delaware Basin.
- It is a proven technology with relatively rapid permitting processes.
The bottom line is that opportunities remain in the oil & gas industry. And beyond my recent oil & gas recommendation, my other Fry’s Investment Report holdings are well positioned for where we’re headed during a Donald Trump presidency.
Regards,
Eric Fry
