Key Points
The market has been razor-focused on soaring oil prices this year, and rightfully so. But not paying attention to the broader energy landscape would be a mistake and potentially a missed investment opportunity.
That’s according to Chronometer Partners Chief Investment Officer Matthew Smith, who says there is a huge emerging opportunity in natural gas.
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Smith’s argument is built on the thesis that, as power demand increases due to an oil crunch and the needs of artificial intelligence, natural gas will quickly become the best game in town.
Here are the stocks to buy before that happens.
Image source: Getty Images.
Why natural gas will see increased demand and ramp up production
Smith sees natural gas exports in the U.S. ramping from 15 billion cubic feet (Bcf) per day to 35 Bcf by the end of 2030. Smith also expects current excess supply to dwindle and there to eventually be a 5 Bcf deficit of natural gas per day “before the full force of AI demand.”
“Natural gas, which [represents] over 40% of U.S. power generation, is imminently going to become the most important fuel in the country,” Smith said on a recent podcast, according to MarketWatch.
“Gas has lulled everybody to sleep, but what happens is these structural things start to fall into place in 2027-2028, and we start to draw [down] meaningfully in the middle of 2028.”
Interestingly, according to Henry Hub natural gas spot prices provided by the U.S. Energy Information Administration, prices per million British thermal units (BTU) have dropped from $3.62 per million BTU in February to $3.15 in June.
Smith believes that the demand for AI-driven compute, particularly among hyperscalers, could double or triple.
The stocks that will benefit
Smith recommends several ways to play this looming natural gas crunch.
U.S. natural gas producers like Expand Energy (NASDAQ:EXE) and Range Resources have quick access to natural gas and can therefore more quickly ramp production, according to Smith.
Smith also thinks other renewable energy sources, such as solar and nuclear, could see increased demand, as they are among the few logical ways to counter higher electricity prices.
“… The only viable solution is to build large-scale nuclear as fast as possible, which would mean it needs to come on in 2033 or 2034,” Smith said.
He thinks a larger nuclear company like Cameco could potentially get up and running in that time frame. Solar stocks Smith likes include XPLR Infrastructure and Clearway Energy.
Ultimately, I agree with Smith’s view that natural gas and other alternative sources of energy could be a good place to park some capital.
What the Iran war has shown many people and investors is that there’s likely to be greater emphasis on domestic energy production and alternative energy, if nothing else, for national security.
Iran’s greatest weapon in this war has been the ability to close the Strait of Hormuz, through which one-fifth of the global oil supply travels daily under normal times.
This has made Americans, who are largely removed from war, feel the pain in their finances.
I also think that regardless of what happens with AI, power demand is likely to move higher because the electric grid has seen very few updates in decades.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cameco. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
