Natural Gas Stocks Get Boost from AI Demand Surge

AI's power demand is surging, driving up natural gas consumption. Stocks like EQT, Expand Energy, NextDecade, Cheniere Energy, and Enterprise Products Partners are benefiting from the trend. EQT, the largest US natural gas producer, has gained 14% this year and is trading near a 52-week high. Expand Energy, formed from the merger of Chesapeake and Southwestern, has gained 43% in the last 12 months and is trading above $100. NextDecade's LNG export terminal in Texas is expected to increase demand for gas. Cheniere Energy, which runs two of America's largest LNG terminals, has seen its exports rise significantly.

The energy sector has been a favorite among Wall Street investors, particularly with the midstream energy infrastructure segment performing strongly. This trend is being driven by the increasing demand for natural gas, fueled by the surge in AI's power needs. Several key stocks in the sector have shown significant gains, including EQT, Expand Energy, NextDecade, Cheniere Energy, and Enterprise Products Partners.

EQT, the largest US natural gas producer, has seen its stock price rise by 14% this year, trading near its 52-week high. Expand Energy, formed from the merger of Chesapeake and Southwestern, has gained 43% in the last 12 months and is trading above $100. NextDecade's LNG export terminal in Texas is expected to further boost demand for natural gas. Cheniere Energy, which operates two of America's largest LNG terminals, has seen its exports rise significantly, contributing to its stock price appreciation.

The demand for natural gas is also being supported by the increasing use of LNG exports. The Philippines, for instance, has seen its first decline in coal use in 17 years due to increased LNG imports. Spain, which suffered a nationwide blackout due to its over-reliance on renewables, is now using more natural gas to stabilize its grid. Additionally, the White House's expected AI Action Plan is likely to support the rapid construction of data centers, further driving demand for reliable power.

Despite the recent weakness in the energy sector, 74% of stocks carry a "Buy" rating from Wall Street analysts, the highest of any sector. The midstream energy infrastructure sector, which includes pipeline companies like Kinder Morgan and Williams Companies, has shown resilience, with projected profits for the second quarter of 2025 expected to increase by 14% compared to a year ago.

However, not all growth projects are beneficial. Kinder Morgan, for instance, has struggled with reinvesting earnings into the business, leading to poor returns on invested capital. By contrast, Williams Companies has done a better job at reinvesting earnings, with a 25-year ROIC of 12%.

The demand for natural gas is expected to continue rising, with several funds seeking to profit from this environment. Investors should carefully evaluate the potential risks and rewards of investing in the sector.

References:
[1] https://sl-advisors.com/series/default-podcast