The AI Energy Trade
Who are the likely winners as AI reshapes energy markets?
Energy demand in the U.S. is skyrocketing. AI data centers need lots of electricity. The fastest way to produce that electricity is natural gas. Natural gas is widely available and is one of the cheapest ways to generate electricity. Over the last two decades, natural gas production is way up which has kept natural gas prices relatively low and turned the U.S. from an importer into an exporter.
As AI data centers take hold of the economy, natural gas exports are ramping up. New data centers want gas-fired generation because it’s the fastest way to get power online. But a lot of that gas is being sold to buyers overseas.
Drilling more wells isn’t enough to meet all of that demand. The gas still has to move from the wellhead to the power plant. That requires gathering systems, processing plants, interstate pipelines, and new generation capacity. Every piece of that infrastructure takes years to permit and build.
In other words, the limiting factor is how quickly the industry can turn gas into electricity rather than the supply of the gas itself. Gas prices could rise significantly from here because of the time and capital needed to build out more gas production and distribution infrastructure.
The companies positioned to benefit from this shift fall into three groups.
Gas producers: The most obvious winners are gas producers. Expand Energy EXE 0.00%↑ controls some of the highest-quality, undeveloped acreage in the Haynesville Shale. Range Resources RRC 0.00%↑ has a similar setup in Appalachia. Low-cost, highly productive drilling locations with decades of inventory. If natural gas prices stay structurally higher instead of reverting to historical levels, both companies own assets that will likely become much more valuable. Talen TLN 0.00%↑ also stands to benefit.
Utility-scale solar: In many regions, natural gas sets the market price for electricity. That means if gas prices rise, power prices rise too. Utility-scale solar operators like XPLR Infrastructure XIFR 0.00%↑ and Clearway Energy CWEN 0.00%↑ don’t pay for fuel, so higher electricity prices flow straight to their margins. Their cost of generating power stays the same while the price they receive increases.
Nuclear: Small modular reactors like NuScale SMR 0.00%↑ and Oklo OKLO 0.00%↑ are still years away from commercial scale. Proven large-scale reactor designs are much more capable of addressing the natural gas supply gap. Cameco CCJ 0.00%↑, through its ownership stake in Westinghouse, and BWX Technologies BWXT 0.00%↑ , a major supplier to the nuclear industry, stand to benefit as the U.S. turns more to nuclear to meet energy demand. Owners of existing large-scale nuclear plants like Talen, Constellation CEG 0.00%↑, and Vistra VST 0.00%↑ may be among the biggest beneficiaries. Their reactors are already operating today, so they can capture higher power prices without waiting years for new capacity to come online.
Disclaimer
This piece is for informational purposes only. You should not construe anything herein as investment, financial, legal, tax, or other advice. Nothing contained in this piece constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments.
All content in this piece is for general informational purposes only and does not address the circumstances of any particular reader. Nothing in this piece constitutes professional and/or financial advice, nor does it constitute a comprehensive or complete statement of the matters discussed. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this piece before making any decisions based on such information or other content. Neither the author nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.