Chris’ note: The U.S. is turning into a manufacturing powerhouse and a major energy exporter all at once. It’s an investing theme we call America Reborn. And it will lead to an economic boom few see coming.
As you’ll hear from colleague Nomi Prins today, an abundance of natural gas means the U.S will be the king of energy for decades. And one of the best ways to play it is through the companies that store and transport this key fuel source.
Nomi is a former Goldman Sachs managing director. In 2001, she left a lucrative seven-figure salary there to help regular investors beat Wall Street at its own game.
It’s a mission she continues here at Legacy Research. And she says America’s plentiful supply of natural gas… coupled with the world’s insatiable demand for more power… is one of the most important investment stories of the next decade.
2023 is on track to be the hottest year on record…
You probably don’t need me to tell you this.
This summer, a heatwave came out of the South and moved into parts of the Great Plains, the Midwest, and Northeast.
In July, this put more than 170 million Americans under heat alerts.
In California, where I live, we’ve also been experiencing power outages. And state officials have told us to curb our energy use.
It’s so hot my dogs have been on strike between 10 a.m. and 6 p.m. if I try to take them away from the air conditioning (“A/C”), they look at me as though I’m crazy.
This isn’t just a U.S. phenomenon.
We had the hottest June ever on Earth, according to the National Oceanic and Atmospheric Administration.
And as I mentioned, this year is set to be the hottest year since record-keeping started in the 1800s.
All of this means rising demand for power as folks try to stay cool next to their A/C units.
Nobody wants sweltering heat like this. But it means a flood of money pouring into energy infrastructure plays. And as investors we can turn that to our advantage.
$14 Trillion Investment Over the Next 30 Years
Over the next 30 years, electricity demand is set to grow 68%.
And figures from Bloomberg’s New Energy Outlook show that the world needs to spend $14 trillion over the next 30 years to support the evolving power landscape.
As it stands, we don’t have enough reliable capacity to stay cool in the surging summer heat… or to keep up with a more plugged-in world.
But not all power is equal. Our grid relies on three different types of power.
The first is baseload power. This is the power that’s reliable and steady. It’s there to meet the guaranteed demand of the grid at any given time.
To get baseload power you need a dense, abundant fuel that’s cheap and easy to find.
Today, most of the baseload power around the world is generated by burning coal. It’s still the most-used fuel source in the world. You can see the breakdown by fuel type in the chart below…
Based on existing coal-fired plants and new ones under construction, that may not change anytime soon.
Last year, for instance, China approved 106 gigawatts (“GW”) of new coal-fired power capacity.
That’s enough to power roughly 88 million homes. And it’s four times more than the new coal capacity installed in 2021.
And as of the end of last year, China has 366 GW of extra coal capacity either planned or under construction.
That’s enough to power about 305 million homes. And it’s more than two-thirds of the world’s total new coal-fired power.
After baseload power is load-following power. This is power that can change gradually depending on the demand placed on the grid.
For instance, if it’s hot outside, more people turn on the A/C. Load-following power can adapt to that increased need.
Finally, there’s peaking power. This is a flexible source of power. It can quickly cycle up or down with unexpected demand. It’s the most unpredictable of the three power sources. It’s also the priciest.
Most peaking power is from natural gas. It’s easier to rapidly adjust power generated from natural gas than power generated from coal.
One of the Best Power Solutions Today
The energy mix may not change much in the short term. But it looks set to change in the long run.
We’re already starting to see that with a push for cheaper, cleaner sources of power.
When most folks think of clean power, they think of wind and solar. And they work… to a point.
But anything that depends on weather conditions is an unreliable source of energy… especially when it comes to the all-important baseload power.
Reliable power should be steady. There shouldn’t be any peaks and troughs. This is why natural gas is one of the best solutions today.
Natural gas emits about 60% less carbon dioxide than coal for each unit of electricity it produces. And it’s flexible. We can use it for baseload, load-following, and peaking power.
That’s why, more than a decade ago, the U.S. started to switch from coal to natural gas.
From 2005 to 2020, natural gas replaced more than 200 coal plants. Today, natural gas generates 40% of U.S. electricity and about 20% of European electricity.
This was around the same time oil and gas companies unleashed the resources trapped in shale formations.
This released massive amounts of low-cost natural gas. And it allowed us to switch from coal to natural gas for hundreds of power plants across the country.
Plus, natural gas power plants are more efficient than coal. One natural gas power plant can provide the same energy as two coal plants.
5.4% Yield on This Energy Infrastructure Play
To capture that upside, consider buying shares in the Global X MLP & Energy Infrastructure ETF (MLPX).
This exchange-traded fund (“ETF”) holds shares in a basket of companies that move and store natural gas and other fuels. And it carries a dividend yield of 5.4%.
That’s about two and a half times more income than you’ll get from a fund that tracks the blue-chip S&P 500.
And keep your eyes peeled for more from me in these pages about how you can play this energy megatrend.
The U.S. is cementing itself as the king of energy for decades to come… And with that will come plenty of profit opportunities along the way.
Regards,
Nomi Prins
Editor, Inside Wall Street With Nomi Prins