Market Commentary: Big Tech Meets Big Energy at CERAWeek

HIGHLIGHTS FROM CERAWEEK

CERAWeek, a premier energy conference attended by ministers, top officials, and more than 450 C-suite executives from around the world, took place this March. The dominant theme was how to meet the rapid rise in power demand, driven largely by data centers and the race to develop artificial intelligence (AI). This year’s event drew 10,000 participants, including executives from major tech companies such as Google (Alphabet), Microsoft, and Amazon. Notably, two of the 14 key themes of CERAWeek were “Power, Grid and Electrification: Policies, Technologies and Systems for a Coming Surge in Demand” and “AI and Digital: Reshaping the Future of Production, Management and Consumption of Energy.”

U.S. power demand growth forecasts continue to be revised higher to account for data centers’ thirst for power. For example, NextEra Energy (NYSE-NEE), the largest provider of renewables in the U.S. with a significant presence in natural gas fired power more than doubled its forecasted growth in electricity demand for the period of 2020 to 2040. A significant portion of this increase—about one-third—is attributed to the expanding energy needs of data centers. As AI and cloud computing continue to drive demand, energy companies and policymakers are working to ensure the grid can keep pace with this transformation. Please see charts below.

Sources: Nextera Energy March Investor Presentation (1) Historical: Energy Information Administration. Forecast: IHS Outlook and McKinsey (2) Source: Goldman Sachs

INTERVIEW WITH HON. DOUG BURGUM—KEY TAKEAWAYS:

Addressing the rapid growth in power demand was a key focus of Daniel Yergin’s (S&P Global Vice Chairman) interview with Hon. Doug Burgum, U.S. Secretary of the Interior. Mr. Burgum noted the following:

1.    President Trump’s declaration of a national energy emergency. Permitting reform and growth of domestic electricity generation are two key priorities for President Trump—his goal is to eliminate red tape and streamline the permitting process to avoid delays caused by overlapping agency oversight.

2.    Permitting reform must extend across the entire energy sector, not just pipelines. It also applies to transmission lines and grid connections. Burgum is optimistic that a bipartisan bill could be passed next year.

3.    Project delays are costly. Environmental challenges and permitting issues can significantly increase costs and reduce returns on investments. For example, the Mountain Valley Pipeline (MVP) project was announced in 2014, expected to cost $3.5 billion and be completed by 2018. Regulatory hurdles, legal challenges, and environmental concerns caused massive project delays. The pipeline was finally completed in June 2024, six years behind schedule and at nearly triple the cost. It took an act of Congress, the Fiscal Responsibility Act of 2023, to clear the regulatory and legal challenges to enable project completion.

4.    Artificial Intelligence is a national priority. Reliable, affordable power is essential to winning the AI race. The U.S. has a competitive advantage with abundant natural gas and coal resources. While renewables are the fastest-growing power source, wind and solar cannot generate energy 24/7. As we noted several times in the past, natural gas will be a significant provider of incremental energy. (Please see Williams’ Socrates project in Quick Hits below). Getting data centers built quickly is key to success.

5.    “Unleash America’s Balance Sheet.” Mr. Burgum has a unique perspective on the U.S.’ burgeoning national debt. A successful businessman (as well as Governor of North Dakota), he suggests viewing the U.S. as a company with a balance sheet. As such, to gain a proper perspective on the financial health of the country, one should look at its assets in addition to its liabilities (debt). Although not [yet] quantified, total U.S.’ assets would seem to dwarf its liabilities. The Department of the Interior is working to map and evaluate these assets to promote development. This is what he means by the phrase, “unleash America’s balance sheet.”

6.    The mining of critical minerals has been a central focus under the Trump administration. With China controlling much of the supply for aerospace, defense, and electric vehicle (EV) production, securing domestic sources is crucial for national security. This aligns with a key theme from CERAWeek: “Minerals and Mining: Sustainably Supplying the Raw Materials for the New Demand from Energy Transition.”

7.    Decarbonization is still in the mix. Under the Trump administration, the U.S. is pursuing a pragmatic common-sense approach to producing energy. This does not mean abandoning emissions reduction, in our view. The U.S. leads the world in producing the cleanest burning fossil fuels by adopting best in class technologies across the energy value chain. Mr. Burgum points out that cleaner burning U.S. energy exports can facilitate global emissions by displacing “dirtier burning” energy sources.

MORE FROM CERAWEEK:

1. Renewables are ready now and fast to deploy. NextEra Energy’s Chairman, President, and CEO John Ketchum acknowledged at CERAWeek that all energy sources will be required to meet growing energy needs. However, he pitched renewables and battery storage as the most viable because they are “ready now and fast to deploy,” and cost advantaged. Neither natural gas nor nuclear have supply chains running at scale. It is expected to take 5+ years to get natural gas plants built and running and nuclear is 10+ years away, according to Ketchum.

New natural gas fired construction costs have tripled. According to NEE, a plant that cost the company about $800/KW to construct in 2022, would now cost $2,400 because of supply chain issues and rising labor costs.

2. New natural gas fired construction costs have tripled. According to NEE, a plant that cost the company about $800/KW to construct in 2022, would now cost $2,400 because of supply chain issues and rising labor costs.

Sources: Nextera Energy March Investor Presentation (1) Compares latest and previous vintage IRP demand and supply plans for 21 large load serving entities representing ~20% of U.S. load in 2025 (2) Internal estimates

3. Producers embrace Trump’s pro energy policies such as permit reform and deregulation but have some concerns:

a.    Tariffs. Higher steel costs could impact profitability, though not significantly, as much of the steel is sourced domestically. A bigger concern is the potential for tariffs to slow the global economy and reduce energy demand, possibly leading to a recession.

b.    Drill baby drill. Despite deregulation, companies remain cautious about increasing drilling budgets.

c.    Oil prices matter. Lower oil prices could hurt profits and make certain drilling areas uneconomical. Harold Hamm, CEO of privately owned Continental Resources, has stated that oil prices below $50 per barrel are not viable for many shale fields.

d.    Regulatory uncertainty. The industry worries that Trump’s energy policies could be reversed by the next administration. Companies prefer congressional action over executive orders, which can be undone by future presidents.

4.    Peak U.S. oil production expected by 2030. Vicki Hollub, CEO of Occidental Petroleum (NYSE: OXY), and Ryan Lance, CEO of ConocoPhillips (NYSE: COP), predict that U.S. oil production will likely peak toward the end of the decade before gradually declining.

 ENERGY SECTOR QUICK HITS

Trump Administration Revives Constitution Pipeline.

Earlier this month, Energy Secretary Chris Wright announced that work on Williams Cos.’(NYSE-WMB) Constitution Pipeline could start by the end of this year. However, even with President Trump pressuring New York Governor Kathy Hochul for her support, we think this is unlikely. WMB has noted that it would require support from state legislatures as well as renewed long term customer commitments before it would move forward. The natural gas pipeline project, which was shelved in 2020, was designed to transport natural gas from Pennsylvania to New York and other markets in the Northeast. Unfortunately, the project met strong resistance from former Governor Cuomo.

Socrates Power Solutions is a fast-track natural gas fired power generation project to serve data centers.

Although WMB has not disclosed its customer, it is widely assumed to be a hyper-scaler, perhaps Amazon or Meta. The proposed project known as Socrates Power Solutions Facilities is expected to cost $1.6 billion with an in-service target of the third quarter of 2026. The project involves two separate power generation sites in New Albany, Ohio, spanning approximately 20 acres each with a combined generating capacity of 400 megawatts, as each site provides 200 megawatts. Speed to market is the most attractive feature of this project.

OPEC+ to raise production but remain flexible to support oil market stability.

At its March virtual meeting, OPEC+ “taking into account the healthy market fundamentals,” agreed to gradually reverse its 2.2 mbd voluntary cuts monthly starting on April 1st.  Additionally, members that were overproducing their quotas agreed to compensate by underproducing for a period of time. The International Energy Agency (IEA) estimates that the net increase may amount to incremental barrels of just 40,000.  OPEC+ further stated that “this gradual increase may be paused or reversed subject to market conditions. This flexibility will allow the group to continue to support oil market stability.”

EPA Relaxes Regulations.

In March, the EPA announced a list of 31 regulations it will relax or eliminate including “reconsidering regulations on power plants (Clean Power Plan 2.0),”which were finalized under the Biden Administration.  

Energy Transfer (NYSE-ET) awarded $660 million in damages from Greenpeace. A North Dakota jury ordered the environmentalist group Greenpeace to pay Energy Transfer $660 million in damages for defaming the company and abetting vandals in constructing the Dakota Access Pipeline in 2016-2017. Greenpeace and its supporters claim that the lobbyists were just asserting free speech. A jury thought otherwise. Expect a lengthy appeal and if the verdict is upheld, Greenpeace may file for bankruptcy protection. Regardless, we believe this is a major win for the energy industry that continue to experience costly project delays by, in many cases, frivolous challenges by environmental activists.

 ENERGY SECTOR OUTPERFORMS YTD AS VALUE IS WINNING VERSUS GROWTH

The energy sector is the best performer year to date of the eleven S&P 500 sectors as of the date of this writing (March 20). It is up over 7% versus a modest decline for the broader index and despite WTI oil prices having declined ~ 5%. Natural gas prices (Henry Hub spot price) on the other hand are up ~10% given a robust drawdown of natural gas in storage and strong secular tailwinds. Question: What accounts for the energy sector’s turnaround after underperforming last year? Answer: Market sentiment has pivoted from growth stocks to value stocks and last year’s losers are today’s winners. The energy sector trades at a price to earnings multiple of just 13.4x based on 2026 consensus estimates. This represents a nearly 30% discount to the market multiple of 18.6x and is the lowest among the S&P 500 sectors. At just a market weighting of 3.6%, we believe that there is still a lot of room to run to regain market share, especially if the Trump Administration continues to promote U.S. energy dominance!

SAM Partners continues to favor the midstream energy subsector that is poised to benefit from continued growth in U.S. energy exports, streamlining of regulations, relaxed environmental restrictions, and permitting reforms. Our favorites include natural gas focused companies’ stocks. The largest positions in our portfolios are Targa Resources Corp. (NYSE-TRGP), Cheniere, Inc. (NYSE-LNG) and Energy Transfer L.P. (NYSE-ET).

YTD Performance

Source: Bloomberg

Source: Bloomberg

 FEBRUARY REVIEW: ENERGY HOLDS STRONG

The rundown:

• In February, SAM’s Infrastructure Income Portfolio produced a return (net of fees) of 1.0% compared to -1.3% for the S&P 500 and 1.2% for its customized benchmark. Year-to-date, SAM’s Infrastructure Income Portfolio produced a return (net of fees) of 5.4% compared to 1.4% for the S&P 500 and 3.6% for its customized benchmark.

• In February, SAM’s Energy Transition Portfolio generated a return (net of fees) of -3.3% versus -0.1% for its customized benchmark. Year-to-date, SAM’s Energy Transition Portfolio generated a return (net of fees) of -3.3% versus 1.5% for its customized benchmark.

• SAM’s portfolios are more heavily weighted in Midstream, which has outperformed relative to the clean energy sector but underperformed utilities in February and year-to-date.

• Midstream outperformed the overall market and was up in February with a total return of 1.7%, as measured by the AMNAX.

• In February, utilities outperformed and the clean energy sector underperformed the overall market, generating a total return of 3.0% and -2.1%, as measured by the Philadelphia Stock Exchange Utility Index (XUTY) and the S&P Global Clean Energy Index (SPGTCLTR), respectively.

• Sector performance in the S&P 500 was mixed with consumer staples as the best performer and consumer discretionary as the worst. Energy delivered a 4.0% monthly total return. February month-end WTI crude oil and Henry Hub natural gas prices were $69.97 Bbl and $3.91 per MMBtu, down ~4% and up ~33%, respectively from last month.

 RESULTS: SINCE INCEPTION & ONE YEAR

SAM’s Infrastructure Income Portfolio produced a return (net of fees) of 142.8% and 45.0% for the periods since 11/10/20 inception and 1-year, respectively. This compares to a total return of 126.2% and 30.2%, respectively, for its customized benchmark and 79.3% and 18.4%, respectively, for the S&P 500 as of 2/28/25.

SAM’s Energy Transition Portfolio generated a return (net of fees) of 22.1% and 24.6% for the periods since 4/29/21 inception and 1-year, respectively. This compares to a total return of 23.2% and 11.6%, respectively, for its customized benchmark and 49.9% and 18.4%, respectively, for the S&P 500 as of 2/28/25.

2025 Year-to-Date Total Return

Source: Bloomberg, NASDAQ and S&P Global

Sam Partners’ Infrastructure Income and Energy Transition Strategies seek to provide sustainable income and growth with capital preservation. This is accomplished by investing in a concentrated portfolio of high-quality midstream energy companies, utilities and clean energy companies that are well positioned to participate in the energy transition to a net zero carbon future. A diversified approach to investments across these sectors should optimize risk-adjusted returns, in our view. Our Infrastructure Income Strategy offers investors a current yield of ~4.0% and growth potential of ~5-7%; while the Energy Transition Strategy that is more heavily weighted with clean energy stocks and aligns with favorable ESG ratings, offers investors a current yield of ~3.5%. In a world searching for yield, we believe these Strategies offer a compelling value proposition.

IMPORTANT DISCLOSURES

Siegel Asset Management Partners is a registered investment adviser located in Plainview, New York. The views expressed are those of Siegel Asset Management Partners and are not intended as investment advice or recommendation. This material is presented solely for informational purposes, and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness, or reliability. All information is current as of the date of this material and is subject to change without notice. Third-party economic, market or security estimates or forecasts discussed herein may or may not be realized and no opinion or representation is being given regarding such estimates or forecasts. Certain products and services may not be available in all jurisdictions or to all client types. Unless otherwise indicated, Siegel Asset Management Partners' returns reflect reinvestment of dividends and distributions. Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.