Market Commentary: Natural Gas is Still Fueling the Moment

“Natural gas is fueling the moment”—the theme of this year’s American Gas Association (AGA) financial forum—still holds true and is evident based on our recent conversation with the management team of Energy Transfer, LP (NYSE:ET).  SAM’s Infrastructure Income and Energy Transition strategies favor companies like ET that are leveraged to advantageous natural gas fundamentals.

KEY TAKEAWAYS FROM ENERGY TRANSFER FIRESIDE CHAT

We had the pleasure of hosting a fireside chat recently with Tom Long and Mackie McCrea, co-CEOs of Energy Transfer, LP (watch replay of webinar). The informative conversation highlighted ET’s premier diversified energy infrastructure that is well-positioned to meet the growing need for U.S. energy. ET's balance sheet has never been stronger. Coupling this with rising cash flow enables the company to finance a large high return capex backlog and growth in distributions. We believe the value proposition is compelling with a distribution yield of ~7.5% and 3-5% distribution growth or total return potential of 11-12% (excluding any expansion in the company's valuation multiples).

A QUICK DIGRESSION: Diversification into dividend paying stocks (such as midstream energy companies) makes sense to us to help mitigate investment risk given a stock market that trades at a historically rich valuation and is dominated by ten stocks that account for ~40% of the market’s value.

HIGHLIGHTS:

• Long-term fundamentals support infrastructure buildout, despite short-term price concerns. While drilling activity has declined due to declining oil prices, large producers look out several years (even decades for the super-majors) in establishing drilling programs. Private and smaller producers are more prone to cut back but have less of an impact than their larger competitors on U.S. production.  ET acts to fulfill customer needs and does not build infrastructure without firm customer commitments.

• Extremely bullish on natural gas. Past pipeline buildouts were driven by supply-push dynamics—the rapid production growth of the shale revolution. This cycle is characterized by demand pull from end use customers such as data centers and LNG exporters. In the words of Mackie, “we couldn’t be more excited.” ET could provide power to data centers depending on size but currently is primarily focused on providing the natural gas to fuel the power for data centers given its advantageous natural gas pipeline footprint.

• Abundant organic growth opportunities such as the Hugh Brinson Pipeline. Nearly 50% of 2025 growth capital is expected to be spent on natural gas-focused projects. The bulk of this will be spent in the Permian Basin on processing plant capacity expansions and pipelines. The most notable of these is the Hugh Brinson Pipeline (Phase I and II), a $2.7 billion Texas intrastate natural gas bi-directional pipeline that is expected to have the capability to transport ~2.2 Bcf/d from west to east, and transport ~1 Bcf/d from east to west.

  
  

  The allure of this pipeline is that it will provide shippers with the optionality to access growth markets such as power plants and data centers in Texas as well as trading hubs in Texas and beyond. 

Hugh Brinson Pipeline Project

Source: Energy Transfer September 2025 Investor Presentation

• And the winner is…the Desert Southwest Pipeline Project.

  ET won out against another competing project to build a pipeline from the Permian Basin to serve growing natural gas demand in the Phoenix area in Arizona. This is an example of a demand-pull pipeline project. ET currently plans to build a 42-inch pipeline capable of transporting ~1.5 Bcf/d with an expected cost of $5.3 billion ($600 million of which is capitalized interest expense).

As configured, the project should generate a return of about 6x EBITDA (a proxy for cash). Economics get even better (~5x EBITDA) if the project is upsized to a 48-inch pipeline and capacity expanded to 2.0+ Bcf/d. The bulk of the spending is expected in 2027 and beyond with an expected in-service date of Q4 2029.

Desert Southwest – Transwestern Pipeline Expansion Project

Source: Energy Transfer September 2025 Investor Presentation

Why did ET win the two-person race? 

Answer: the company’s ability to secure abundant and reliable gas supply sources given its footprint and strong track record of building and operating long-haul large diameter natural gas pipelines. Constructing pipelines is what ET does well, especially in energy-friendly states! 

• Lake Charles LNG export terminal is not a sure thing. This is a brownfield project that will convert an existing regasification facility into a ~16.5 million tonnes per annum (mtpa) LNG liquefaction facility. The company has made progress in obtaining the requisite customer and equity commitments to reach a final investment decision, although this is not assured. The holy grail for ET is transporting the roughly 2.7–2.8 Bcf/d of feed gas (about the equivalent of a large pipeline) that the facility would require operating at full capacity.  The end goal for ET is to maintain a 15–25% ownership and operate the facility.

• Exports are a big deal. The U.S. does not have enough domestic demand to support all its growing natural gas liquids (NGLs) production. Fortunately, there is growing demand internationally, most notably in Asia. ET continues to expand its already market-leading export capacity of NGLs at its Nederland Terminal on the Texas Gulf Coast and the Marcus Hook Terminal in Pennsylvania. Several projects are slated to come online this year through 2027.

• Capital allocation: the sanctity of the balance sheet is top priority. ET targets a debt-to-EBITDA ratio of 4.0–4.5x and prefers to sit at the lower end of the range. Distribution growth of 3–5% is also a high priority. Organic growth projects must meet strict mid-teens return on investment hurdle rates and not overextend the balance sheet. M&A is always a possibility but must be accretive to distributable cash flow (DCF) per share. Given the company’s organic growth opportunities, unit buybacks may have to wait.

• Valuation discount to C-corp peers is frustrating. ET is structured as an MLP (master limited partnership) and may be difficult to own by some institutional investors, although the unique tax attributes should be very appealing to retail investors and family offices (please see our Market Commentary: The Time Has Come to Revisit MLPs). ET trades at a relatively low multiple of ~9x estimated 2026 EBITDA versus ~11x EBITDA for comparable peers structured as corporations rather than partnerships. The company continues to evaluate if creating a C-corp look-alike security can help reduce the valuation spread and garner more institutional buyers. The jury is out on this one.

  
  

OPEC’S ANNOUNCEMENT FUELS MARKET CONCERNS ON CRUDE PRICING OUTLOOK

Despite strongly bearish investor sentiment due to increasing supply and weakening demand from China, oil prices have remained in a $60+ trading range. Also helping support prices are geopolitical risks such as potentially tougher sanctions on Russia and Iran and supply disruptions.

On September 7^th the eight OPEC+ countries announced a plan that added to the negative sentiment: increase oil output by 137,000 barrels per day (bpd) monthly and gradually return to the market the 1.65 million barrels per day of voluntary curtailments announced in April 2023. They justified the 137,000-bpd increase by citing a steady global economic outlook, healthy market fundamentals, and low global inventories, although the cartel+ will remain flexible and adjust quotas should market fundamentals warrant it. 

Many oil pundits expect global stock inventories—which have risen for six consecutive months as of July—will continue to grow and put downward pressure on prices. According to data from the International Energy Agency (IEA), total inventories are 104 million barrels above a year ago, but still ~1% below the five-year average. Bloomberg BNEF forecasts a 2.78 million barrels per day (mb/d) of oil surplus in 4Q25 growing to 3.3mb/d in 2026 if all of OPEC+ voluntary production cuts are unwound. 

However, there is skepticism regarding whether OPEC+ (other than Saudi Arabia and the UAE) has enough spare capacity to meaningfully increase production. The IEA estimates that OPEC+ has increased production by just 1.5 mb/d out of a 2.5 mb/d sanctioned quota since announcing their intent to unwind voluntary production cuts this past March.

THE BOTTOM LINE: The risk is skewed to the downside for oil prices, and this appears to be keeping a lid on energy stocks leveraged to oil prices. The fundamental outlook for natural gas is decidedly more positive, albeit, not fully reflected in natural gas companies’ stocks, in our view.

OPEC+ Crude Oil Production (excluding condensates) million barrels/day

Source: IEA Oil Market Report 9/11/25 

AUGUST REVIEW: ENERGY CONTINUES TO POST YTD GAINS

The rundown:

• In August, SAM’s Infrastructure Income Portfolio produced a return (net of fees) of -0.6% compared to 2.0% for the S&P 500 and 1.7% for its customized benchmark. The underperformance relative to benchmark reflect our lower weights in the utilities and clean energy sectors. Year-to-date, SAM’s Infrastructure Income Portfolio produced a return (net of fees) of 3.8% compared to 10.8% for the S&P 500 and 11.1% for its customized benchmark.

• In August, SAM’s Energy Transition Portfolio generated a return (net of fees) of -2.1% versus 3.6% for its customized benchmark. Year-to-date, SAM’s Energy Transition Portfolio generated a return (net of fees) of 2.5% versus 17.6% for its customized benchmark.

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

• Midstream underperformed the overall market and was up in August and year-to-date with a total return of 1.0% and 4.8%, respectively, as measured by the AMNAX.

• In August, the clean energy sector outperformed the overall market, generating a total return of 7.0% as measured by the S&P Global Clean Energy Index (SPGTCLTR). For the month, utilities underperformed with a total return of -1.5% as measured by the Philadelphia Stock Exchange Utility Index (XUTY). Year-to-date, SPGTCLTR and XUTY generated total returns of 27.8% and 13.2%, respectively.

• Sector performance in the S&P 500 was largely positive with nine out of eleven sectors posting positive performance. Materials and Health Care were the best performers and Utilities was the worst. Energy delivered a 3.6% monthly total return. August month-end WTI crude oil and Henry Hub natural gas prices were $64.36 Bbl and $2.88 per MMBtu, down ~-9% and ~-4%, respectively from last month.

RESULTS: SINCE INCEPTION & ONE YEAR

SAM’s Infrastructure Income Portfolio produced a return (net of fees) of 139.1% and 18.4% for the periods since 11/10/20 inception and 1-year, respectively. This compares to a total return of 132.2% and 14.5%, respectively, for its customized benchmark and 95.8% and 15.9%, respectively, for the S&P 500 as of 8/29/25.

SAM’s Energy Transition Portfolio generated a return (net of fees) of 26.8% and 13.3% for the periods since 4/29/21 inception and 1-year, respectively. This compares to a total return of 32.3% and 9.9%, respectively, for its customized benchmark and 63.7% and 15.9%, respectively, for the S&P 500 as of 8/29/25.

2025 Year-to-Date Total Return as of 8/29/25

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% 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.