Record Gas Demand Meets Rock-Bottom Valuations — and Investors Smell Opportunity
With the energy sector trading at just 15.4x forward earnings — the lowest among all S&P 500 sectors — a rare mix of pipeline buildouts, surging natural gas demand, and a more grounded view of fossil fuel use is setting up what might be one of the market’s most overlooked opportunities.
The contrarian play: For those worried about an AI bubble and high valuations across the tech stocks, the energy sector may provide some reprieve. Energy stocks currently trade at a forward price-to-earnings ratio of nearly half the tech sector’s ~29x multiple. Yet the International Energy Agency’s latest projections show oil consumption potentially reaching 114M barrels per day by 2050 under current policies — obliterating previous peak demand forecasts that had consumption falling to 54M barrels.
- The world needs ~$540B in annual oil and gas investment to maintain output as field decline rates accelerate, particularly from shale wells that deplete faster than conventional reserves.
- Pipeline companies are plowing $50B into 8.8K miles of new infrastructure over the next five years to handle record natural gas demand from LNG exports and data centers.
AI’s Insatiable Energy Appetite
Soaring power demand from data centers and America’s LNG export boom are fueling what portfolio managers call a once-in-a-generation opportunity. US consumption is expected to hit a record 91.4B cubic feet per day this year — but the infrastructure to support it barely exists. The industry also has the backing of the Trump administration. Even during the government shutdown, oil and gas permits kept flowing while renewable projects froze, with the Bureau of Land Management labeling conventional energy “essential.” It’s a clear break from 2013, when Obama’s shutdown brought drilling permits to a standstill.
- Natural gas powers ~40% of US data center loads and is expected to fuel most projects until at least 2030, per the IEA.
- Pipeline giants like Kinder MorganKMI — which moves 40% of America’s natural gas — have reported record backlogs, with KMI’s reaching $9.3B, the highest in seven years.
Fortune favors the patient: Gabelli energy analyst Simon Wong believes the disconnect between energy valuations and demand fundamentals may not last forever. He notes that natural gas prices have been kept lower due to incoming new supply, but sees strong demand from data centers three to five years out. Wong favors companies like Cheniere EnergyLNG, the world’s second-largest LNG producer, which stands to benefit from ~3B cubic feet of new US export capacity hitting markets in 2026 and 2027. National Fuel Gas CoNFG is also one of the largest energy holdings in the Gabelli Asset Fund. For investors looking to avoid the usual picks, energy’s unloved status might just be its biggest selling point.