An investor told me recently he wants to back Trump because it will be good for “energy” stocks.
Trump has said he will open publicly owned land around the country to drilling. Harris opposed fracking in the past, but now says she’s more supportive.
Beyond climate change, and even beyond the destruction of water tables caused by fracking, my friend would still be better off with Harris.
America has had a natural gas glut for years. That limits profits. Higher prices would increase profits, so limits on new supply should be welcome.
Meanwhile, natural gas is losing its markets. Have you seen the latest heat pumps? Have you looked at induction cooktops? They’re sweet, they’re efficient, they’re electric. The market for gas is in a permanent state of decline, which means producers should be handing all the profit they can get to shareholders. Like cigarette makers.
That’s why when Chesapeake Energy (CHK) and Southwestern Energy (SWN), two of the largest gas producers, complete their merger next month, the whole kit-and-kaboodle, which will be called Expand Energy (EXE), will be worth $17 billion. First Solar (FSLR), the largest U.S.-based solar panel maker, is worth $27 billion.
Besides, you know what these drillers would do if Trump opened federal lands. They’d buy the rights for a pittance and bank them until prices recovered before drilling a single hole.
What is Energy
Then there’s the whole question of calling Expand an “energy stock.” It sticks in my craw. That’s because natural gas, like oil, isn’t energy. It’s fuel. It must be burned to produce energy.
The Sun and the wind are also fuel. Wind turbines and solar panels are engines, which create electricity from this fuel.
The advantage of carbon fuels is their energy density. You need a heavy battery to match the energy of a few gallons of gas in the tank. The average electric car gets half the “mileage” of the average hybrid car because of energy density.
But the only reason gas is even close to competitive with renewable power is the enormous infrastructure for conditioning, transporting, and storing gas, built over a century, that electricity lacks.
Which brings me to utility stocks. They should be building this infrastructure.
Utility stocks, measured by the Vanguard Utilities Index Fund ETF (VPU), have been a hot ticket this year, up 24%. You probably don’t notice because that exceeds their gain over the last 5 years, which is just 20%.
But companies like Nextera Energy (NEE), and even American Electric Power (AEP) have a huge opportunity right now. If they adapt to the flood of renewable power coming online, they will be among the best investments of the next five years. They will also be heroes.
That means building the infrastructure of batteries, microgrids, and underground lines needed to make their services truly reliable. It means profiting from new energy coming from wind fences and personal wind turbines that are about to proliferate in cities around the country.
Regulation in the Private and Public Interest
The attitude of these companies to homemade energy in the past has been horrendous. Even in California utilities have fought to maintain a monopoly on power creation, preferring to build huge plants out in the country, whose power they have to schlepp into town, losing 20% or more along the way.
For their own short term profit, utilities would rather lose 20% of what they create than buy a hefty drink of water from their customers and make money storing it.
If they won’t do what makes long term sense on their own, the Department of Energy should make them. Creating the equivalent of the pipelines and storage tanks natural gas enjoys, as much as needed to handle supply, can be profitable, although the profit takes longer to come in than what these guys are doing now.
Public policy can either enable the energy transition or stand against it. Government is empowered to look at the long term, not just the short term. That sounds a lot better to me than “drill baby drill.”
