Investors Continue To Rotate Into Energy

The increase is fully driven by reduced growth capex. We see it rising to $44BN next year, an 11% FCF yield which is more than 2X that of the S&P500.

One of the reasons we like our prospects with incoming President Biden is that pipeline spending plans are likely to remain constrained. New projects are almost impossible nowadays. Environmental extremists have figured out how to use the court system to introduce unpredictable legal delays into any project. We are not unhappy with this (see Pipeline Opponents Help Free Cash Flow).

Long term capital commitments to fossil fuels face significant uncertainty with respect to public policy. While this will disappoint executives who love to build, investors like us will find much to like. Less building means less execution risk as well as more cash for buybacks, dividend hikes and debt reduction. How ironic that a Democrat president is likely to create an improved environment for investors – such was the exuberance unleashed by Trump’s pro-energy, deregulatory push.

Meanwhile, the U.S. Energy Information Administration reported that natural gas fired power generation increased in most of the U.S. over the past five years. Natural gas (UNG) is going to see demand growth for years to come, especially from developing countries intent on raising living standards. Don’t be distracted by all the media attention to renewables. What counts is what’s actually going on.

We are invested in all the components of the American Energy Independence Index via the ETF that seeks to track its performance.

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