Latest / UBS Trending / Big shift in energy production and export

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Big shift in energy production and export · UBS Trending

• 0:00
  Think of energy infrastructure
• 0:01
  as a circulatory system
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  of the modern economy.
• 0:03
  Invisible to most.
• 0:05
  Yeah, critical to everything.
• 0:06
  As artificial intelligence
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  accelerates electricity demand
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  and global energy consumption
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  reaches record levels,
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  America's vast
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  network of pipelines, processing
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  facilities and export terminals
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  has transformed the nation
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  from energy dependent
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  to global leader.
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  We're going to discuss
• 0:22
  that and a whole lot more
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  right now on UBS
• 0:25
  Trending.
• 0:36
  Hi, everyone,
• 0:36
  and thank you so much
• 0:37
  for joining me.
• 0:38
  I'm Anthony Pastore.
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  This is another episode of
• 0:40
  UBS trending.
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  We're talking all things energy
• 0:42
  infrastructure today
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  with my guests Rob Thummel, Senior
• 0:45
  Portfolio Manager
• 0:46
  from Tortoise Capital.
• 0:47
  Rob, nice
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  to have you in the studio.
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  Good to see you.
• 0:49
  Thanks for having me. Anthony.
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  What a fascinating topic,
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  especially around
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  the artificial
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  intelligence story.
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  It's probably not a surprise
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  to many of our viewers
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  since we've been talking about it
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  a lot over the last year
• 0:58
  and a half or so,
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  that there's
• 1:00
  going to be a lot of energy
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  required to run
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  AI even more than
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  what's happening today.
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  So I thought maybe, you know,
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  I read your white paper.
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  It's really interesting.
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  Let's talk first about the US
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  and how we've become this
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  global leader in export.
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  Natural
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  gas and other energy resources,
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  because that's,
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  I think, a really crucial part
• 1:20
  of the story
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  that maybe a lot of our viewers
• 1:21
  aren't aware of.
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  Yeah, it's
• 1:22
  been a really an amazing story,
• 1:24
  if you think about it, Anthony,
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  over the last 20 years.
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  So, so shale technology
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  was effectively commercialized
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  20 years ago.
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  And so we're on our 20th year
• 1:31
  anniversary.
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  US oil and gas production
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  because of shale
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  technology has grown.
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  And today as you highlighted,
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  the US is the largest producer
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  of energy in the entire world.
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  That wasn't the case
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  20 years ago.
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  But not only just
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  the largest energy producer
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  today,
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  the US is actually
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  the largest energy exporter.
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  So the US has become
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  net energy independent,
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  but also the largest
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  energy exporter.
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  And it's not just of one product.
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  As you highlight, it's
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  liquefied natural gas.
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  It's oil, it's
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  natural gas liquids.
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  It's things like ethane
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  and propane,
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  gasoline, diesel jet fuel.
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  So it's been an incredible story
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  for the
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  for the energy sector really,
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  as it's evolved over
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  the next 20 years.
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  But it's not done yet. Yeah.
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  And that chart
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  we have on the screen right now
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  really shows how
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  in a picture
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  the amount of exports
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  that are
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  just have been increasing since
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  that chart
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  only goes back to 2010,
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  but even before that.
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  So it's incredible.
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  Like you said, the last 20 years.
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  Just to give our viewers
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  a little bit of a clear
• 2:23
  picture, our,
• 2:24
  Jay Dobson, our energy
• 2:25
  analyst here in our chief
• 2:26
  investment office, does
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  maintain a neutral view
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  of the US energy sector,
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  but specifically
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  within that integrated
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  oil and gas.
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  He says
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  he has an attractive view on.
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  And I think that's kind of where
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  you and I are talking about
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  right now with natural gas
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  as something that really has huge
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  room to grow.
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  So I think,
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  how are we seeing that?
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  In what ways is the growing
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  use of natural gas
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  impacting
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  the overall energy transition?
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  Yeah, so that's a good question.
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  So we think at tortoise
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  really that natural gas
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  will really redefine
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  the energy sector going forward.
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  When you normally think about
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  the energy sector you think oil,
• 3:01
  you think about, home heating
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  or you think about gasoline
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  filling up your car.
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  We think that the energy sector
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  is going to be redefined.
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  Natural gas is going to lead,
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  that it's
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  going to be the primary
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  fuel source. Reasons why?
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  One of the primary reasons is
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  and probably gets lost a lot
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  is actually
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  natural gas is decarbonizing.
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  The world needs to decarbonize.
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  There's no doubt about that.
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  But if you think about it
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  and you just look at the facts,
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  the history, U.S.
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  carbon emissions
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  actually over
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  the last 20 years have declined
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  by about 20%. Why?
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  Well, one of the core reasons
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  is because natural gas
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  as a fuel to generate
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  electricity, has gone from 20%
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  market share to over 40%
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  market share.
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  Coal's gone the opposite way.
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  Well, less coal, more natural
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  gas, less carbon emissions.
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  So that that formula
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  can be replicated
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  throughout the world,
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  in China and India
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  that are much heavier
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  coal users right now.
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  And that and that can also
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  be global decarbonizing
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  our global lead, decarbonizing.
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  And the U.S.
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  can really lead that that charge.
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  Right? Right.
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  I mean, obviously,
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  there's a lot of,
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  opportunity ahead,
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  like you said,
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  for outside the U.S.,
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  for other countries
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  that are trying to develop
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  and they're going to need
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  more electricity as well.
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  Think about India as a country,
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  as you mentioned.
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  I mean, it is poised to be
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  the second largest GDP
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  in the world,
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  you know, ahead of China
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  even at some point.
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  Just because the amount of growth
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  that's happening there.
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  So energy is going to be
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  incredibly
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  crucial to that story.
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  But let's go to the
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  AI story,
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  because artificial intelligence,
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  as we were saying,
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  there are so many adjacent
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  sectors
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  that are connected to AI,
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  from health
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  care to consumer discretionary.
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  But then you've got obviously,
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  in a huge way, the energy sector
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  and it's going to require
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  more energy over time.
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  Just give us the story.
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  How is AI playing within
• 4:35
  this space?
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  Electricity demand, natural gas,
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  all of it. Yeah.
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  So Anthony,
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  I've been investing
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  in the energy space for 30 years.
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  So the first time for the
• 4:43
  for the first time
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  in my 30 year career,
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  the energy sector
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  and the technology sector
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  are really overlapping.
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  They're interlocking
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  because of AI. Right.
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  So I is ultimately going
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  to require obviously
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  a lot of technology
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  infrastructure.
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  But what people, I guess
• 4:55
  discount or underappreciated
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  is the amount of energy
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  infrastructure
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  that's going to be necessary.
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  You know, our phrase of tortoises
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  there is no AI without AI
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  or energy infrastructure.
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  And the reason why we say
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  that is because
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  we're entering the age
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  of electricity demand.
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  What that means is for
• 5:09
  the last 20 years,
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  we've had no electricity growth.
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  Over the next 20 years,
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  we're going to experience
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  significant amount
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  of electricity growth
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  of equivalent to 1000 terawatt
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  hours of electricity demand.
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  You're like, well,
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  what does that mean?
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  A thousand terawatt
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  hours of electricity
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  over the next between
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  between now and actually 2030
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  is the same amount of electricity
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  that's generated today
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  in the states of Texas,
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  California, Florida
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  and New York combined.
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  All those states together.
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  So it's a massive amount of, of,
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  of, of really
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  electricity is going to be
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  needed to be generated.
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  And we think that natural
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  gas really provides that solution
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  because it's an elegant solution,
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  because it's decarbonizing,
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  as we mentioned,
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  but it's also
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  a reliable source of supply.
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  It's a low cost source of supply.
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  So that's why we believe
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  that new natural gas
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  is really going to redefine
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  the energy sector going forward.
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  AI is AI is going to
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  significantly increase
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  electricity demand,
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  and natural gas
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  is going to be that fuel source
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  that really drives that.
• 6:00
  Yeah.
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  And natural
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  as far as natural gas,
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  we've got the shale
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  in, in, you know, in the U.S,
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  I mean,
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  do they have any idea
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  how many units are in there
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  and how long this can actually
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  be a player in the space?
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  Yeah, no,
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  that's a great question
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  because we get asked that a lot.
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  And the answer to that is we've
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  got over
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  almost
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  a hundred years
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  of supply basically.
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  So I don't think anybody
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  really has to worry
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  about running out of natural gas
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  anytime, in any
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  and in anybody's lifetime.
• 6:23
  Who's listening to this?
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  And probably, you know, people
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  are listening to that
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  in 20 years from now.
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  Okay.
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  That's good to know.
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  And I did ask you this before,
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  but I thought
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  it might be worth asking again
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  is, you know,
• 6:31
  there's been some talk of nuclear
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  energy again.
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  Obviously we all know
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  the risks of nuclear, but it also
• 6:37
  technically
• 6:38
  is a clean energy source.
• 6:39
  What are just tell our viewers
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  what you were telling me
• 6:42
  about the thoughts
• 6:43
  on nuclear playing a role
• 6:44
  in the future of energy
• 6:46
  in the US.
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  Yeah.
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  So nuclear, it's
• 6:47
  just to frame it a little bit.
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  Nuclear is always had a role.
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  It's about 20% of the
• 6:50
  of the electricity
• 6:51
  fuel supply right now.
• 6:52
  It's been
• 6:53
  that it's been steady
• 6:53
  that way for, for for a while.
• 6:55
  As many of your,
• 6:57
  viewers
• 6:57
  know, we've been
• 6:58
  shutting down nuclear plants.
• 6:59
  That's just
• 6:59
  that recently started to change.
• 7:01
  We're starting
• 7:02
  to try to bring back
• 7:03
  new nuclear facilities
• 7:04
  or old nuclear facilities
• 7:05
  like Three Mile Island is one,
• 7:07
  is one
• 7:07
  that a lot of people
• 7:08
  are familiar with.
• 7:08
  They're considering
• 7:09
  bringing that back
• 7:10
  and bringing that that,
• 7:12
  and and to do that,
• 7:13
  you have to actually have to do
• 7:14
  quite a bit of work on
• 7:15
  they have to get nuclear,
• 7:17
  licenses
• 7:17
  basically from the nuclear
• 7:18
  regulatory Commission.
• 7:19
  So that's going to
• 7:19
  take a little while.
• 7:20
  And we think that that will take,
• 7:22
  you know, several years
• 7:23
  if not decades, there's
• 7:24
  these new things
• 7:24
  called small modular nuclear
• 7:26
  nuclear reactors.
• 7:26
  Everybody's excited about them.
• 7:27
  Sam Altman's got a company
• 7:28
  called Oklo.
• 7:30
  That's doing them.
• 7:30
  I just want to make sure
• 7:31
  everybody understands.
• 7:33
  None of those are commercial yet
• 7:34
  now I'm not.
• 7:35
  Again, we study all energy
• 7:36
  technology toward us.
• 7:37
  And looking this really closely,
• 7:38
  it's just important to understand
• 7:40
  these new nuclear,
• 7:41
  small modular nuclear.
• 7:42
  No nuclear reactors have a lot
• 7:44
  a lot of waste a long ways to go
• 7:45
  in terms of
• 7:46
  to become commercialized.
• 7:47
  And then after that
• 7:48
  get approved by the Ferc.
• 7:49
  So we're probably maybe
• 7:50
  a decade away from,
• 7:51
  from from those coming.
• 7:52
  So anyway,
• 7:53
  so it's good to know that because
• 7:54
  I know that
• 7:55
  that question does come a lot.
• 7:56
  And I know Jay Dobson,
• 7:57
  our analyst here
• 7:58
  does get that often,
• 7:59
  because it is sort of
• 8:00
  being discussed again
• 8:02
  as a reader,
• 8:03
  sort of visiting
• 8:04
  of that particular technology.
• 8:06
  But thanks for answering
• 8:07
  that question for me, Rob.
• 8:08
  You know, and look,
• 8:10
  obviously we want to give
• 8:11
  our viewers some investment
• 8:13
  ideas and opportunities.
• 8:15
  One thing I know we can say
• 8:16
  pretty definitively is the
• 8:18
  the white House.
• 8:18
  Now, they appear pretty focused
• 8:20
  on reducing
• 8:21
  any kind of regulatory friction
• 8:22
  that might get
• 8:23
  in the way of expanding energy.
• 8:24
  So given that
• 8:25
  and all these things, like
• 8:26
  you said, the
• 8:29
  position that you
• 8:30
  have is for growth, 12%
• 8:31
  total return, global energy
• 8:33
  demand at record levels.
• 8:34
  There's an investment case here.
• 8:36
  Tell us what that is. Yeah.
• 8:38
  So so in particular so a tortoise
• 8:39
  you know our bread butter
• 8:40
  and energy infrastructure.
• 8:41
  Right.
• 8:42
  And
• 8:42
  and we think that
• 8:43
  that sector can deliver
• 8:44
  12% plus returns.
• 8:46
  And you know, really
• 8:47
  for the next 12 months,
• 8:48
  you know, how do we get there
• 8:49
  if you kind of deconstruct that?
• 8:50
  Well, 5% dividend
• 8:51
  yields, it's hard
• 8:52
  to find dividend yields.
• 8:53
  Now everybody
• 8:53
  likes dividend yields.
• 8:54
  And we've got
• 8:55
  we've got some big ones
• 8:56
  in the energy
• 8:56
  infrastructure sector.
• 8:57
  Feel really good about that.
• 8:58
  Then on top of that
• 8:59
  not only do you get
• 8:59
  the current dividend yield,
• 9:00
  but you get 5 to 7% growth.
• 9:02
  We just raised
• 9:03
  our growth rates for
• 9:04
  for dividend income,
• 9:05
  to 5 to 7%
• 9:06
  for the growth
• 9:07
  for these companies.
• 9:07
  A lot of it's just triggered by
• 9:09
  some of the AI, but not
• 9:11
  but but it's more than it's
• 9:12
  just traditional,
• 9:13
  economic growth.
• 9:14
  It's higher exports.
• 9:15
  And then, you know,
• 9:16
  down the road, AI growth
• 9:18
  associated with energy
• 9:19
  infrastructure will also be
• 9:20
  a component of the companies
• 9:22
  are actually buying back stock.
• 9:23
  They're disciplined.
• 9:23
  They have a lot of cash flow to
• 9:25
  to pay dividends
• 9:26
  and buyback stuff.
• 9:27
  And then the final component
• 9:28
  is we still think you can get
• 9:30
  multiple expansion
• 9:31
  out of the sector
• 9:31
  in the energy infrastructure.
• 9:33
  The energy infrastructure sector
• 9:34
  is not trading at,
• 9:36
  above or even higher
• 9:37
  than where it's traded
• 9:38
  at historically.
• 9:39
  It's still got room.
• 9:40
  It's still trading at a discount
• 9:41
  to where
• 9:41
  it's, traded at historically.
• 9:42
  So we still think
• 9:43
  there's an opportunity for that
• 9:44
  that multiple to expand,
• 9:46
  which would then
• 9:47
  ultimately deliver
• 9:47
  higher returns to the
• 9:49
  to the, to the shareholders.
• 9:50
  Yeah.
• 9:50
  I mean, like
• 9:51
  you said at the beginning,
• 9:51
  I mean, this is a story
• 9:52
  that has a lot of legs.
• 9:54
  I mean,
• 9:54
  this can go for a decade or more.
• 9:56
  And as I consumption
• 9:57
  becomes even more prevalent
• 9:59
  in our daily lives,
• 10:00
  which I feel like it already is,
• 10:01
  it's only going to increase that
• 10:03
  demand and population
• 10:04
  increases, obviously,
• 10:06
  in some of the countries
• 10:06
  that are outside the US,
• 10:07
  all of that plays into
• 10:09
  to this story very compelling.
• 10:10
  Rob, thanks very much.
• 10:11
  Good stuff.
• 10:12
  Thank you. Anthony.
• 10:13
  Yeah, good to have you here.
• 10:14
  Rob.
• 10:15
  Thummel, again
• 10:15
  with our partners
• 10:16
  at Tortoise Capital.
• 10:17
  And for more information
• 10:18
  or anything that Rob
• 10:19
  and I spoke about,
• 10:20
  including our chief
• 10:21
  investment office
• 10:21
  views on the topic, you can visit
• 10:23
  our InSight's website
• 10:24
  and the web address.
• 10:25
  There is ubs.com/views.
• 10:27
  It's right there on your screen.
• 10:28
  Plus you can also follow us
• 10:30
  on social media.
• 10:31
  We're on LinkedIn,
• 10:31
  Facebook and Instagram.
• 10:33
  You can follow us there at UBS.
• 10:35
  Trending.
• 10:36
  Lots of great content
• 10:37
  for you to watch.
• 10:37
  And as always,
• 10:38
  if you have any questions
• 10:39
  about your portfolio
• 10:40
  or anything that Rob and I spoke
• 10:42
  about today,
• 10:42
  make sure you're chatting
• 10:43
  with your financial advisor.
• 10:45
  Until next time.
• 10:45
  I'm Anthony Pastore.
• 10:46
  We wish you
• 10:47
  a great rest of your day,
• 10:48
  and remember to keep your eyes
• 10:49
  on what you're trending.
• 10:50
  We'll see you soon. Everybody.