YOUR AD HERE »

Market Pulse: Drill, Baby Drill? Not So Fast.

David Vomund

One of president Trumps slogans that he ran on is “Drill, baby drill.” Drastically cutting gas prices is key to his plan to lower inflation. While it all sounds good, I wouldn’t count on much of a drill, baby drill benefit.

Exxon’s CEO threw cold water on Trump’s claim by pointing out that energy companies won’t drill and drill unless at least two conditions are met. First, there need to be good prospects worthy of billions in capital spending years before there is or isn’t a payoff. And equally if not more important to justify a drilling surge the expected market prices of crude and natural gas have to be right. Energy companies don’t control the prices of crude, natural gas and liquids. The market and the habits of tens or hundreds of millions of people determine prices.

It is drilling, especially by small independent producers who are the most price-sensitive, that would collapse if crude fell to $50 a barrel, or $35, or who knows where? Theirs is a risky business.



The area I own for client portfolios is energy infrastructure — pipelines, storage, processing, etc.– because commodity prices are pretty much irrelevant. Volumes matter most and they will surely grow. Williams Cos. and Kinder Morgan are two of the largest in the sector. Over the past year both are up about 75 percent.

Is it time to take some profits? No. I will remain focused on infrastructure stocks as long as the fundamentals are powerfully bullish. They are and they will remain so for years. Demand for electricity to run the increasing number of AI data centers is one reason. According to the International Energy Agency (IEA), in 2026 the energy consumption of AI’s data centers will reach a level roughly equivalent to the total electricity consumption of Japan. That’s crazy! As excited as Wall Street is about AI, it won’t work without power, lots of power.



A growing economy also needs electricity and energy to run. Solar and wind is expanding and helping but not nearly enough to meet demand. Coal? No way. Nuclear? To a small extent, yes, but it takes a long time to build. Hydro? Also a small factor. That leaves natural gas, which will be used to meet our energy and power needs. It must be transported, processed and stored, mostly by a handful of companies (including the two mentioned above). Expect a growing demand for natural gas.

David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.


Support Local Journalism

Support Local Journalism

Readers around the Lake Tahoe Basin and beyond make the Tahoe Tribune's work possible. Your financial contribution supports our efforts to deliver quality, locally relevant journalism.

Now more than ever, your support is critical to help us keep our community informed about the evolving coronavirus pandemic and the impact it is having locally. Every contribution, however large or small, will make a difference.

Your donation will help us continue to cover COVID-19 and our other vital local news.