Electricity Is the New Oil: The New Era of Energy Begins
FIRST-HALF 2025 RECAP: MIXED PERFORMANCE FOR ENERGY
The first half of 2025 is now complete, and performance across the energy sector was mixed. As shown in the chart to the right, the S&P 500 Energy Sector Index, which consists largely of oil and gas producers, underperformed the S&P 500. In contrast, energy infrastructure equities, as measured by the Alerian Midstream Energy Index, performed slightly better than the broad energy sector.
Despite steady earnings, macroeconomic concerns, including potential tariffs and their implications for economic growth, weighed on investor sentiment. Commodity-sensitive energy stocks felt the impact of a 9% decline in oil prices. On the other hand, utilities delivered strong relative performance and outpaced the broader market, supported by renewed strength in electricity demand.
ELECTRICITY IS THE NEW OIL
The energy sector is undergoing a transformation: electricity is becoming the new oil. Practically speaking, this signals a long-term shift in energy demand drivers, with electricity consumption taking center stage. For decades, U.S. electricity usage remained flat, averaging around 4,000 terawatt-hours annually. But artificial intelligence (AI) is now poised to fundamentally change that trajectory. Data centers powering AI currently consume 4% of total U.S. electricity. As illustrated in the adjacent chart, commercial electricity demand including AI-driven usage is projected to grow by nearly 4% annually through 2026. This marks a significant acceleration compared to the near-zero growth observed from 2013 to 2023. By the end of the decade, data centers are expected to account for well over 10% of total U.S. electricity consumption, creating a durable foundation for long-term electricity demand growth.
In many ways, the first half of 2025 was defined by AI. The technology dominated market narratives and capital allocation alike. The “core four” hyperscalers, Amazon, Microsoft, Google, and Meta, reaffirmed plans to collectively spend more than $300 billion on capital investments this year, representing a 17% increase over 2024 levels.
New NVIDIA Blackwell chips, which are at the heart of many AI compute engines, are significantly more power-intensive, consuming up to 70% more electricity than previous models. Similarly, AI model queries are becoming much more energy-hungry: GPT-4 consumes roughly 30 times more electricity per query than a typical Google search, compared to 10x for GPT-3. As next-generation AI capabilities, like text-to-video generation, gain traction, power requirements are only expected to rise. As a result, U.S. electricity demand is on track to grow at a pace well above historical norms.
POWERING THE FUTURE: NATURAL GAS AND NUCLEAR
Natural gas remains the dominant fuel used for electricity generation in the U.S., accounting for 42% of total output over the past twelve months as shown in the chart on the right. It has held this leading position for more than a decade. While nuclear energy’s share has remained relatively constant, its contribution is expected to increase meaningfully beginning in 2030 and beyond.
As overall electricity demand rises, the total market or “pie” is getting bigger, and both natural gas and nuclear are poised to capture a larger share of that growing market. It’s a favorable position for both energy sources.
Several recent announcements highlight natural gas’s expanding role in meeting AI-related electricity demand:
- In Homer City, Pennsylvania, a former coal-fired power plant is being redeveloped into the largest natural gas-powered data center campus in the country.
- GE Vernova, a leader in natural gas turbine manufacturing, has signed new agreements with Duke Energy, Chevron, and ExxonMobil to provide scalable, gas-powered electricity solutions to U.S.-based data centers.
- The Stargate Project in Abilene, Texas, a joint venture between OpenAI, Oracle, SoftBank, and MGX, will rely on on-site natural gas generation to power its next-generation data center campus.
- Leading independent power producers such as Constellation Energy, Vistra Corp., and NRG Energy are expanding their gas generation portfolios through strategic acquisitions.
At the same time, public sentiment toward nuclear energy is shifting. A Pew Research Center poll conducted earlier this year found that 57% of Americans now support expanding nuclear power, up from 43% in 2016.
Investor enthusiasm is building as well. A broad basket of uranium producers has rallied more than 40% year-to-date, based on market-cap-weighted returns. Adding to the momentum, President Trump issued an executive order in May aimed at reestablishing U.S. leadership in nuclear energy. The order focuses on two key objectives: expanding domestic uranium production and rebuilding U.S. uranium enrichment infrastructure.
At Tortoise Capital, we regularly evaluate all energy technologies with a long-term lens. We see meaningful promise in nuclear energy, particularly given the strengthening policy support. However, we do not anticipate significant capacity additions before 2030.
Ultimately, the success of AI depends not only on semiconductors and software but also on energy, specifically, reliable and scalable electricity. AI-focused data centers are now measured in gigawatts, not square feet. With demand rising rapidly, natural gas remains the most practical and immediate solution. Over the coming decades, natural gas and nuclear are both expected to play central roles in powering the AI economy.
THE U.S. AS A GLOBAL ENERGY POWERHOUSE
The United States continues to solidify its role as the world’s largest energy exporter. Over the past decade, U.S. energy exports have grown at a compound annual rate of 11%, cementing the country’s position as a reliable, low-cost supplier to global markets.
Leading this expansion is liquefied natural gas (LNG). U.S. LNG exports have grown from virtually nothing in 2015 to now supplying nearly 5% of global natural gas demand. That trend is expected to accelerate, with U.S. export capacity projected to more than double from 2024 levels by 2030.
A key policy shift occurred in February, when the U.S. Department of Energy lifted the LNG export pause. Commonwealth LNG was granted authorization to proceed, and in the months that followed, nearly 5 billion cubic feet per day (bcf/d) of new LNG export contracts were signed. The largest of these contracts was with Japan’s leading power utility. We expect continued deal flow in the second half of 2025, further supporting the long-term outlook for U.S. LNG and related infrastructure.
WHAT ABOUT OIL?
The 2025 edition of the Statistical Review of World Energy confirms another record-setting year for global energy consumption. In 2024, global energy demand increased by 2.6%, marking the 40th year of growth in the past 42 years. That trend was driven by solid global economic activity, (International Monetary Fund) IMF data show that global GDP rose 3.1% last year.
Despite rapid changes in the global energy mix, oil remains the single largest energy source, accounting for 34% of total global energy consumption, as illustrated in the chart on the right. Global oil demand continues to rise, though the pace is slowing.
In our view, the energy sector is evolving with electricity becoming the “new oil.” As electricity demand accelerates, natural gas and nuclear are emerging as the key pillars of future global energy supply.
Geopolitical events briefly rattled markets in June, as tensions escalated between the U.S., Israel, and Iran. The resulting uncertainty pushed U.S. oil prices up 10% in mid-June. However, prices quickly retreated back to the mid-$60s following a ceasefire agreement.
We continue to monitor developments in the Strait of Hormuz closely. This narrow, 21-mile-wide waterway remains one of the world’s most vital energy corridors. Approximately 20% of global oil and 20% of LNG exports pass through the Strait. A prolonged disruption would likely trigger a global energy crisis. That said, we believe physical flows will remain uninterrupted, and we expect oil prices to remain in the low $60s range through the end of 2025.
Looking ahead, OPEC+ is still expected to return the remaining 1.2 million barrels per day of voluntary production cuts by September 2026. The group could accelerate this timeline, which would create a temporary oversupply in the market. It remains unclear whether all members, including Russia and the UAE, will be able to meet their higher production quotas.
In the U.S., oil production growth is moderating. The domestic rig count has declined by 11% year-to-date. Combined with rising global demand and potential geopolitical disruptions, these dynamics should help bring the oil market into balance over the next 12 to 18 months. Iran’s oil exports, currently estimated at 1.5 million barrels per day, remain a wildcard due to geopolitical volatility.
CONCLUSION: ENERGY IS BROADER THAN YOU THINK
When most people think of energy, they think of oil, gasoline, and home heating. But energy is much more than that. Hydrocarbons are used to produce 97% of all consumer products, making energy the foundational layer of the global economy.
In the second half of 2025, the global energy sector is expected to set multiple new records. The U.S. is projected to maintain its position as the world’s largest energy producer and exporter. Meanwhile, global energy demand is on track to rise for the 41st time in the last 43 years.
But the story is changing. Electricity is becoming the new oil. While oil remains relevant, the future will be powered increasingly by natural gas and nuclear energy, driven in large part by the explosive rise of artificial intelligence.
AI is not just a catalyst for the technology sector. It is a long-term growth engine for the energy sector as well. As AI applications scale, so will the need for reliable, low-cost electricity. In our view, this structural shift remains underappreciated by the market.
We believe that the energy sector presents a compelling opportunity for investors seeking dividends and high free cash flow yields, as well as its exposure to essential infrastructure with strong long-term tailwinds.
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