Electricity is Still the New Oil: Strengthened Convictions for 2026 and Beyond
EXECUTIVE SUMMARY
Despite a year defined by commodity volatility, geopolitical shocks, and abrupt swings in macro sentiment, the midstream sector enters 2026 healthy and with momentum, supported by durable fee-based cash flows and the continued rise in power demand.
After an early boost, crude prices whipsawed amid proposed cross-border tariffs and escalating U.S.-China trade tensions, which included significant retaliatory measures and added pressure from OPEC+’s accelerated return of voluntary oil production. Equity markets also reeled briefly from concerns that cheaper AI models would slow infrastructure buildout, then rebounded as investors recognized that broader AI adoption ultimately reinforces long-term electricity and natural gas needs.
Through the shocks of tariff threats, geopolitical flare-ups, OPEC+ supply uncertainty, and volatile crude oil prices, midstream energy cash flows consistently grew, benefiting from inflation-protected contracts and stable demand-driven volumes.
As markets stabilized into late 2025, aided by a U.S.-China cooling period and renewed confidence in the AI-driven power cycle, midstream and broader energy assets regained upward momentum. Heading into 2026, the sector is positioned for continued resilience, with structural load growth, improving macro clarity, and disciplined global supply dynamics underpinning a constructive outlook for energy infrastructure.
Based on how essential energy is to the massive growth of AI and information technology, the largest sector in the S&P 500, it seems to us that energy (3%) and utilities (2%) should represent a larger share of the S&P 500.
KEY THEMES & TRENDS FOR 2026
1. Electricity is Still the New Oil
Electricity demand has become the defining driver of today’s energy investment cycle. After a decade of minimal U.S. load growth (~0.5% CAGR), AI and data centers, manufacturing re-shoring, and electrification are resetting expectations materially higher. Updated McKinsey analysis now projects ~3.5% annual electricity demand growth through 2040, a step-change that meaningfully expands required generation capacity over the next 15 years.
Simply put, electricity demand is the new anchor of the energy complex—and confidence in its long-term trajectory continues to grow.
2. Natural Gas at the Center of Power Expansion
Natural gas sits squarely at the heart of the coming power build-out, and 2026 is shaping up to be the most active year for gas-fired generation development in more than a decade. With U.S. electricity demand accelerating and data centers requiring firm, round-the-clock baseload, utilities have been forced to pivot from years of slimming natural gas plans to aggressively adding new capacity. Wolfe’s forecasts illustrate this shift clearly: expected gas additions for 2025-2029 now approach 70 GW, more than double the levels utilities envisioned just a year earlier, and the highest pipeline of gas capacity since the mid-2010s.
This expansion is no longer just the domain of regulated utilities. The field of participants is rapidly diversifying as energy incumbents and oilfield service companies step into power generation. Integrated majors such as Chevron, large midstream operators like Williams, and oilfield specialists, including Liberty and ProPetro are all exploring or securing roles in supplying, developing, or operating gas-fueled generation—particularly “behind-the-meter” projects not connected to the electric grid designed to support hyperscale data centers and industrial loads. Their involvement reflects a broader truth we’ve been talking about for years: natural gas isn’t just fuel, it’s core to economic activity and growth. And the US is fortunate to have an abundance of inexpensive natural gas.
In 2026, we expect a meaningful increase in new pipeline laterals, firm transport arrangements, tolling structures, and dedicated onsite generation. This convergence of midstream, upstream, and power players underscores a durable theme for the decade ahead—natural gas will remain the indispensable foundation of U.S. grid reliability as load grows at an accelerating pace.
3. Liquefied Natural Gas (LNG) Capacity Expansion
LNG is entering a major growth phase, and 2026 serves as a key inflection point for North American export capacity. As shown in the capacity chart, North American LNG exports stood near the mid-teens bcf/d in 2024 but are on track to climb toward 30 bcf/d by 2027, driven overwhelmingly by U.S. project buildout. By 2030, that figure approaches 40+ bcf/d, solidifying North America—and particularly the U.S. Gulf Coast—as the global anchor of LNG supply growth.
The step-change expected in 2026 is significant because the incremental volumes coming online represent some of the largest additions relative to the current export base. Multiple U.S. terminals are scheduled to ramp construction or begin commissioning, and Mexico’s Pacific-facing facilities continue progressing toward first cargoes later in the decade. Although long-term projections to 2030 highlight sustained demand from Europe and Asia, the near-term story is already compelling:
2026 marks the beginning of a multiyear period where LNG supply growth materially accelerates, reshaping global gas flows and reinforcing U.S. natural gas production as a strategic asset.
Put simply, the combination of record domestic power demand and surging LNG export capacity places U.S. natural gas at the center of both national energy reliability and international energy security.
4. Total Return Expectations & Capital Allocation
Capital allocation across the energy value chain remains firmly rooted in discipline, with companies continuing to balance high-return organic investments, rising shareholder distributions, and meaningful buyback activity.
Strong cash flow growth driven by higher transport volumes, inflation-linked tariff escalators, and a growing pipeline of high-return natural gas and LNG-related projects supports this balanced approach. While capex is trending higher to meet data center load and LNG export demand, management teams remain focused on projects with clear economic visibility, long-term contracts, and a complementary nature to existing assets.
The components of total return continue to be broad-based. Distribution growth remains a priority as companies signal multi-year visibility on payout increases. At the same time, surplus free cash flow remains significant, allowing both midstream and upstream operators to sustain material share repurchases—reflected in the over $3billion of buybacks executed year-to-date through Q3 2025. Visual breakdowns of total return show a healthy combination of yield, growth, and buybacks, with the latter playing an increasingly important role in equity value accretion. These components lead to a total return expectation of low double digits to mid-teens.
Relative to other asset classes, free cash flow and dividend yields remain compelling, reinforcing energy’s position as one of the most attractive total-return opportunities heading into 2026.
5. Favorable Return Potential Continues
The energy infrastructure sector is poised for a strong performance in 2026. As illustrated in the chart below, this outlook is underpinned by several key drivers that position the sector for growth and income generation.
Key Drivers of Total Return in 20261
- Dividend Yield: The Alerian Midstream Energy Index offers a robust dividend yield of approximately 5% as of November 30, 2025.
- Dividend Growth: Forecasted dividend growth of 5%–7% reflects an acceleration from last year’s estimate of 3%–5%, underscoring the sector’s improving fundamentals.
- Stock Buybacks: Companies are expected to allocate 1% toward stock buybacks. With solid debt levels, attractive equity valuations, and cash flows exceeding dividend requirements, buybacks remain a core component of capital allocation strategies.
- Potential for Multiple Expansion: The integration of AI-driven growth initiatives represents a transformative opportunity for the energy infrastructure sector. This catalyst could enhance investor sentiment, paving the way for valuation multiples to expand.
Positioned for Long-Term Growth
The combination of stable cash flows, growing dividends, and a favorable macro environment highlights the resilience and appeal of the energy infrastructure sector. Furthermore, the increasing role of AI in driving new demand streams positions this sector for strong potential total return expectations for 2026.
Conclusion: What to watch in 2026
As the energy landscape enters 2026, several powerful forces are reshaping the sector’s trajectory.
Emerging players in power generation: A widening mix of companies—including integrated majors, midstream operators, and oilfield service providers—are moving directly into electricity generation and behind-the-meter solutions.
Regulatory and policy shifts: Tariff actions, reliability mandates, and evolving federal and state incentives continue to shape project economics and accelerate infrastructure development.
Technological catalysts: Rapid growth in AI-driven data centers, expanding electrification, and the scale-up of battery storage are driving sustained increases in U.S. electricity demand.
Investment flows: Capital allocation into energy and utilities remains strong, favoring assets with long-duration contracts, inflation-linked cash flows, and critical roles in grid reliability and natural gas infrastructure.
These converging trends position the sector for another year of both compelling growth and sustained opportunity.
Important Information
Nothing contained in this communication constitutes tax, legal, or investment advice. Investors must consult their tax advisor or legal counsel for advice and information concerning their particular situation. This communication contains certain statements that may include “forward-looking statements.” All statements, other than statements of historical fact, included herein are “forward-looking statements.” Although Tortoise Capital believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Actual events could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors. You should not place undue reliance on these forward-looking statements. This communication reflects our views and opinions as of the date herein, which are subject to change at any time based on market and other conditions. We disclaim any responsibility to update these views. These views should not be relied on as investment advice or an indication of trading intention. Discussion or analysis of any specific company-related news or investment sectors are meant primarily as a result of recent newsworthy events surrounding those companies or by way of providing updates on certain sectors of the market. Tortoise Capital, through its family of registered investment advisers, does provide investment advice to Tortoise-related funds and others that include investment into those sectors or companies discussed in this communication. As a result, Tortoise Capital does stand to beneficially profit from any rise in value of the sectors broadly discussed, including individual companies contained within.
Past performance is no guarantee of future results. It is not possible to invest directly in an index.
The Alerian Midstream Energy Index is a broad-based composite of North American energy infrastructure companies. The capped, float-adjusted, capitalization-weighted index, whose constituents earn the majority of their cash flow from midstream activities involving energy commodities, is disseminated real-time on a price return basis (AMNA) and on a total-return basis (AMNAX). The S&P 500® Index is an unmanaged, market-value weighted index of stocks that is widely regarded as the standard for measuring large-cap U.S. stock market performance.
Liquefied Natural Gas (LNG) is a natural gas that has been cooled to a liquid state for shipping and storage – the volume in this state is about 600 times smaller than in its gaseous state, able to transport for much longer distances when pipeline transport is not feasible.
- Alerian Midstream Energy Index and Tortoise Capital estimates
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