EXECUTIVE SUMMARY
The conflict with Iran has dominated the headlines during the first half of 2026. Commodity prices have surged higher with global oil prices rising to their highest level in years, as the effective closure of the Strait of Hormuz caused global inventories to fall when major oil consumers opened inventories to meet demand that has remained steady despite higher prices. Global natural gas prices have also surged after the destruction of Ras Laffan in Qatar, a key LNG export hub that has helped make Qatar the world’s second-largest LNG supplier. As a result, international gas prices have skyrocketed, given the real concern about the global natural gas supply availability to meet demand. There are many uncertainties as to what is in store for the global energy sector in the second half of 2026. The commentary below outlines how we see these taking shape.
The Age of Electricity Strengthens by Demand
The artificial intelligence race has begun. AI is expected to become the next industrial revolution and, ultimately, the foundation of the next economy. Hyperscalers have been relentless in allocating capital to expand AI capabilities. As shown in the chart below, 2026 capital expenditures are expected to approach $700 billion, nearly double last year’s level. Longer-term AI infrastructure spending estimates continue to move higher, with some projections suggesting annual capital expenditures could reach $3 trillion or $4 trillion by 2030.
So how does the energy sector fit into the global AI race?
Energy will likely be the deciding factor that determines who wins. Electricity is the foundation for everything AI. Reliable, low-cost power will accelerate the pace of AI development just as much as the emergence of new AI applications. The chart below highlights what we refer to as the age of electricity, which represents a significant opportunity for investors across the energy sector.
U.S. electricity demand is expected to grow by 3% to 4% per year for many years as the AI industrial revolution unfolds. This rising demand should serve as a growth engine for multiple areas of the energy sector, including natural gas production, natural gas pipelines and storage, electric generation, power equipment, and grid infrastructure.
What’s Fueling Natural Gas
Natural gas is poised to be the biggest near-term winner from AI-driven power demand. It is abundant, reliable, dispatchable, and relatively low-cost in the United States.
We expect natural gas demand to rise meaningfully over the next several years, driven by LNG exports and AI-related power needs. Meeting that demand will require new pipeline capacity to move supply from producing regions to end markets. As bottlenecks ease, more stranded gas should reach demand centers, benefiting companies that build and operate natural gas infrastructure.
We continue to favor natural gas infrastructure as an investment theme because U.S. AI leadership will depend on abundant, low-cost, reliable energy. Rising exports to Europe and Asia should further support producers and the infrastructure behind them.
Beginning in 2026, accelerating LNG supply growth should reinforce U.S. natural gas production as a strategic asset for domestic reliability and global energy security.
Worldwide Energy Demand Turns to Nuclear for Consistency
However, additional forms of energy will also be needed to accelerate the pace of AI development, including nuclear power and other sources of reliable baseload generation.
Recent developments in the Middle East and market pricing have led some countries to reconsider nuclear power as a steady, reliable source of energy. Our outlook on nuclear energy remains the same. While the industry continues to progress with planning and implementing significant advancements, it will still be some time before we see significant changes.
The nuclear sector has recently experienced support from favorable policy momentum. In the United States, implementation of supportive policies such as production tax credits (PTCs) continues to enhance the economic viability of existing nuclear assets.
Rising electricity demand, coupled with limited new dispatchable capacity additions, has led to stronger forward pricing signals. Nuclear operators are well-positioned to benefit from these trends given their high-capacity factors and relatively fixed cost structures.
U.S. Supply Keeps Energy Pricing Secure
Another important lesson reinforced by the war with Iran is the critical importance of energy security. Energy security should create growth opportunities for many companies operating across the energy sector, especially those based in the United States.
The war with Iran has emphasized how important oil and natural gas remain to global economic growth. It has also highlighted that access to domestic energy supply can serve as a major competitive advantage for countries that do not have to rely heavily on foreign sources of energy.
Global oil prices have risen since the start of the Iran war. Today, global oil prices are trading at higher levels than U.S. prices, in part because the U.S. produces a significant amount of its own oil supply. (EIA) The differential is even more dramatic in natural gas. Concerns about the availability of global LNG supplies have pushed international natural gas prices significantly higher. Currently, global natural gas prices are roughly five to six times higher than U.S. natural gas prices. (Bloomberg, June 20, 2026)
The abundant supply of natural gas in the United States has helped keep domestic natural gas prices relatively low. Low-cost natural gas is emerging as a major competitive advantage for the U.S. economy and should benefit many companies across the U.S. energy sector.
We believe the United States is well-positioned to win the global AI race because it possesses an abundant supply of low-cost natural gas that can be used to generate reliable, affordable electricity. In addition, low-cost natural gas could also support an industrial renaissance in the United States as manufacturing, industrial facilities, data centers, and electric generation assets are increasingly built or re-shored domestically.
This advantage is becoming even more important as AI evolves into the next economy. The development of that economy will require massive investment in electricity, energy infrastructure, manufacturing capacity, and reliable power generation. In our view, the U.S. energy sector is positioned to play a central role in enabling that transformation.
Conclusion: What to Watch in the Second Half of 2026
As the energy landscape continues its journey through 2026, several powerful forces are reshaping the sector’s trajectory.
- AI activity: The acceleration of any new AI applications could expand the need for additional energy and power generation infrastructure.
- 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: Regulatory actions have been implemented to help lower energy costs for consumers. These include temporarily waiving the Jones Act to permit foreign-flagged vessels to transport crude oil and refined products between U.S. ports and extending E15 gasoline availability during summer. Approval of the $1 billion, 35.4-mile Northeast Supply Enhancement pipeline will expand Transco, boosting gas supply, reliability, and affordability overall.
- 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. Furthermore, any changes or adjustments made by hyperscalers will also affect the level of current and future capital spending.
- Iran conflict: Commodity prices will likely remain sensitive to developments in the Iran conflict. Disruptions at key energy hubs, including the Strait of Hormuz, could support higher prices, while de-escalation could ease supply concerns and put downward pressure on prices.
These trends help create a positive environment for the energy sector. We believe energy and energy infrastructure can offer attractive return potential, dividend income, and exposure to companies with strong free cash flow.
Important Information
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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.