American energy independence and security relies on an all-of-the-above energy policy. With increasing demand from AI and gradual electrification of ground transportation, U.S. energy demand is set to rise nearly 50 percent by the middle 2030s.
To power the surge in electricity demand, natural gas will play a critical role, as nuclear is not a fast deploy, while solar and wind rely on batteries for anything beyond daytime needs.
Natural gas production in the Permian Basin continues to rise and is expected to increase in 2025 by about 4 percent. The growth is driven by associated gas from oil-directed drilling.
Unlike other U.S. shale basins, the Permian’s GOR has remained relatively stable, rising only slightly.
The growth in associated gas presents both opportunities and operational challenges. On one hand, it offers additional revenue streams for operators through natural gas sales and potential liquefied natural gas (LNG) exports. On the other hand, the increasing volume of associated gas necessitates expanded infrastructure for gathering, processing, and transportation.
Operators such as EOG Resources and Coterra Energy are investing in enhanced gas infrastructure, including new processing plants and pipeline capacity, to efficiently manage the rising volumes. If you have read my other pieces, then you know I am invested in Coterra due to its size and structure being more advantageous for bigger share price gains. EOG is for investors who are more risk averse and are willing to have a lower total return potential.
Additionally, rising natural gas prices in 2025 have incentivized some companies to prioritize gas-focused development, especially in formations with higher gas-to-oil ratios, further supporting the growth trajectory. Technological advancements are also playing a key role in optimizing natural gas extraction and management. Longer lateral wells, multi-well pad drilling, and improved hydraulic fracturing techniques have increased initial gas production rates and recovery efficiencies.
Companies are looking to prioritize gas-focused development. Even as domestic demand for natgas increases (given the expected boom in energy-hungry data centers), LNG exports are climbing as well, as seen in this May 2025 chart from the EIA.
Companies are leveraging data analytics and artificial intelligence to better forecast gas production, optimize well completion designs, and reduce operational costs. As the industry moves forward, environmental considerations such as methane emissions reduction and water recycling are becoming integral to operational strategies, ensuring that gas development aligns with regulatory standards and stakeholder expectations.
An interesting twist is that oil drilling is flattening out due to recent downward pressure on oil prices. Chevron is one of the main companies holding back expanded drilling on the aggregate, but others have joined in as part of being more focused on margins than growth. That means smaller companies can remain a bit more aggressive and capture any upside if prices should rise.
In addition, it is the Delaware Basin companies that are more likely to capture gains from gas, given that that play has a higher gas output. I am invested in Permian Resources for this reason and am looking for an entry on Matador Resources for their size, structure, and exposure to the Delaware.
On the macro front, the United States is running into significant debt constraints due to rapidly growing debt and flattening-to-lower international demand for U.S. Treasury debt. I believe that the United States is coming to a crossroads on debt soon. I have forecast the second half of 2025 or first half of 2026 for a moment when economic doubt peaks, the economy at least threatens recession, and asset prices fall.
If I am right about a coming downturn, and the resulting bailouts in the form of QE and other stimulus, then the electricity demand is sure to send the prices of stocks in companies with favorable natural gas businesses back up rapidly.
Keep an eye out for oil and gas stocks to get a bit cheaper and use that as a buying opportunity that could lead to significant gains into the next expansionary cycle.
For disclaimers and deeper dives, please visit my investment letters at FundamentalTrends.com or MOSInvesting.com or my Registered Investment Advisor firm Bluemound Asset Management, LLC.
Kirk Spano
A financial analyst and investment advisor, Kirk Spano is published regularly on MarketWatch, Seeking Alpha, and other platforms.
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