The author concludes that the defining feature of the coming decades may not be the replacement of one energy source by another, but the scale of investment required to meet rising electricity demand.

Tyler Rosenlicht, head of natural resource equities at Cohen & Steers, an investment manager, examines patterns of energy use and the investment ideas that arise from them. With AI and other energy-hungry forces at work, and the competing forces of sustainability and concerns about climate change, this is a complex field, economically, politically and technologically. 

The editors are pleased to share these thoughts; the usual editorial disclaimers apply. To comment, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

The global economy is entering a period of extraordinary energy usage. Meeting surging demand will require more energy from every viable source, not a trade-off between traditional and alternative fuels, but a simultaneous expansion of both. Except for coal, we are in a “more of everything” world for the next few decades, where rising global demand is creating opportunities across the energy value chain. Below, we examine the key investment themes spanning both traditional and emerging sources of supply.

Natural gas: The bridge to renewable energy
Natural gas plays a constructive role in the transition to a renewable energy economy by bridging today’s fossil fuel–dominated mix and a more renewable future. It is a cleaner-burning fuel than coal, and it is one of the most quickly deployable ways of lowering the carbon intensity of electricity systems without sacrificing reliability or affordability.

Gas fired power plants can ramp production up or down quickly to balance fluctuations in wind and solar output, helping utilities manage peak demand, reduce outage risk and limit price volatility. This operational flexibility makes it easier for grid operators to incorporate higher levels of renewable generation over time.

From an investment perspective, rising gas demand has implications well beyond producers. Gas distribution and midstream energy companies that operate pipelines, storage facilities and liquefied natural gas (LNG) infrastructure stand to benefit as gas volumes increase. 

The nuclear renaissance is just starting
Nuclear power represents another key supply source for baseload, low-emission energy. Unlike wind and solar power, whose output depends on weather conditions and daylight, nuclear delivers continuous, around-the-clock electricity.

Although constructing traditional, large-scale nuclear plants is expensive, once built they have low operating costs and very long lifespans, delivering affordable electricity for decades. Fuel accounts for only a small share of generation cost, helping to keep nuclear power prices stable and insulated from commodity price volatility. 

About 440 reactors operate, totalling roughly 400 gigawatts (GW) of capacity, supplying about 9 per cent of global electricity. Nuclear’s market share is likely to ramp up meaningfully over time. Another 76 GW of capacity is under construction, with more than 300 GW additional capacity announced or proposed. This is enough to more than double nuclear generation capacity to roughly 880 GW by 2050, though still well short of government targets.

We see attractive opportunities in select nuclear-related companies, including uranium suppliers, manufacturers of nuclear fuel components and leading nuclear power-generating electric utilities.

Oil sands: Long-lived reserves
For years, many investors have assumed that oil consumption will decline as the world turns to alternatives. As a result, Canadian oil sands producers were largely written off as essentially annuities with finite 15 to 20-year lifespans. However, oil sands companies stand out as attractive long-term investments.

Producers’ vast, long-lived reserves, at more than 100 years, enable decades of stable output without the capital-intensive “drilling treadmill” of shale fields, where first-year production decline rates are often greater than 40 per cent. This gives oil sands producers a low-cost, “no-decline” production profile, which translates into strong free cash flow generation, high capital efficiency and healthy balance sheets. As investor perceptions continue to evolve, oil sands companies should see higher valuation multiples and enterprise values over time.

The importance of energy security
In an era of rising geopolitical tension, energy security is no longer a background consideration but rather a central driver of risk and return. 

The Russia/Ukraine war disrupted natural gas flows to Europe, sending energy prices sharply higher and forcing governments into costly emergency responses. More recently, the US-Iran war delivered a similar lesson on a global scale i.e. the risk alone was enough to push oil and LNG prices higher. 

Investing in companies with operations in politically stable energy producing regions has taken on added importance. Oil from the US and Canada, offshore production from Brazil, and LNG from Australia, for example, offer diversification away from higher risk regions. 

Energy security risks extend beyond fossil fuels. Nearly 40 per cent of global uranium supply comes from a single country, Kazakhstan. This concentration creates another potential chokepoint, bolstering the appeal of Canadian and Australian producers.

We also expect to see accelerating investment in domestic renewables such as wind and solar in Europe and other areas heavily reliant on energy imports. Locally sourced power can act as a buffer against future price and supply shocks.

The energy grid buildout
The US electrical grid sits at the centre of two powerful forces, such as a surge in power demand driven by data centres, electrified transportation and advanced manufacturing and supply complexity. Together, these trends are stretching the limits of an ageing grid and driving a multi-year wave of capital spending.

Global annual grid capital expenditures alone are expected to nearly triple, increasing from around $270 billion in 2016-2022 to about $775 billion in the 2031-2040 period. This buildout creates a broad investment opportunity across regulated utilities, grid equipment manufacturers and infrastructure service firms. Equipment makers that supply power electronics and grid software stand to see sustained demand as utilities modernise their systems. Engineering, construction and services firms add another layer of exposure as projects move from planning to execution.

Ultimately, the defining feature of the coming decades may not be the replacement of one energy source by another, but the scale of investment required to meet rising electricity demand. For long-term investors, the opportunity lies less in predicting a single winner than in recognising that the energy transition is, increasingly, an energy expansion.