Invest Like the Best with Patrick O'Shaughnessy
Matthew Smith — Natural Gas: The Next Bottleneck - [Invest Like the Best, EP.483]
· Summarized
Key takeaways
- U.S. natural gas supplies are headed for a significant crunch starting around 2028, with storage potentially depleting by 2030.
- The primary drivers of increased demand are LNG exports and AI data centers, both of which are expanding rapidly but face logistical and infrastructural constraints.
- Current underinvestment in processing capacity, pipelines, and infrastructure could lead to massive price increases, potentially making natural gas prohibitively expensive.
- The solution involves a combination of expanding nuclear power (preferably large reactors), accelerating renewable energy adoption, and upgrading domestic infrastructure.
- There is a pressing need for businesses and policymakers to secure long-term physical gas contracts and to plan proactively for a system-wide energy shift.
- Global energy markets will be affected by these developments, impacting Europe and Asia as U.S. exports become constrained or more expensive.
- Without decisive action, the U.S. faces not just a domestic energy crisis but also global geopolitical and economic disruptions.
Summary
The Imminent Natural Gas Crisis in the U.S.
Matthew Smith details a troubling forecast based on 18 months of modeling nearly every natural gas asset in the U.S. His conclusion is that starting in 2028, the demand for natural gas due to AI data centers and LNG exports will outpace supply, risking depletion of the country's working gas storage by 2030. This shortage could lead to unbounded and convex price increases, especially impacting electricity prices around 2029-2030. The core issue isn't just resource scarcity but logistical constraints in production, processing, and infrastructure, compounded by long-term contractual and regulatory complexities. Smith emphasizes this is a systemic problem that was set in motion well before AI’s surge, rooted in historical overabundance and recent underinvestment in capacity.
Demand Drivers and Supply Constraints
The podcast explores how the rapid increase in LNG exports, along with growing demand from AI data centers, is dramatically tightening natural gas markets. Smith explains that despite apparent resource abundance, infrastructure bottlenecks—such as processing capacity, gathering lines, and interstate pipelines—limit actual deliverability. Demand from AI compute and the likely inadequate pipeline and processing expansion by 2028-2030 will push natural gas usage to levels that deplete storage and inflate prices. The discussion emphasizes that the buildout of new export facilities and midstream infrastructure is slow, and current pipeline plans are insufficient to meet projected needs.
Potential Economic and Strategic Responses**
Smith discusses potential solutions and the geopolitical implications of the crisis. He advocates for aggressive nuclear build-outs, specifically large-scale reactors like the AP 1000, to provide long-term, reliable energy. Solar expansion, especially residential solar, is also recommended as a hedge for consumers. Smith warns against over-reliance on SMRs given their current technological immaturity. He highlights that the U.S. should also pursue pipeline expansion from Canada and improve domestic infrastructure to mitigate shortages. The risk of high prices and supply insecurity may harm consumers and the economy, while producers with high-quality assets, such as Expand Energy and Range, are positioned to benefit.
Impacts on Industry and Global Markets
The coming natural gas constraints will not only affect domestic markets but will also have international repercussions. U.S. exports are crucial to Europe and Asia, and if U.S. supply cannot meet global demand, shortages will ensue, potentially increasing prices for other nations. Smith points out the importance of strategic planning in energy infrastructure investment and warns that complacency and lack of foresight could exacerbate the crisis, elevating energy costs worldwide and straining geopolitical alliances.
Lessons and Surprises from the Analysis
Smith notes that despite widespread optimism about natural gas, there has been insufficient planning for the coming shortfall. He expresses surprise at the lack of financial hedging and infrastructure investment, given the rapid increase in demand from AI and green energy sectors. He emphasizes the need for businesses and policymakers to understand their energy supply sources, secure physical contracts, and consider the systemic risks of natural gas scarcity. The overarching lesson is that the industry is underestimating the speed and severity of constraints, which could lead to a crisis if proactive measures are not taken.
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Show notes
My guest today is Matthew Smith. Matthew is the founder and CIO of Chronometer Partners, which invests in energy, industrials, materials, power and utilities, and related infrastructure.
For the last 18 months he and his team have modeled nearly every natural gas well, pipeline, and processing asset in the United States. He's reached a conclusion most of the market doesn't share.
Starting in 2028, AI data centers and LNG exports will need more gas than the country can produce and deliver. By his math, the US could exhaust its working natural gas storage by 2030. In his words, the upside risk to prices becomes unbounded and convex.
We talk about why this was set in motion long before AI arrived, why the US can't just turn off exports, who wins and loses among producers, nuclear, solar, and the hyperscalers, and what he sees as the only long-term solution.
Please enjoy my conversation with Matthew Smith.
For the full show notes, transcript, and links to mentioned content, check out the episode page here.
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In June, Matthew wrote a letter to a small group of confidants laying out the full case behind his natural gas forecast. He has allowed us to publish it. You can read the full letter here.
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Become a Colossus member to get our quarterly print magazine and private audio experience, including exclusive profiles and early access to select episodes. Subscribe at colossus.com/subscribe.
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Trusted by thousands of businesses, Vanta continuously monitors your security posture and streamlines audits so you can win enterprise deals and build customer trust without the traditional overhead. Invest Like the Best listeners get a special offer of $1,000 off Vanta when you go to vanta.com/invest.
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WorkOS is the infrastructure B2B and AI-native companies use to sell to enterprise. It covers everything enterprise security requires: SSO, SCIM, RBAC, Audit Logs, AI governance, and more. Trusted by 2,000+ fast-growing companies, including OpenAI, Anthropic, Cursor, and Vercel.
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Rogo is the AI platform for finance. They're building agents for Wall Street that are trained to understand how bankers and investors actually do work: from diligence and modeling, to turning analysis into deliverables. To learn more, visit rogo.ai/invest.
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Ridgeline has built a complete, real-time, modern operating system for investment managers. It handles trading, portfolio management, compliance, customer reporting, and much more through an all-in-one real-time cloud platform. Visit ridgeline.ai.
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Editing and post-production work for this episode was provided by The Podcast Consultant.
Timestamps:
(00:00:00) Welcome to Invest Like the Best
(00:02:02) Episode Intro: Matt Smith
(00:03:33) The Conclusion After 18 Months
(00:04:56) The Die Was Cast Before AI
(00:07:24) Sizing AI's Gas Demand
(00:09:33) Why Not Just Stop Exporting?
(00:11:38) Is the Gas Even There?
(00:13:53) The Timing Problem, Not Supply
(00:15:15) Flow Versus Stock
(00:19:10) What Slows Gas to Market
(00:22:21) If Nothing Changes by 2030
(00:26:11) Could Prices Hit Twenty Dollars?
(00:27:00) Gas Producers Poised to Win
(00:28:54) Utility-Scale Solar's Windfall
(00:30:08) What About Nuclear?
(00:32:40) SMRs
(00:34:29) The US Consumer Pays
(00:36:37) Turbine Makers Building Too Late
(00:37:57) Are Hyperscalers Exposed Too?
(00:44:25) Kickstarting the Nuclear Build
(00:46:20) Put Solar on Every Roof
(00:46:52) Implications for the World
(00:49:26) No One's Securing Supply
(00:52:57) The Challenge for Energy CEOs
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