Natural Gas Utilities Remain a Smart Investment for Long-Term Stability
As investors look for safe returns and relative certainty, America’s natural gas utilities are some of the strongest investments available. Institutional investors see the value and opportunity natural gas utilities bring to their portfolios and are investing accordingly.
American natural gas utilities function as regulated monopolies. Delivery infrastructure drives the largest share of customer costs. One network per service territory keeps costs down, so states grant exclusive service areas and regulate investment, prudence of costs, and an allowed return. Public Utility Commissions provide state-level oversight, regulating what infrastructure utilities are allowed to invest in, what costs are appropriate to pass along to customers, and what an acceptable rate of return on their investments is. Competitive allowed ROEs are essential to attract capital for system upkeep and growth.
What makes this arrangement so attractive to investors? Natural gas utilities are predictable. Natural gas fuels our economy and the daily lives of tens of millions of Americans. Local utility customers depend on this reliable fuel to cook their meals, heat their homes and water, fuel their businesses and much more. Natural gas is one-half to one-third the cost of alternatives like electricity and is projected to remain so through at least 2050. Because of this, natural gas customers will continue to rely on it for the foreseeable future. The natural gas delivery system isn’t going anywhere – and neither is the profitability of the investments that go into keeping it up and expanding it.
Expanding – because America is in the middle of a generational infrastructure buildout. After decades of increasing energy efficiency that has kept overall energy demand relatively flat, the need to fuel AI data centers and new factories is driving a rapid increase in energy demand. The affordability, reliability and dispatchability of the natural gas system makes it the ideal energy source for hyperscalers looking to provide energy to new data centers and factories – and as a mature technology already rolled out at scale, we can build more, fast.
The scale of this buildout is unprecedented. Globally, BlackRock CEO Larry Fink sees a $68 trillion market by 2040 for new infrastructure, much of which will be energy infrastructure. This is equivalent to building the entire interstate highway system plus the entire Transcontinental Railroad every six weeks for the next fifteen years. Investors who choose to focus on the energy system underpinning this buildout recognize a simple truth: in a Gold Rush, the best way to make money is to sell shovels.
Research by MCR Performance Solutions for the American Gas Association and the Canadian Gas Association shows that investor sentiment towards North American natural gas utilities has risen accordingly in recent years. Investor Perspectives on Natural Gas Utilities: A Canadian and United States Review finds that investors view natural gas utilities as attractive investments for maintaining stability in their portfolios while supplying a reliable and predictable return on equity and recognize that the gas utility industry’s underlying commercial foundation is solid. A high growth rate for natural gas utilities, with the median natural gas LDC analyzed by Barclay’s having a CAGR 2.2% higher than those of large electrics, creates a strong opportunity for profitable investment.
Bottom line for investors: Regulated gas LDCs pair rule-of-law cash flows (average authorized ROEs around the high-9% range) with essential-service demand that’s 3.5× more affordable than electricity and among the most reliable parts of the U.S. energy system. As data centers and new manufacturing lift energy demand, gas distribution networks – already serving 79+ million customers – offer rate-base growth tied to modernization, customer additions, and new end uses. For portfolios seeking steady, policy-regulated returns anchored in the real economy, the sector merits a closer look.