North American Natural Resource Expenditure Increases 9% Annually, Focus on Oil & Gas Services, Grid Construction, and Nuclear Energy

Overview

This report delves into the anticipated wave of capital expenditure growth in the North American natural resources industry between 2025 and 2027. Goldman Sachs' analyst team, using bottom-up models, forecasts a compound annual growth rate (CAGR) of approximately 9% in capital expenditure during this period, with upside risks. The report's core logic revolves around three key drivers: the repair of geopolitical supply disruptions (especially in the Middle East), the surge in electricity demand from the explosive growth of data centers, and the replacement of aging infrastructure. The report focuses on sub-sectors including oil & gas services, utilities, specialty contractors, midstream pipelines, clean energy (nuclear), and metals and mining, providing specific stock recommendations and valuation analyses.

Core views

Oil & Gas Services and Upstream Exploration: The report believes the oilfield services sector is a primary beneficiary of increased operator spending. With International Oil Companies (IOCs) and National Oil Companies (NOCs) seeking to restore production following Middle East supply disruptions, and the recovery of North American shale activity amid sustained high oil prices, demand for oilfield services is strong. Halliburton (HAL), with significant exposure to both the international market (especially the Middle East) and North America (approximately 60/40 revenue split), is seen as the best beneficiary. On the upstream side, ConocoPhillips (COP) has slightly increased its activity plan in the Permian Basin and raised its full-year capex guidance, demonstrating confidence in inventory depth and high-return projects. Utilities and Grid Construction: The inflection point for electricity demand has arrived, with utility capital expenditure expected to be 60% higher over the next five years compared to the previous five years. Sempra (SRE) is specifically recommended due to its subsidiary Oncor's extensive transmission construction projects in high-load growth areas of Texas (Dallas and the Permian Basin). SRE plans to spend $65 billion over five years, with $47.5 billion for Texas investments, expected to drive approximately 9% consolidated earnings growth through 2030 without the need for equity financing. Specialty Contractors: As direct executors of utility capital expenditure, Quanta Services (PWR) and MasTec (MTZ) continue to receive substantial project orders from utilities and Independent Power Producers (IPPs). Particularly in the transmission and distribution sector, as the U.S. grid expands to meet data center and generation demand, these contractors maintain favorable profitability. Midstream and LNG: Demand for natural gas-fired power and LNG export capacity construction drive robust midstream infrastructure spending. Venture Global (VG)'s underestimated growth potential is highlighted, with plans to increase total export capacity to approximately 85 million tonnes per annum (mtpa) by mid-2029 through the CP2 project and subsequent add-on projects. Its brownfield expansion project cost competitiveness (~$700/tonne) is superior to peers. Clean Energy (Nuclear): The nuclear vertical is expected to see the highest capital expenditure growth, covering upstream uranium mining, midstream fuel conversion and enrichment, and downstream reactor deployment. Cameco (CCJ), with its extensive nuclear portfolio (uranium mining, fuel services, and Westinghouse stake), is a key beneficiary. Widening supply deficits and the promotion of Small Modular Reactors (SMRs) will further support uranium and conversion prices. Metals and Mining: Nucor (NUE) is at an inflection point for Free Cash Flow (FCF). With the West Virginia new mill investment nearing completion, its 2026 capex will drop significantly by ~28%, with average capex from 2026-2028 expected to be 40% lower than the previous three years. Driven by volume growth and stronger prices, FCF during the same period is expected to reach approximately $10.6 billion, a 93% increase over the previous three years.

Analysis framework

The report employs a bottom-up coverage model to forecast capital expenditure trends, combined with top-down adjustments based on macro geopolitical events (e.g., Middle East conflict) and technological changes (e.g., AI computing demand for data centers). For individual stock analysis, the institution uses various valuation tools such as Sum-of-the-Parts (SOTP), Enterprise Value/EBITDA (EV/EBITDA), and Discounted Cash Flow (DCF), focusing on the time lag between the capital expenditure cycle and free cash flow realization (e.g., the NUE case), as well as the long-term support for prices from supply-demand imbalances (e.g., uranium and LNG). Additionally, the report assesses the relative attractiveness of utility stocks by comparing historical valuation premiums with the interest rate environment.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Supply-Demand Imbalance Analysis

  The report analyzes supply constraints and demand growth (e.g., data centers, nuclear plant restarts) for uranium, LNG, and electricity to judge long-term price trends and corporate profit potential. This is the core logic of resource product analysis.

• Company Fundamentals and Financial FrameworkFree cash flow analysis

  Capital Expenditure Cycle and FCF Inflection Point

  By analyzing the downward trend after a company's peak capital expenditure (e.g., NUE), combined with revenue growth, the report predicts explosive free cash flow growth, thereby assessing shareholder return potential.

• Valuation methodsSOTP Sum-of-the-Parts Valuation

  SOTP Sum-of-the-Parts Valuation Method

  For diversified companies (e.g., SRE, CCJ), the report values different business segments (e.g., transmission, uranium mining, fuel services) separately using appropriate multiples before summing them up, to more accurately reflect the value of each part.

• Industry/Sector Analysis FrameworkIndustry Chain Transmission Upstream, Midstream, and Downstream

  Capital Expenditure Transmission Mechanism

  The report outlines the industry chain transmission path from increased capital expenditure by utility companies, to orders for specialty contractors, to benefits for equipment suppliers, helping to identify the timing of benefits at different stages.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Sempra (SRE.US)

  Benefiting from surging Texas electricity demand and grid expansion

  Strengths

  Owns high-quality Oncor assets located in high-growth regions; clear capex plan without the need for equity financing; expected stable earnings growth.

  Weaknesses

  Uncertainty in regulatory outcomes; management execution risk.

  Comparison

  Compared to other utility companies, its exposure to high-load growth in Texas makes it more growth-oriented.

  Risks

  Adverse regulation; balance sheet deterioration.

• Halliburton (HAL.US)

  Benefiting from Middle East production resumption and increased North American shale activity

  Strengths

  Balanced international and North American operations (60/40); strong position in the Middle East market; benefits from recovery in completion activity.

  Weaknesses

  North American pricing power may weaken; margin improvement depends on international growth.

  Comparison

  Compared to pure-play North American oilfield service companies, HAL is better positioned to capture the benefits of the Middle East production resumption.

  Risks

  North American activity falls short of expectations; slow margin improvement from international growth.

• Quanta Services (PWR.US)

  Directly benefits from utility grid expansion capital expenditure

  Strengths

  One of the largest specialty contractors in the U.S.; ample backlog; diversified end markets (grid, data centers).

  Weaknesses

  Supply chain challenges could lead to delivery delays; cost inflation pressures.

  Comparison

  Similar to MasTec, but larger scale with a clear advantage in the transmission and distribution sector.

  Risks

  Loss of project momentum; supply chain disruptions; slow margin progression.

• Cameco (CCJ.US)

  Benefits from capital expenditure growth across the nuclear value chain

  Strengths

  Covers uranium mining, fuel services, and Westinghouse stake; benefits from supply deficit and SMR promotion.

  Weaknesses

  Production accident risk; sales delivery timing risk.

  Comparison

  Has the broadest value chain exposure in the nuclear sector.

  Risks

  Commodity price decline; nuclear reactor construction delays.

• Nucor (NUE.US)

  Capex decline drives a free cash flow inflection point

  Strengths

  Volume growth from new mill start-ups; significant capex reduction; high shareholder return ratio.

  Weaknesses

  Rising scrap steel cost risk; tariff reduction risk.

  Comparison

  Compared to CMC, NUE has stronger advantages in the sheet segment, and its FCF release is more certain.

  Risks

  High scrap steel costs; downstream price pressure from increased domestic capacity; economic slowdown.

• Venture Global (VG.US)

  Benefits from LNG export capacity expansion

  Strengths

  Clear capacity expansion path (85 mtpa); low brownfield expansion costs; strong market demand.

  Weaknesses

  Pending arbitration; contract execution risk; global gas price volatility.

  Comparison

  Compared to traditional LNG projects, its cost structure and expansion speed are more competitive.

  Risks

  Project financing needs; permitting delays; long-term decline in global LNG demand.

• ConocoPhillips (COP.US)

  Benefits from increased Permian Basin activity and high oil prices

  Strengths

  Deep inventory; strong capital discipline; Willow project upside potential.

  Weaknesses

  Sensitive to commodity price volatility; operational execution risk.

  Comparison

  Compared to Super Majors, COP's flexibility and return profile in shale oil are more attractive.

  Risks

  Oil price decline; capital expenditure overruns.

• MasTec (MTZ.US)

  Benefits from utility and renewable energy infrastructure spending

  Strengths

  Large specialty contractor; diversified operations; benefits from grid construction.

  Weaknesses

  Execution improvement slower than expected; decline in renewable energy backlog.

  Comparison

  Alongside PWR, a core beneficiary of grid construction.

  Risks

  Weakening utility spending; downward guidance revisions.

Key data

• North American Natural Resource Capex Growth Rate~9% CAGR (2025-2027)Based on bottom-up model forecasts, with upside bias
• Utility Capex Change Over Next Five YearsIncrease ~60%Compared to the previous five years, primarily driven by generation and transmission demand
• Texas Electricity Demand Growth Forecast~8% CAGR (through 2030)Significantly higher than the overall U.S. growth rate of 3.2%
• Sempra (SRE) Five-Year Capex Plan$65 bnOf which $47.5 bn is for Texas investments
• Venture Global (VG) 2029 Target Capacity~85 mtpaAchieved through CP2 and add-on projects
• Nucor (NUE) Estimated 2026-2028 Free Cash Flow~$10.6 bn93% increase over the previous three years, driven by lower capex
• DOE Domestic Uranium Enrichment Capacity Funding$2.7 bnSupports establishment of new domestic enrichment capacity

Impact & implications

The report suggests the market is in the early stages of a super cycle for natural resource capital expenditure, and investors should focus on sectors that can directly absorb this spending growth. For utilities and related contractors, this implies very high revenue visibility over the next few years; for oilfield service companies, the Middle East production resumption and North American activity recovery provide dual momentum; and for nuclear and specific metal companies, long-term structural supply-demand shortages will support price and margin expansion. This expenditure trend reflects not only short-term geopolitical disruptions but also long-term energy transition (electrification, data centers) and infrastructure replacement needs.

Risks

• Easing of geopolitical tensions in the Middle East leading to lower-than-expected oilfield services demand
• U.S. interest rates remaining high, suppressing utility capital expenditure or increasing financing costs
• Data center electricity demand growth slower than forecast
• Significant delays in nuclear project approvals or construction
• Global macroeconomic recession causing a sharp decline in commodity prices
• Regulatory policy changes (e.g., wildfire legislation, environmental regulations) affecting utility operations
• Supply chain disruptions or cost inflation eroding contractor margins

What to watch

• Progress of oil production recovery in the Middle East and order status for oilfield services companies
• Actual execution of U.S. utility capital expenditure plans
• Actual speed of data center power load connections
• FID (Final Investment Decision) progress for new nuclear projects (SMR and traditional reactors)
• LNG export project contracting progress and global natural gas price trends
• Changes in steel industry scrap steel prices and ramp-up of new capacity like Nucor
• Potential changes in energy and environmental policy after the U.S. election