Alma Recurrent Energy Infrastructure Income Fund

Market Review and Outlook

Analysis: Using our 2025 economic frameworks to chart a course for 2026

OIL – uniform bearishness as we approach the “lower bound” of Shale economics: In early 2025, our “Frack-tured Cartel” whitepaper highlighted how last decade’s historic geopolitical volatility led to… surprisingly stable oil prices. Despite various shocks, oil has stayed between $55-85/bbl (inflation adj.) three-quarters of the time since 2014 and >90% of the time since 2022. Shale – only 10% of global supply – is the only resource that has the supply elasticity to add or subtract ~1mm bbls/day within ~12 mos on price signals alone. These marginal Shale economics have, and will, keep oil ruthlessly rangebound. Our paper was met with skepticism. This year, trade wars (and real wars) threatened global GDP, and ceasefires in Iran and (maybe) Ukraine increased fears of oversupply. And yet, oil spent all of 2025 inside our $55-85/bbl range. Today, at the bottom of our $55-85/bbl range, bearish $40/bbl forecasts have gotten louder. However, given acute fiscal challenges for Shale producers below $55/bbl, we see meaningfully more upside than downside for oil price today, and expect any sojourn below $55/bbl to be short-lived.
Most publicly traded Shale operators are not only failing to generate a return on capital at $55 (10% returns on equity require close to $70/bbl for most operators), but roughly 50% of the largest and most efficient public operators are failing to cover cash operating costs and maintenance capital expenditures at $55/bbl. If we include growth initiatives, interest expense, cash taxes, and a modest 10% return on capital, all Shale operators are deeply underwater.

GAS – analysts mesmerized by the size of AI/LNG fail to analyze elasticity of demand: both demand and supply are surging. Expectations of AI and LNG growth have kept many analysts bullish on price. The (large) size of these opportunities is well documented (including by us!) – but few discuss the elasticity of this demand. Above $4/mcf (where gas briefly soared last month), demand destruction for gas is rapid. A year ago, we noted how US demand since the 1950s has grown only when gas is cheap. Over 70 years, all market growth has occurred when gas is at or below 40% of oil price. With oil at $55, gas must stay <$3.70/mcf to offer the advantage historically associated with rapid growth. Many investors hope US LNG exports will allow US gas to escape the elasticities of the US market. But global LNG demand has its own constraints and elasticities. One challenge is the relatively small size of the global LNG market which must absorb US export capacity. US LNG capacity expanded by a record amount in 2025, and the impact could be seen in global gas markets. A year ago, the EU gas market provided a ~$7/mcf uplift to US producers, even after LNG/shipping fees. This December, margins sit ~$1/mcf, as the surge in US exports has pushed the winter price of EU gas below oil value and driven the tightest LNG margins since COVID. With US LNG exports expected to continue their surge in the next ~5 years, US LNG will need to incentivize demand (via lower prices) to continue expanding into the global LNG market.

MIDSTREAM – capex increased in 2025, but FCF remains intact. Valuations have fallen, leaving midstream attractively positioned into 2026: What do commodity cross-currents mean for the midstream sector? Late 2024 and early 2025 saw a crop of new large-scale natural gas pipeline project announcements. Investors greeted these announcements with excitement in 2024 and early 2025, but excitement cooled as 2025 free cash flow was compressed by higher capex. The first new project announcements in nearly a decade caught some investors off guard, but overall free cash flow (FCF) profile of the sector remains robust. Capex announcements likely moderate in 2026, and FCF will again expand meaningfully moving into the back half of the decade. For midstream fundamentals, the growth outlook remains unambiguously positive: a large (and growing) share of gas production comes from oil wells, where “associated gas” is effectively a freely produced byproduct that needs to be handled by midstream operators. Concerns about rising capex and falling rig counts pressured midstream in 2025, leading to the first year of valuation compression since COVID. The result is that midstream companies now stand with lower valuations, better growth and rising cash flow into 2026.

Fund

During the month of November 2025, the Alma Recurrent Energy Infrastructure Income Fund generated net returns of +6.11%, slightly lagging the Alerian MLP Index’s (AMZ) +6.22%.