Summary
- The multi-year outlook for US (and North American) natural gas demand remains very strong, driven largely by exports and power demand.
- Natural gas pipeline opportunities related to power demand range from relatively small projects to larger expansions, with a few major projects already announced for the Southeast.
- Energy infrastructure will play a critical role in transporting natural gas to demand centers, while also supporting the production growth needed to meet that demand.
For midstream companies with natural gas infrastructure, earnings season has become a key venue to highlight the robust outlook for US natural gas demand and related opportunities. While some projects have been announced, conversations and negotiations are ongoing in many cases. Today’s note provides the latest long-term outlooks on natural gas from midstream companies and updates on natural gas growth opportunities from third quarter calls.
Companies are expecting robust growth in US / North American natural gas markets.
Forecasts for natural gas demand growth over the coming years vary. While liquefied natural gas (LNG) export capacity is fairly straightforward, estimates for power demand, particularly from data centers, tends to have a broader range of possibilities. That said, the overall outlook for US and North American natural gas demand remains very strong.
On their 3Q call in October, management of Kinder Morgan (KMI) provided an estimate for growth in the natural gas market of 25 billion cubic feet per day (Bcf/d) over the next five years. KMI cited LNG exports, pipeline exports to Mexico, power, and industrial demand. For comparison, Wood Mackenzie forecasted 20 Bcf/d of US demand growth to 2030 back in April 2024. Given the quickly evolving nature of power demand, the April estimate is arguably somewhat stale now.
At its investor day last week, TC Energy (TRP CN) forecasted total North American natural gas demand growth of over 40 Bcf/d or 30% by 2035 relative to 2023. This includes a tripling of North American LNG exports from 13 Bcf/d currently to over 30 Bcf/d in 2035. (Stay tuned for more on LNG next week.) Management also cited 350 planned data centers in North America, mostly in the US, which they expect to drive 6-8 Bcf/d of natural gas demand.
Midstream opportunity set ranges from small to large projects.
Midstream natural gas pipeline opportunities related to power demand range from relatively small projects to larger expansions. The large projects already announced focus on the Southeast. These include Williams’ (WMB) Southeast Supply Enhancement, which is a 1.6-Bcf/d expansion of the Transco system, and KMI’s $3 billion "South System 4 expansion":https://www.kindermorgan.com/Operations/Projects/SSE4-Project-Page that will add 1.2 Bcf/d of capacity. This quarter, WMB also announced an expansion of its "Dalton lateral":https://williams.gcs-web.com/news-releases/news-release-details/williams-delivers-record-third-quarter-results-driven-continued near Atlanta with a shipper already committed for nearly 0.5 Bcf/d.
KMI management noted that they see the potential for a few large projects ($1.5-$2 billion investments), but most of the opportunities can be characterized as singles or doubles, implying smaller, less capital-intensive projects. These smaller projects tend to leverage existing assets, are lower risk and can be quicker to complete, while still offering attractive returns. DT Midstream (DTM) has also discussed opportunities for laterals, which are smaller pipelines connecting a larger pipeline with the point of demand (read more). DTM discussed these as $50-100 million capital investments on its 3Q call.
Project opportunities are widespread geographically.
Energy Transfer (ET) put added emphasis on its ability to capitalize on growing natural gas demand on its earnings call. Management highlighted requests to connect to ~45 power plants across 11 states representing up to 6 Bcf/d of gas demand. For context, ET already serves 185 power plants in 15 states. Similarly, KMI mentioned discussions with power plants in Arizona, Arkansas, Texas, Mississippi, Louisiana, Wisconsin, and Colorado – not to mention the demand they will be serving in Georgia through the South System 4 expansion. KMI is in conversations for power opportunities that represent more than 5 Bcf/d of natural gas.
Specific to data centers, ET has had requests from over 40 prospective data centers in 10 states representing up to 10 Bcf/d of natural gas consumption. ET is well positioned for opportunities in Texas given existing natural gas pipeline and storage assets. The Dallas-Fort Worth area is reported to be second only to Northern Virginia for data centers. ET’s proposed Warrior Pipeline from the Permian Basin to existing pipelines near Fort Worth would further enhance its ability to service the DFW area.
At last week’s Investor Day, TC Energy (TRP CN) noted conversations with data centers and hyperscalers representing 2 Bcf/d of demand in Ohio, Virginia, and Wisconsin. They also flagged data center opportunities in Alberta.
To be clear, not all conversations will ultimately result in new pipeline projects. Of course, some customer conversations are more advanced than others, and interest has likely increased over the course of the year. Investors will be looking for discussions to progress to firm agreements and announced projects over the coming quarters.
So what?
Growing natural gas demand in the US (and North America more broadly) represents an important multi-year theme for midstream. Energy infrastructure will play a critical role in getting natural gas to demand centers, while also supporting the production growth needed to meet that demand. In the coming quarters, project announcements and comments on the opportunity set will continue to bear watching.
Midstream is an attractive avenue for playing this trend given its fee-based business models and relative insulation from the volatility and seasonality of natural gas prices. Additionally, generous yields allow investors to get paid as growth materializes over the coming years.
DTM, ET, KMI, TRP, and WMB are constituents of the Alerian Midstream Energy Select Index (AMEI), which underlies the Alerian Energy Infrastructure ETF (ENFR). AMEI was yielding 4.7% as of November 22.
Related research:
DT Midstream CFO on Natural Gas, Dividend & EBITDA Growth
Williams CFO Describes 3 Growth Opportunities in Natural Gas
Kinder Morgan Highlights Natural Gas Opportunities, Reports Q3 Earnings
Pipelines Set to Expand Amid Successful Open Seasons
AI, Natural Gas & Midstream’s Emerging Opportunities
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