President Trump recently announced that several companies in the private sector are teaming up to invest up to $500 billion into infrastructure for artificial intelligence (AI). The Stargate project, backed by OpenAI, Softbank, and Oracle, will build 20 data centers in the country, with the initial one already under construction in Texas.
Those data centers will require a tremendous amount of electricity to power all the specialized chips needed to run AI applications, meaning the companies will probably need to build power plants specifically to supply electricity to these facilities. Given their power requirements, which include needing a steady and constant source of electricity, they'll probably initially turn to natural gas to meet some of their power requirements. That could help accelerate the demand for that crucial fuel.
Turning on the gas
Many companies will benefit from rising natural gas demand. It will enable natural gas producers to drill more wells and increase their output. That rising supply will drive the need for more infrastructure to support it, which will benefit energy midstream companies by enabling them to expand their systems. It will also provide opportunities for utilities to distribute more gas to their customers and build more natural gas power plants.
Leading gas pipeline operator Kinder Morgan(NYSE: KMI) discussed this project and the impact of AI on gas demand during its fourth-quarter conference call. CEO Kim Dang stated:
We think the natural gas demand is going to grow by 28 Bcf [billion cubic feet] a day between now and 2030, and part of that is power demand.In those numbers, though, we only have power demand up about 3 Bcf a day, and, I think, there are a lot of numbers that are much higher than that 3 Bcf a day in terms of power demand. I've seen numbers at 10 Bcf a day. And so, I think, there is the potential for upside, above the 28 Bcf of growth that we are projecting.
Put another way, Kinder Morgan currently expects that data centers, the main catalyst fueling the growth in power demand, could contribute to around 10% of the expected demand growth for gas through 2030, or 3 Bcf/d out of the 28 bcf/d. However, that could be a conservative estimate. In an upside scenario, data centers could contribute to the consumption of up to an incremental 10 Bcf per day of gas by 2030. For perspective, thetotal U.S. natural gas demand was 108 Bfc per day in 2023. That implies data centers could increase gas demand by as much as 9% over the next several years, with the overall demand rising by about a third.
Positioned to capitalize on the surge
This growing demand for gas is already translating into additional expansion opportunities for Kinder Morgan. Over the past year, the company has secured four large-scale gas pipeline expansion projects, an investment of more than $5 billion, that will transport over 5 Bcf of gas per day when they come online.
It could secure more projects in the future, including those related to Stargate. Sital Mody, the president of the company's gas pipeline segment, noted on the call that the Texas data center is near its existing intrastate and natural gas pipeline systems, creating an opportunity for the company that it's well positioned to capitalize on even if it's likely to face lots of competition.
It's one of many opportunities the company is pursuing. Co-founder and Executive Chair Richard Kinder stated on the call, "This is the most exciting time to be in the midstream natural gas market that I've seen in my long decades in this business." He noted that demand drivers such as AI data centers are "creating enormous opportunities for expansion of the natural gas pipeline and storage system across America and especially in the Gulf Coast and Southeast regions," where it has significant infrastructure. These factors help drive the company's view that it will grow its earnings for years to come.
Fueling the AI boom
AI will need a lot of electricity in the future, which bodes well for natural gas demand. With major projects like Stargate moving forward, demand growth could be more toward the upside scenario that companies like Kinder Morgan believe is possible. That would bode well for its business, which could help supply the fuel needed to meet the energy requirements of the Texas facility and others in the future, enhancing its already strong growth prospects. It makes pipeline stocks like Kinder Morgan compelling ways to potentially cash in on the AI boom.
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Matt DiLallo has positions in Kinder Morgan. The Motley Fool has positions in and recommends Kinder Morgan and Oracle. The Motley Fool has a disclosure policy.
