Three Energy Pipeline Companies poised for Profit from Artificial Intelligence (AI) by 2025
Looking at stocks that will profit the most from artificial intelligence (AI), the technology sector isn't the only game in town. Companies in the energy midstream space are also poised for a boost. This is due to the high energy demands of AI training and inference. According to Bank of America, electricity demand for data centers is projected to climb between 10% to 15% per year until 2030 and could account for 5% of worldwide power consumption in 2030.
Utility companies and data center operators are turning to natural gas to meet this growing energy need, leading to an increased demand for pipeline projects to transport this natural gas to its intended destinations. Three midstream companies are well-positioned to capitalize on this trend:
Energy Transfer
With nearly 107,000 miles of natural gas pipelines and 235 billion cubic feet of working storage capacity, Energy Transfer (ET) has a strong position in the U.S. The company's dominance in Texas and the Permian Basin gives it access to some of the most affordable natural gas in the country. In fact, due to a shortage of natural gas takeaway pipelines, prices for natural gas at the nearby Waha hub were below zero for extended periods in 2024.
As a result, Energy Transfer has been fielding numerous requests for potential natural gas pipeline projects to serve power plants and potential new data centers. Its existing pipelines are seeing increased demand due to AI data center needs. Last year, the company announced a new $2.7 billion project to connect Permian natural gas to other markets to support data center and power plant growth in Texas.
Enterprise Products Partners
Enterprise Products Partners (EPD) is another significant midstream operator with a strong position in Texas and the Permian. The company's natural gas pipeline and storage assets are mostly located in Texas or along the Gulf Coast. On its last conference call, the company reported seeing promising signs of power demand stemming from AI, noting that they had the pipeline and storage assets to take advantage of this opportunity.
EPD is particularly well-positioned to serve the Dallas-Fort Worth and San Antonio areas, which are both planning significant power expansion. The company is already in a growth phase, with plans to invest between $3.5 billion and $4 billion in capital expenditures this year to capitalize on these opportunities, most of which are centered around the Permian.
Williams Companies
Not every data center in the U.S. will be located in Texas, and Williams Companies (WMB) has arguably the most valuable natural gas pipeline system in the U.S. Its Transco Pipeline system spans the Southeast, connecting New York to southern Texas, bringing natural gas to markets in 13 states. The 10,000-mile system delivers 15% of the natural gas in the U.S.
The pipeline plays a crucial role in transporting natural gas from the Marcellus Shale to markets along the East Coast. Its strategic location allows Williams to consistently develop projects connecting to its Transco system, with nine Transco pipeline expansion projects scheduled to be completed between the second half of 2024 and 2029.
These three midstream companies are well-positioned to capitalize on the increasing power demands stemming from AI. All three stocks also offer attractive yields, making them compelling investment options for income-oriented investors.
Investors looking for firms benefiting from AI's energy demands might consider midstream companies. For instance, Energy Transfer (ET) with its extensive natural gas pipeline network in Texas and the Permian Basin, is seeing increased demand from AI data centers. Enterprise Products Partners (EPD), another midstream operator, is well-positioned in Texas and the Permian, and reported promising signs of power demand from AI. Williams Companies (WMB), with its Transco Pipeline system spanning the Southeast, is also capitalizing on AI's natural gas demands, as it delivers 15% of the natural gas in the U.S. These companies are not only positioned to profit from the AI-driven power surge but also offer attractive yields for income-oriented investors, making them potential investment options in the midstream finance sector. The companies' expenditures on pipeline expansion projects are a testament to their commitment to meeting the growing energy expenditures required by AI-driven data centers.
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