Kinder Morgan Inc. (KMI) provided insight into natural gas demand and growth opportunities during the firm’s second-quarter earnings call.
The need for electric power is a significant driver of natural gas demand. Electricity demand will increase dramatically by the end of the decade, driven in large part by AI and data centers, executive chairman Rich Kinder said during the call on Wednesday.
Annual electricity demand growth has averaged around 0.5% over the past 20 years. However, in the past 60 days, industry experts have predicted annual growth of between 2.6% and 4.7% until 2030.
“Many developers of data centers would prefer to rely on renewables for their power, but achieving the needed 24/7 reliability by relying only on renewables is almost impossible,” Kinder said.
Furthermore, growth in usage is limited by the need for new electric transmission lines. These are difficult to permit and build on a timely basis, according to Kinder.
Some tech companies have said they want to use dedicated nuclear power for their facilities. However, experts say this is likely to increase reliance on natural gas to replace the burdened nuclear power, Kinder said.
See more: “Midstream/MLPs: AI Adds to Positive Natural Gas Outlook”
Natural Gas Growth Projects
The anticipated new natural gas demand for electric generation driven by AI operations, cryptocurrency mining, data centers, and industrial reshoring creates growth opportunities for Kinder Morgan.
To meet growing demand, the company announced a successful binding open season on the proposed South System Expansion 4 Project. The $3 billion project is designed to increase Southern Natural Gas (SNG) Pipeline’s South Line capacity by approximately 1.2 billion cubic feet per day (Bcf/d).
Generally, the company has 20-year take-or-pay contracts supporting the South System 4 expansion, according to Kinder Morgan CEO Kimberly Dang.
Once the project is completed, it will help meet growing power generation and local distribution company demand in the Southeast market.
Furthermore, Kinder Morgan’s project backlog increased by $1.9 billion to $5.2 billion during the second quarter.
Opportunities Related to Power Demand
Kinder Morgan is seeing some sort of increase in power demand in almost all the markets the company serves.
The company is having commercial discussions on over 5 Bcf/d of opportunities related to power demand. This includes 1.6 Bcf/d of data center demand. The 5 Bcf/d in power demand discussions is across the board, relating to AI, coal replacement, shoring up reserve margins, and backing up renewables.
“Certainly, not all these projects will come to fruition,” Dang added. “But that gives you a sense of the activity levels we're seeing and supports our belief that growth in natural gas between now and 2030 will be well in excess of 20 Bcf a day.”
Kinder Morgan is a top 10 holding in the Alerian Energy Infrastructure ETF (ENFR). The fund offers exposure to the Alerian Midstream Energy Select Index (AMEI). The index is a composite of North American midstream energy infrastructure companies.
Additionally, ENFR includes corporations and MLPs that are engaged in the pipeline transportation, storage, and processing of energy commodities. Companies primarily focused on natural gas pipeline transportation represent 36.7% of the fund by weight.
For more news, information, and analysis, visit the Energy Infrastructure Channel.
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