Kinder Morgan (NYSE: KMI) Benefits from AI, Data Center Growth
The rise in the buildout of artificial intelligence data centers has boosted interest from investors in pipeline companies like Kinder Morgan (NYSE: KMI) which could benefit from a potential increase in the demand of natural gas.
Capacity for natural gas (NYMEX: NGQ5) will continue to rise as more tech companies build data centers to power artificial intelligence and LNG terminals have finished with maintenance issues and more projects are coming online this year. The demand for natural gas is likely to expand because the push for adopting cleaner energy throughout the U.S. remains steadfast.
Kinder Morgan’s network of pipelines is vast and its natural gas pipelines span 66,000 miles. The company transports about 40% of the natural gas produced in the U.S. and its pipelines are located in strategic locations where critical natural gas resource play and supply areas are found, including the Eagle Ford, Marcellus, Bakken, Utica, Uinta, Permian, Haynesville, Fayetteville and Barnett.
In Pennsylvania, the abundance in natural gas has attracted investors and companies building data centers because the Marcellus Shale formation is located there. The Marcellus boasts of 410 trillion cubic feet of reserves, which could provide enough power to supply Americans for several decades, if not longer, according to the U.S. Energy Information Administration.
Knighthead Capital Management announced plans in April to transform the former coal-fired power plant into the largest natural gas-fired one as part of a $10 billion project to build out a data center complex in Homer City, PA. The plant is estimated to produce 4.5 gigawatts of electricity from the seven turbines constructed by GE Vernova (NYSE: GEV).
Kinder Morgan has drawn the attention of investors with the stock surging 38% over the past year.
The demand for natural gas will increase exponentially, especially during the next five years, rising from 20 to 30 BCF daily by 2030, wrote Simon Wong, a portfolio manager at Gabelli Funds. But the current supply will not meet the volume needed as AI and tech companies, data centers and crypto miners churn out figures and results around the clock and must compete with households and small businesses using power from regional grids.
“Supply isn’t expected to keep up and the prices need to move up higher, especially later this year, to incentivize demand and possibly supply,” he wrote.
The surge in building data centers could add even more stability to natural gas prices as the need for electricity remains relentless. The buildout of data centers throughout the U.S. in areas such as Dallas/Fort Worth, Chicago and San Antonio and Mesa, Arizona means having access to an uninterrupted power supply is critical.
