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Data Center Demand Could Send Midstream to the Moon

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The industry is abuzz about data centers and their potential to juice future natural gas demand. East Daley Analytics views Energy Transfer (ET), Kinder Morgan (KMI), TC Energy (TRP) and Williams (WMB) as uniquely positioned to ride this emerging trend.

The rise of data centers coincides with powerful new technologies like Artificial Intelligence (AI) and machine learning. The role that natural gas will play in supporting this trend is uncertain, but industry forecasts show from 3-15 Bcf/d of additional gas demand could emerge by 2030.

Developers require three resources to build data centers: access to affordable and reliable power, water for cooling, and proximity to fiberoptic networks to connect to internet infrastructure. Geography will influence where new facilities can be constructed, and which midstream players will see upside.

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Northern Virginia is home to the world’s largest network of data centers, and local legislators in Prince Willam County, VA recently passed legislation to support the Digital Gateway Project. The project aims to bring up to 37 data centers to the county.

Despite the ambitious target, the Data Center Dynamics estimates Northern Virginia has limited spare electricity generation available to run this new infrastructure, with just 0.2% of surplus capacity. As more data centers are developed, new energy resources will be required to support them. In the region, WMB’s Transcontinental Pipe Line and TRP’s Columbia Gas pass through Prince William County and could see upside supporting new power generation (see map).

Elsewhere, TC Energy is seeing new demand emerge in the Midwest on the company’s ANR Pipeline. ANR has struck an agreement with a local distribution company (LDC) to supply Microsoft’s new data center in Mount Pleasant, WI. The Wisconsin Reliability project will provide up to 144 MMcf/d of gas delivery. In our TRP Financial Blueprint, we estimate the project will contribute $29MM in annual EBITDA to ANR Pipeline.

Behind Northern Virginia, the Dallas-Fort Worth area is the second-largest data center market in the country. The regulatory environment in Texas is more friendly than in the Northeast, making Texas a promising place for future energy infrastructure.

Kinder Morgan and Energy Transfer are two of the largest owners of Texas intrastate pipelines and are well-positioned to see upside. ET touted potential upside in its 1Q24 update on Monday (May 14), noting that its Texas pipe systems are connected to 55%-60% of gas-fired plants in the state.

East Daley will continue to track new projects as they are announced in our natural gas Macro Supply and Demand Forecast and at the asset level in the company Financial Blueprints, including pipeline contracting and pipe utilization, to predict upside brought on by the AI boom. – Zach Krause Tickers: ET, KMI, TRP, WMB.


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