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During its most recent earnings conference call, midstream giant Kinder Morgan (NYSE: KMI) discussed the benefits that artificial intelligence (AI) will bring to his business. This is perhaps unsurprising, as companies from a variety of industries have waxed eloquent about how AI will benefit their businesses. Some applications of AI in non-tech industries have been quite creative; Wendy’sfor example, announced it would use AI to dynamically change menu prices throughout the day to boost sales.

In the future, Kinder Morgan could use AI to monitor the safety of its pipelines. Or perhaps it will leverage the technology for arbitrage opportunities and use AI to better route hydrocarbons through its system to get the best prices. But the big opportunities the company currently sees in AI are very different.

AI applications consume a lot of power

Kinder Morgan sees itself benefiting from AI because it consumes a huge amount of power. Generative AI in particular requires a lot of computing power, which leads to more and larger data centers.

The company noted that a recent study predicted that electricity demand for data centers will increase 13% to 15% annually through 2030. In 2022, data centers accounted for about 2.5% of US electricity use, but that number is expected to rise to 20% of all US electricity use by 2030. Most of that energy demand will be driven by AI, which is expected to account for about 15% of total U.S. electricity demand by then. Although Kinder does not cite the source, these projections appear to be supported by a report from the Boston Consulting Group, which expects electricity consumption in US data centers to triple by 2030 and be the equivalent of 40 million homes.

During its earnings call, Kinder Morgan said that while renewables will play a big role in meeting future energy needs, they are not enough. It states that using batteries to compensate for the shortages of renewable energy sources is not economically feasible, while building transmission lines to connect renewable energy sources to the electricity grid takes years. It sees natural gas playing an important role in meeting future energy needs.

How Kinder Morgan and others would benefit

Kinder Morgan said in its earnings call that if just 40% of future AI electricity demand comes from natural gas, it would increase natural gas demand by 7 billion cubic feet (Bcf) per day to 10 Bcf. In 2022, the US used 12.12 trillion cubic feet (Tcf) of natural gas for electricity and 32.31 Tcf overall. An addition of between 2.5 tcf and 3.7 tcf per year would not be trivial.

The story continues

As one of the largest natural gas pipeline operators in the U.S., Kinder Morgan would benefit. With approximately 75,000 miles of natural gas pipelines, the company’s system transports approximately 40% of the natural gas produced in the US. Kinder Morgan’s natural gas pipeline system is like a toll road, and 89% of natural gas pipeline contracts are take or pay. .” This means that customers pay Kinder Morgan for the right to use its pipelines, so the company gets paid whether they do or not.

Increased natural gas use through the construction of AI data centers will lead to higher volumes and the need to build more pipelines. Given that its system accounts for more than 40% of the natural gas produced in the US, Kinder should be well positioned as it is easier to expand and connect pipelines as part of an integrated system than building a stand-alone pipeline. Meanwhile, building pipelines in the Northeast has proven difficult, as evidenced by the difficulties completing the company-owned Mountain Valley Pipeline Equitrans Midstream. Kinder’s system, meanwhile, is well positioned for data center hotspots in Texas and the Southeast. New data centers that are built will need to be low-cost energy sources, which should lead to future growth for the company.

Now Kinder Morgan won’t be the only pipeline company to benefit. Energy transfer (NYSE:ET) is one of the nation’s largest natural gas transporters, with approximately 93,000 miles of natural gas pipelines. Another great option is Williams Companies (NYSE:WMB), which handles about a third of the country’s natural gas production and owns one of the most important long-distance natural gas pipelines in the U.S., Transco. This pipeline transports natural gas from the productive natural gas basins in Appalachia to markets in the southeastern US. Given that these companies have some of the largest integrated natural gas pipeline systems in the country, they will be best positioned to build the needed connections through growth. projects to handle the increased natural gas volumes.

Overall, buying one of these companies is a great way to capitalize on the trend of increased energy consumption through AI. All three companies’ assets are well positioned and their shares should benefit from this growth in the coming years. As a bonus, all three also offer nice dividend yields, so investors can get paid to wait while this trend unfolds.

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Geoffrey Seiler has positions in Energy Transfer. The Motley Fool holds and recommends positions in Kinder Morgan. The Motley Fool has a disclosure policy.

Kinder Morgan sees artificial intelligence (AI) driving growth, but not how you think, originally published by The Motley Fool

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