Kinder Morgan's stock could actually benefit greatly from this AI trend.
During its recent earnings conference call, the midstream dev Kinder Morgan (KMI -0.64%) Discuss the benefits that artificial intelligence (AI) will bring to your business. This is perhaps not surprising, as companies in all sorts of different industries have been vocal about how AI will help their businesses. Some uses of AI in non-tech industries have been quite creative. WendyFor example, announced that it will use AI to dynamically change menu prices throughout the day to help boost sales.
In the future, Kinder Morgan may use AI to help monitor its pipelines for safety. Or perhaps it will use technology to arbitrage opportunities, using AI to better direct hydrocarbons through its system to get the best prices. But the big opportunity the company currently sees from AI is very different.
AI applications consume a lot of power.
Kinder Morgan sees itself benefiting from AI as it consumes a lot of power. Generative AI in particular takes a lot of computing power, which is leading to more and more data centers.
The company noted that a recent survey predicted that electricity demand for data centers would grow at a compound annual rate of 13% to 15% through 2030. In 2022, data centers accounted for about 2.5% of electricity use in the US, but this figure is expected to increase to 20% of all US electricity use by 2030. Much of this electricity demand will be driven by AI, which is predicted to account for about 15% of total US electricity demand by then. Although Kinder did not cite his source, his estimate appears to be supported by a report from Boston Consulting Group, which sees US data center electricity use triple by 2030 and 40 million homes. is likely to be equal to
On its earnings call, Kinder Morgan said that while renewables will play a large role in meeting future energy needs, they are not enough. He argues that it is not economically feasible to use batteries to cover the shortfall in renewables, while building transmission lines to connect renewables to the grid takes years. It sees natural gas playing an important role in meeting future electricity needs.
How would Kinder Morgan and others benefit?
Kinder Morgan said on its earnings call that if only 40 percent of future AI electricity demand came from natural gas, that would increase natural gas demand by 7 billion cubic feet (Bcf) per day to 10 Bcf. In 2022, the United States used 12.12 trillion cubic feet (Tcf) of natural gas for electricity and 32.31 Tcf overall. An increase of between 2.5 tcf and 3.7 tcf a year would not be trivial.
As one of America's largest natural gas pipeline operators, Kinder Morgan will benefit. With approximately 70,000 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 similar to a toll road, and its 89% of natural gas pipeline contracts are “take or pay”. “This means that consumers pay Kinder Morgan for the right to use its pipelines, so it gets paid whether they do or not.
Building data centers for AI will increase the use of natural gas, leading to the need to build more volumes and more pipelines. Given that its system touches more than 40% of the natural gas produced in the U.S., Kinder should be well positioned, as the pipeline expands and expands the pipeline as part of an integrated system. Connecting is easier than creating a stand-alone pipeline. Meanwhile, construction of pipelines in the Northeast has proven difficult, as evidenced by difficulties completing the Mountain Valley Pipeline. Aquitrans midstream. Kinder's system, meanwhile, is well-positioned for data center hotspots in Texas and the Southeast. New data centers are being built that should be close to cheap energy sources, which will lead to future growth for the company.
Image source: Getty Images.
Now, Kinder Morgan won't be the only pipeline company to benefit. Energy transfer (NYSE: ET ) It is one of the nation's largest natural gas transporters with approximately 90,000 miles of natural gas pipelines. There is another great option. Williams Companies (NYSE: WMB )which accounts for about a third of the nation's natural gas production and owns Transco, one of the longest-running natural gas pipelines in the United States. The pipeline transports natural gas from the vast natural gas basin in Appalachia to markets in the southeastern United States. will be in the best position to build the desired connection. Plans to handle growing volumes of natural gas.
Overall, buying any of these companies is a great way to play the AI-driven power consumption trend. All three companies' assets are well positioned, and their stocks should benefit from this growth over the next several years. As a bonus, all three also offer some decent dividend yields, so investors may pay to wait once the trend hits.
KMI Dividend Yield Data via YCharts