In fact, Kinder Morgan stock could greatly benefit from this AI trend.
At a recent financial results conference, major midstream companies kinder morgan (KMI -0.64%) We discussed the benefits that artificial intelligence (AI) can bring to business. This is perhaps not surprising, as companies from all kinds of different industries are speaking eloquently about how AI can benefit their businesses. Some uses of AI in non-tech industries are quite creative. wendy'sFor example, it announced that it would use AI to dynamically change menu prices throughout the day to drive sales.
In the future, Kinder Morgan may use AI to monitor pipeline safety. Alternatively, the technology could be used for arbitrage opportunities, using AI to better guide hydrocarbons through the system and get the best price. But the big opportunity the company sees in AI right now is very different.
AI applications consume large amounts of power
Kinder Morgan believes it benefits from AI because it consumes a huge amount of electricity. Generative AI, in particular, requires a lot of computing power, leading to an increase in the number and size of data centers.
The company noted that one recent study predicts that data center power demand will grow at a compound annual rate of 13% to 15% through 2030. In 2022, data centers account for approximately 2.5% of U.S. electricity use, but that number is projected to increase to 20% of all U.S. electricity use by 2030. Most of that power demand will be driven by AI, which is projected to be about 15% of total U.S. power demand by then. Although Kinder did not cite sources, this prediction appears to be backed up by a report from Boston Consulting Group, which predicts that US data center power usage will triple by 2030, reaching 40 million yen. It is said to be equivalent to a household.
Kinder Morgan said on an earnings call that while renewable energy will play a big role in meeting future energy needs, it won't be enough. The group says using batteries to fill renewable energy gaps is not economically viable and that it will take years to build power lines to connect renewable energy to the grid. claims. The company sees natural gas playing a key role in meeting future electricity needs.
How will Kinder Morgan and others benefit?
Kinder Morgan said on an earnings call that if only 40% of future AI power demand comes from natural gas, natural gas demand would increase by 7 billion cubic feet (Bcf) to 10 Bcf per day. In 2022, the United States used 12.12 trillion cubic feet (Tcf) of natural gas for electricity, and 32.31 Tcf overall. Adding 2.5 to 3.7 tcf per year to this would be no small feat.
Kinder Morgan, one of the largest natural gas pipeline operators in the United States, 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 United States. Kinder Morgan's natural gas pipeline system is like a toll road, and his 89% of natural gas pipeline contracts are “take-or-pay.” . ” This means the customer pays Kinder Morgan for the right to use the pipeline, and the payment will be made whether or not it is used.
The increased use of natural gas due to the construction of data centers for AI will result in increased volumes and the need to build more pipelines. Given that the system utilizes more than 40% of the natural gas produced in the United States, it is easier to expand and connect pipelines as part of an integrated system than to build standalone pipelines. Kinder should therefore be in an advantageous position. Meanwhile, pipeline construction in the Northeast is proving difficult, as evidenced by problems completing the Indian-owned Mountain Valley Pipeline. equitrans midstream. Meanwhile, Kinder's systems are well-positioned in data center hotspots in Texas and the Southeast. Any new data centers being built will need to be near cheap energy sources, which should help the company grow in the future.
Now, Kinder Morgan isn't the only pipeline company to benefit. energy transfer (New York Stock Exchange:ET) is one of the nation's largest natural gas transportation companies, with approximately 90,000 miles of natural gas pipelines. Another great option is williams companies (NYSE:WMB)owns Transco, which handles about one-third of the country's natural gas production and is one of the most important long-distance natural gas pipelines in the United States. The pipeline will transport natural gas from the rich natural gas basins of Appalachia to markets in the southeastern United States. Given that these companies have some of the largest integrated natural gas pipeline systems in the country, they will be in the best position to build the necessary connections through growth. Projects to process increased natural gas volumes.
Overall, acquiring one of these companies is a great way to address the trend of increased power consumption due to AI. All three companies' assets are well-positioned, and their stocks should benefit from this growth in the coming years. What's more, all three offer respectable dividend yields, so investors can be rewarded for waiting for this trend to play out.