Key insights
- The author argues that natural gas pipeline companies are undervalued given the increasing demand from AI-driven data centers. Increased demand coupled with constrained supply due to tighter lending creates a favorable environment for large-cap midstream companies like Energy Transfer (ET) and Enterprise Products (EPD). This suggests a bullish outlook for these companies and potentially the broader midstream sector, driven by the growth of AI infrastructure.
There's a disconnect I want to highlight.
The market is repricing everything "AI" at premium multiples. But the physical infrastructure that keeps data centers running — natural gas pipelines — trades at the same boring utility multiples as five years ago.
The data:
- Bernstein: +12 bcf/d incremental gas demand from data centers * EIA: US dry gas production hitting record 106 bcf/d in 2026 * Wolfe Research: 70 GW of gas plant additions expected 2025–2029, more than double last year's estimate * Williams Companies CEO: "demand has far outpaced pipeline capacity for a decade"
The financial picture for the sector is arguably the best it's been in years. The 29 largest midstream companies have capex flat vs 2023, but EBITDA is 32% higher. Average ROIC is rising to 12.7% (was 11.9% in 2023), projected to hit 14.5% by 2028.
What I find underappreciated is the demand-pull vs supply-push distinction. Pipelines with contracts tied to LNG export terminals or data center power plants get valued at 1–2x higher EBITDA multiples. These are typically 15–20 year contracts. Energy Transfer and Enterprise Products both have significant Gulf Coast LNG exposure.
Some names and current metrics:
- ET — $18.56, 7.13% yield, 5yr consecutive div increases, +13% YTD * MPLX — $58.36, 7.42% yield, 12.55% div growth, 13 years without a cut * EPD — ~$37, 5.91% yield, 28 years of uninterrupted distributions * OKE — $85.36, 4.94% yield, +4% div increase in Jan 2026
The irony: tighter fossil-fuel lending from banks is actually a moat for these large-caps. Smaller players face 150–200bps higher funding costs. Investment-grade names like EPD and ET benefit from cheaper capital access.
I track these and other hard asset plays on my blog — English: mbcapitalstrategies.com/en/ | German: mbcapitalstrategies.com
Would be interested to hear if anyone else is positioned in midstream.