A funny thing happened on the path to massive expansion of wind and solar energy production. That thing is Artificial Intelligence (AI). AI needs massive data centers, which need 99.99999% reliable electric power around the clock.

By their very nature, wind and solar power are not reliable enough to provide power 100% of the time. The wind stops blowing, and the sun goes down every night.

We are nearly a decade from having small modular reactors (SMR)—nuclear power—readily available. This leaves just one energy source as the most reliable to power the AI buildout until at least the early 2030s: clean-burning natural gas.

A recent Wall Street Journal article noted that 133 natural gas-fired power plants are under development. An article from VettaFi also noted the new natural gas power plants and noted that LNG production and export are forecast to grow by 80% by the end of the decade.

Energy midstream operators will be the near-term beneficiaries of the growing demand for natural gas. Here is an excerpt from the VettaFi article:

A few pipeline expansions have already been announced in connection with growing natural gas demand for power generation. In July, Kinder Morgan, Inc (KMI) announced an expansion to its Southern Natural Gas pipeline system by 1.2 Bcf/d to meet growing demand in the Southeast. The Williams Companies (WMB) is developing Transco’s 1.6 Bcf/d Southeast Supply Enhancement project to serve the Southeast and Mid-Atlantic. WMB management described this as the first of a few expected projects related to growing natural gas demand for power generation and noted that Southeast Supply Enhancement has the best return of any large Transco project.

While a few expansions are advancing, most opportunities are still under discussion. KMI noted over 5 Bcf/d of power demand opportunities, including 1.6 Bcf/d related to data centers, on its 2Q24 earnings call.

Also, in the article, Energy Transfer (ET) discussed conversations with multiple data centers, stating that many want power generation on site.

As a result, we have two investment themes.

Natural gas pipeline midstream companies like KMI, WMB, and ET will grow their revenues and profits by developing natural gas transport to the sites where the data centers will be built.

A more speculative bet will be determining which companies will provide the power plants to burn natural gas and power the data centers. There are two portfolio stocks in my Monthly Dividend Multiplier service recommendations that have the capability to quickly provide on-site power solutions. That is not currently their main business, but they both are developing plans to power data centers.