A safe, profitable bet on the green transition
Companies in the business of storing and transporting natural gas don’t sound “growth-y" or exciting, but they are businesses with a deepening competitive moat and growing need. Over the last decade, U.S. dry natural gas production has grown 57% and demand (including for exports) has risen 45%, according to the U.S.
Energy Information Administration. Over that period, interstate pipeline capacity for natural gas has expanded just 25%, according to Williams Companies, citing data from EIA. Meanwhile, natural-gas storage capacity has barely changed.
The bottleneck is allowing so-called midstream companies to charge higher fees when they negotiate new contracts. In its investor day earlier this year, Kinder Morgan said the average utilization rate rose to 87% in 2023 from 73% in 2016 for five of its largest pipelines. The company said the scarcity factor is helping it sign longer contracts with increased rates.
In its latest earnings call, Oneok said its natural-gas pipelines segment “significantly exceeded" its 2023 financial guidance due to higher earnings from its long-term storage services and higher rates from negotiated fee-based contracts. While natural-gas prices are currently in the gutter—at less than $2 per million British thermal units—the advantage of pipelines is that they don’t depend much on commodity prices—they are underpinned by long-term, fee-based contracts. The EIA forecasts U.S.
natural-gas production and liquefied natural-gas exports will likely grow through 2050. But the pipelines’ scarcity value seems likely to persist given the permitting and political roadblocks to getting them built. Moreover, like oil and gas producers, midstream companies themselves switched from capital spending mode to
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