Energy Transfer Is Quietly Becoming One of the Biggest Natural Gas Suppliers to AI Data Centers

Energy Transfer, a well-known natural gas pipeline company, is quietly emerging as a major natural gas supplier to AI data centers. This positions the company to capitalize on the growing demand for natural gas in powering these data centers. The need for fast and reliable power in data centers, which often exceed the capacity of the country's electric grid, has led to the increased use of natural gas.

Energy Transfer supplies natural gas to several major data centers, including Oracle, Nexus, and Crusoe, through various deals. These agreements provide the data centers with significant volumes of natural gas, enabling them to power their on-site gas turbines and fuel cells. In addition, Energy Transfer is in discussions with multiple power plants, data centers, and other demand customers for substantial additional gas volumes.

The company is actively developing large-scale gas pipelines, such as the Hugh Brinson and Desert Southwest projects, to cater to the growing demand from these data centers. These projects offer strong returns and support the company's continued growth. Energy Transfer's high-yielding distribution (over 6%) is expected to increase by 3%-5% annually.

While there are risks involved, such as permitting delays and opposition to future data center developments, the AI data center build-out is a significant driver of natural gas demand, benefiting the company and other pipeline stocks.