Pipeline Stocks Thrive Amid Growing Natural Gas Demand

Pipeline companies are in a strong position despite energy market disruptions. Their business models function like toll roads, where energy prices have a limited direct influence on their performance.

Natural gas demand continues to rise, driven by increased power consumption linked to artificial intelligence (AI) as well as export needs to Mexico and for liquefied natural gas (LNG) to Asia and Europe.

Let’s explore four pipeline stocks suitable for long-term investment.

Energy Transfer

Energy Transfer (NYSE: ET) boasts one of the largest integrated midstream systems in the United States, with various pipelines, storage, and processing assets. It is strategically located in the Permian Basin, the most productive oil basin in the U.S., which has some of the lowest breakeven points. As operators drill for oil, they also produce significant amounts of associated natural gas. Regulations on flaring (burning off natural gas) require this gas to be transported, contributing to some of the lowest regional prices nationwide.

This access to inexpensive natural gas creates numerous growth opportunities for Energy Transfer. The company has ramped up its growth capital expenditures from $3 billion in 2024 to $5 billion in 2025. Notably, the Hugh Brinson Pipeline is a key project designed to transport gas from the Permian to meet rising power demand in Texas due to AI. Furthermore, Energy Transfer has signed its first contract with a data center developer.

The company’s solid project backlog positions it for substantial growth in upcoming years. Currently, Energy Transfer offers an attractive 7.9% yield, with a well-supported distribution that it intends to increase by 3% to 5% moving forward.

Enterprise Products Partners

Known for its consistency, Enterprise Products Partners (NYSE: EPD) has increased its distribution for 26 consecutive years. Similar to Energy Transfer, the company is well situated in the Permian and has escalated its growth capital expenditures, planning to invest between $4 billion and $4.5 billion in growth projects this year, up from $3.9 billion last year and only $1.6 billion in 2022.

Enterprise has $7.6 billion in growth projects currently under construction, with $6 billion expected to come online this year. These developments primarily focus on the Permian Basin, boosting its growth prospects for this year and the next. The company offers a 7.1% yield, supported by a solid 1.7 times coverage ratio based on distributable cash flow. Last quarter, Enterprise raised its distribution by nearly 4% year over year.

Image source: Getty Images.

The Williams Companies

The Williams Companies (NYSE: WMB) controls one of the most valuable natural gas pipeline systems in the U.S. with Transco, which extends from the gas-rich Appalachia to the Gulf Coast. This system plays a crucial role in transporting natural gas to major cities in a rapidly growing region.

Transco offers Williams various attractive expansion projects, as utilities increasingly shift from coal to natural gas. Additionally, it can deliver natural gas to the LNG corridor for export and is positioned to supply data centers in the Southeast. At year-end, Williams had seven planned Transco expansion projects expected to be operational between the first quarter of 2025 and the fourth quarter of 2029.

The stock currently offers a 3.5% yield while the company prioritizes growth, aiming to increase its dividend by more than 5% this year.

Kinder Morgan

Managing roughly 40% of U.S. natural gas production, Kinder Morgan (NYSE: KMI) holds a crucial role in the midstream sector. It has a robust presence in the Permian Basin as well as throughout Texas, notably near Abilene, where the first data center of the Stargate Project will be established.

Similar to its peers, Kinder Morgan is witnessing increased growth-project opportunities driven by rising natural gas demand. Its project backlog expanded from $3 billion at the end of 2023 to $8.8 billion by the end of Q1 2025, with an estimated return of 16.7% on investments. This growth could yield an additional $1.5 billion in EBITDA over the next few years, complementing a projected $8.3 billion in EBITDA for 2025.

The stock offers an attractive 4.5% yield, while Kinder Morgan has significantly improved its balance sheet, reducing its leverage from 5.1 times in 2017 to 4 times in 2024.

Considerations Before Investing

Before investing in Energy Transfer, it’s advisable to consider some factors:

The analyst team at The Motley Fool recently identified ten stocks believed to be the top choices for investors to buy at this time, and Energy Transfer was not included. Historically, some of these stocks have produced exceptional returns for investors.

This highlights the potential for significant investment opportunities beyond just pipeline companies.

Geoffrey Seiler holds positions in Energy Transfer and Enterprise Products Partners. The Motley Fool has positions in and recommends Kinder Morgan and Enterprise Products Partners. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.