Midstream's 2026 Growth Engine: Scaling to Serve the AI Power Surge

The core growth engine for midstream infrastructure is now unmistakably tied to artificial intelligence. The technology wave is accelerating at a pace unlike any previous cycle, driving an unprecedented and structural surge in electricity demand. Today, data centers consume roughly 4% of US electricity. That share is projected to double by 2030 and quadruple over the following decade, a trajectory that outpaces the speed at which traditional power generation can come online.

This creates a massive, new, and immediate market for natural gas. By the end of 2026, natural gas demand specifically for AI data centers is expected to reach 2.5 Bcf/d. That figure represents more than double the demand levels seen in 2024, highlighting the explosive growth in this niche. The need is so acute that it is forcing a fundamental shift in how data centers secure power, directly benefiting midstream operators.

A key trend amplifying this demand is the rise of "behind-the-meter" (BTM) solutions. Instead of relying solely on the grid, major data center developers are building their own dedicated power plants on-site. These are typically natural gas-fired facilities, providing the 24/7 baseload power that AI workloads require. This model directly increases the need for natural gas pipelines to deliver fuel to these remote, on-site power plants and for storage to manage supply. It transforms data centers from passive electricity consumers into active, direct drivers of pipeline and storage utilization, creating a more stable and predictable revenue stream for midstream assets.

The Midstream Business Model: Predictability Meets Scalability

The explosive growth in AI power demand is a powerful tailwind, but for midstream operators, the real advantage lies in their business model. Unlike producers exposed to volatile commodity prices, midstream companies generate revenue through fee-based contracts. This structure provides a stable platform to capture new growth, turning a structural trend into predictable cash flow.

The result is clear in their forward guidance. Even with oil prices in the high $50s per barrel, companies are broadly expecting to grow EBITDA by mid-single-digit percentages for 2026. This insulation from oil price swings is a hallmark of the sector. By providing services for fees under long-term contracts, midstream operators secure stable and predictable cash flows. This financial predictability is the bedrock of their strategy, allowing them to confidently support sustainable dividends and share repurchases while deploying capital for growth.

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Natural gas-focused midstream companies are driving the higher end of these growth expectations. Their expansion is directly fueled by two massive, long-term projects: the buildout of U.S. liquefied natural gas (LNG) export capacity and the rising power demand from utilities and data centers. This creates a significant investment backlog, translating into a multi-year growth pipeline. For instance, long-term outlooks from major players like Williams and DT Midstream point to adjusted EBITDA growth rates of 5-7%, while Canadian peers like TC Energy target a similar 5-7% compound annual growth rate through 2028.

This model offers a unique setup for growth investors. It combines the scalability needed to serve a booming new market with the financial discipline to generate consistent returns. The midstream sector is not just riding the AI wave; it is using its fee-based engine to systematically capture value from it, year after year.

Policy Catalysts and Market Penetration

The structural growth in AI power demand is now being supercharged by a wave of regulatory change. A new policy catalyst is emerging in the Senate, where the DATA Act of 2026 has been proposed. This bill, championed by Senator Tom Cotton, would create a new category for data center power plants, exempting them from a host of federal electricity regulations. If passed, it would allow developers to build their own dedicated, grid-islanded power systems-essentially behind-the-meter facilities-without facing the complex oversight of the Federal Energy Regulatory Commission (FERC). This legislative push directly addresses a key bottleneck, potentially accelerating the buildout of gas-fired power plants that are the lifeblood of the new data center economy.

This regulatory tailwind is part of a broader, more established shift. The federal government has already taken decisive steps to unblock infrastructure. The "One Big Beautiful Bill Act" (OBBBA), signed in July 2025, established strict timelines for environmental reviews and ended the pause on LNG export approvals. More critically, the Federal Energy Regulatory Commission (FERC) rescinded a prior order that had stalled construction on approved projects, allowing work to begin immediately. The result has been a flood of capital returning to the sector, with the Alerian Midstream Index outperforming the broader market by over 15% in the last year.

This policy revolution is creating a clear path for market penetration. The companies best positioned to capture this growth are those with extensive, strategic networks already in place. Kinder Morgan (KMI) is pursuing over 5 billion cubic feet per day (Bcf/d) in new opportunities, with its recent green-lighting of the Gulf Coast Express expansion specifically targeting the flow of Permian gas to tech hubs. The Williams Companies (WMB) has built a dominant position in the behind-the-meter space, with its CEO noting the company is "overwhelmed" by requests from tech giants for dedicated energy hubs. Meanwhile, Enterprise Products (EPD) is entering a "harvest" phase, with capital spending set to nearly halve in 2026, freeing up cash to reward shareholders while its existing network serves the surge in demand.

The bottom line is that policy is no longer a headwind but a powerful engine. By streamlining permitting and potentially exempting data center power plants from federal rules, lawmakers are removing critical friction. This accelerates the buildout of the very infrastructure midstream operators provide, allowing them to scale their fee-based models directly into a multi-billion-dollar market. For investors, this means the path to capturing AI-driven growth is becoming not just plausible, but actively being paved by Washington.

Catalysts, Risks, and What to Watch

The growth thesis for midstream infrastructure is now set on a clear course, but its execution hinges on a few critical catalysts and faces identifiable risks. The near-term policy landscape is the most immediate variable, with the proposed DATA Act of 2026 poised to be a major accelerant-or a source of disruption. This bill, which would exempt data center power plants from federal regulation, is a direct response to the current bottleneck created by the Federal Energy Regulatory Commission (FERC). If passed, it would dramatically lower the cost and complexity for tech giants to build their own dedicated, behind-the-meter gas plants. This is the kind of regulatory tailwind that can fast-track the buildout of the very infrastructure midstream operators provide.

Yet, this legislative push is not without opposition. The bill is likely to be vehemently opposed by electric utilities that see it as a threat to their regulated monopoly over power delivery. Their lobbying power is substantial, and any delay or dilution of the bill's scope would slow the pace of new construction. The outcome of this political battle is a key near-term catalyst to monitor.

Beyond policy, the primary risk is the pace of actual construction versus the ambitious projections. The sector is entering a "harvest" phase, where capital spending is set to nearly halve in 2026 for some players. This shift from investment to cash generation is prudent, but it means the physical buildout of new pipelines and storage must be executed flawlessly. Any delays in permitting, labor, or materials could break the link between projected demand and realized capacity, creating a mismatch that pressures returns.

For investors, the watchlist is straightforward. First, track the passage of the DATA Act through Congress. Its success would validate the regulatory tailwind and likely boost sentiment across the sector. Second, monitor the execution of investment backlogs by major midstream players like Kinder Morgan and Williams. Their ability to bring new projects online on schedule will determine if they can capture the promised growth.

Leading indicators of the AI infrastructure buildout are also clear. Watch for natural gas demand growth specifically tied to data centers, which is projected to reach 2.5 Bcf/d by the end of 2026. More specifically, track the expansion of behind-the-meter generation as a percentage of total data center power. These metrics will show whether the theoretical demand surge is translating into real, contracted usage of midstream services. The bottom line is that the growth engine is primed, but its speed depends on navigating political headwinds and delivering on promised construction.