Pipeline Stocks: Riding the AI and LNG Growth Surge

The rapid expansion of AI-driven data centers and the global push for liquefied natural gas (LNG) exports are reshaping the energy landscape, creating unprecedented opportunities for pipeline operators. Companies like Energy Transfer (ET) and Western Midstream (WES) are strategically positioned to capitalize on these trends through robust infrastructure investments and stable contracts. Meanwhile, Genesis Energy (GEL) faces steep hurdles in its turnaround, underscoring the importance of due diligence in this sector. For income-focused investors, this is a pivotal moment to allocate to pipeline stocks—provided they avoid the traps of over-leveraged peers.

The AI Data Center Tsunami: Why Natural Gas Demand Is Exploding

The International Energy Agency (IEA) projects that data centers could account for nearly half of U.S. electricity demand growth by 2030, with global consumption hitting 3% of worldwide electricity—up from 1.5% in 2024. This surge is driven by hyperscale facilities, where a single AI data center can consume as much energy annually as 2 million homes.

Natural gas is the backbone of this growth. S&P Global estimates 60% of new data center demand will rely on gas due to its reliability and scalability. Midstream firms are building pipelines and power plants to serve these facilities. For instance, ExxonMobil's new 1.5-gigawatt natural gas plant in Texas is dedicated to data centers, while TC Energy noted that 60% of 300 U.S. data centers under development lie within 15 miles of its pipelines.

Energy Transfer: A Leader in LNG and Data Center Infrastructure

Energy Transfer (ET) is a prime beneficiary of both LNG exports and data center demand. Its $1.6 billion Socrates Project in Ohio—a 10-year fixed-price gas supply agreement for power generation—highlights its ability to lock in long-term revenue. Additionally, ET's 150 potential data center supply agreements in Texas and its role in Golden Pass LNG (a $10 billion export terminal) position it to capture rising global gas demand.

ET's stock has underperformed in recent years, but its dividend yield of 7.5% (as of June 2025) offers a compelling entry point. With $30 billion in contracted projects through 2030 and a focus on fee-based cash flows, ET is well-insulated against commodity price swings.

Western Midstream: Strong Balance Sheet, Steady Growth

Western Midstream (WES) delivers stability through its focus on natural gas processing and produced-water management. Its North Loving plant added 250 MMcf/d of capacity in Q1 2025, driving record Delaware Basin throughput of 2.0 Bcf/d. WES's 4% quarterly distribution hike (now yielding 8.2%) reflects its financial strength, with liquidity of $2.4 billion and net leverage below 3.0x.

While WES's projects are not directly tied to data centers, its infrastructure feeds gas into regions with booming demand, including power plants serving digital hubs. The company's Pathfinder Pipeline—a $500 million produced-water project—also reduces operational costs for shale producers, indirectly supporting energy affordability for data centers.

Genesis Energy: Caution Ahead—Operational Woes and Debt Risks

Genesis Energy (GEL) stands in stark contrast. Its Q1 2025 net loss of $469 million—driven by offshore project delays and mechanical issues—highlights execution risks. The company's debt-to-equity ratio of 15.0x is among the highest in the sector, and its stock has plummeted to near its 52-week low of $9.86.

While GEL's offshore projects like Shenandoah (first production in June 2025) offer long-term potential, near-term challenges remain. Its breakeven costs of $30–40/bbl are manageable at current oil prices ($70–$80/bbl), but a prolonged price slump could cripple margins. Investors should avoid GEL until its leverage is meaningfully reduced and operational stability is proven.

Investment Thesis: Go Long on Infrastructure, Avoid Overextended Players

The confluence of AI-driven energy demand and LNG exports creates a multi-year growth tailwind for midstream operators with contractual stability and low leverage. Here's how to play it:

1. Buy Energy Transfer (ET) for Yield and LNG Exposure:
2. Dividend Yield: 7.5%
3. Catalysts: Golden Pass LNG ramp-up, data center pipeline projects.

4. Risk: Overexposure to Texas regulatory risks (e.g., moratoriums).

5. Add Western Midstream (WES) for Natural Gas Dominance:

6. Distribution Yield: 8.2%
7. Catalysts: Delaware Basin growth, produced-water infrastructure.

8. Risk: Seasonal throughput fluctuations (e.g., Q1 2025's 2% gas volume dip).

9. Avoid Genesis Energy (GEL) Until Debt Is Reduced:

10. Current Yield: 6.8% (but unsustainable given leverage).
11. Red Flag: Offshore execution delays and 18% widening credit spreads.

Conclusion: A Strategic Call to Action

Pipeline stocks are at a pivotal crossroads. Those aligned with AI data centers and LNG exports—like ET and WES—are positioned to deliver high yields and stable growth through 2030. Investors should prioritize these names while steering clear of overleveraged players like GEL until operational and financial discipline is restored.

The energy transition isn't just about renewables—it's about infrastructure that fuels the digital revolution. Now is the time to secure stakes in companies building the pipelines of the future.