Note from James: I'm turning today's slot over to Curia analyst Matthew McClintock, who's studied the energy industry for several years and feeds the midstream space – the nitty-gritty stuff that happens between "harvesting" energy and distributing it to end users – is undervalued. Matthew shares summaries of two midstream investment ideas as well.

Midstream energy — the pipelines, processing plants, storage terminals, and export facilities that move oil and gas from the wellhead to the end user — is entering a demand supercycle driven by two multi-decade tailwinds:

1)        Rapid expansion of LNG exports and

2)        Data center power demand

Yes, we’re at war with Iran, and yes, always-volatile oil and natural gas prices are especially volatile now.

But midstream companies are largely insulated from that. Unlike upstream producers, who live and die by oil and gas prices, or downstream refiners, who compete on razor-thin “crack” spreads, midstream companies get paid for moving oil, gas, or natural gas liquids (NGLs) from point A to point B.

Warren Buffett says the best investments are like toll bridges. The midstream sector is a toll bridge for the energy economy.

Don’t believe me? Despite the swings in crude prices over the past year from tariff threats and the Iran war, midstream cash flows consistently grew.

Midstream Advantages

Two more midstream perks:

1)        Low ongoing “maintenance” capital expenditures, admittedly after very significant initial capital expenditures

2)        A regulatory moat

Low maintenance cap ex: Pipelines are expensive to build, but once they’re built, they can just sit there for 40 years. On a free cash flow basis – which can admittedly appear too positive for pipelines because if depreciation charges are removed, those big initial expenses are ignored – midstream energy companies have the highest free cash flow yield among the sectors in the S&P 500. And this is at a time when the midstream industry has been investing in expansion cap ex, which would get included in free cash flow.

This wouldn’t be possible in a truly capital intensive business like upstream drilling, which requires constant reinvestment to offset production declines.

The great amounts of free cash flow created by these companies has allowed midstream companies to reduce debt and equity issuance and fund double-digit distribution growth, stock buybacks, and multi-billion dollar infrastructure buildouts simultaneously.

Midstream companies are rich, basically.

Regulatory advantage: Pipelines are mini-monopolies: Thanks to the Natural Gas Act, you can’t just build a new pipeline next to an existing pipelines to compete with it. Well, technically, you could if you could demonstrate to the Federal Energy Regulatory Commission (FERC) that the existing pipeline is inadequate to meet market demand, and is worth the environmental and societal disruption. A big deal, in other words. And because pipelines require such big up-front investments, midstream companies have a natural economic incentive to very carefully choose their pipeline locations. It’s not like coffee shops, where there’s one on every corner and the cost of failure of a new shop is tiny to a corporation like Starbucks.

This gives pipelines – and pipeline investors – a protected, breathe-easy-at-night benefit.

Another regulatory benefit is fees: Because the US has traditionally been in need of energy infrastructure, both Congress and the FERC have been relatively supportive of midstream profits.

First, Congress created a special tax-free structure (the Master Limited Partnership) designed for midstream companies with high fixed costs upfront – e.g., building out a pipeline – but relatively high profits thereafter. (MLPs are tax-free at the entity level, but the end investor still pays taxes, though there’s an element of tax deferral that still provides an advantage to yield-seeking investors.)

Second, FERC’s allowed returns for midstream companies (namely, those of pipelines that cross state lines) have traditionally been generous. In fact, from 2005 to 2018, FERC even allowed them to include the “pretend” taxes they would have paid in their cost-of-service calculations, which act as a floor in determining fees. Those days may be over, but they show the deference that the US regulatory apparatus has historically shown midstream energy.

A Look Into the Future of Midstream

US midstream has had decent times and excellent times.

Now looks like the beginning of an excellent time for two reasons:

1)        Export of natural gas (in liquified form)

2)        AI data center power demand

The United States did not export its first LNG cargo until 2016. A decade later, it’s the largest LNG exporter in the world. With US LNG export capacity set to double by 2031 and volumes projected to more than double by 2050, midstream infrastructure is looking at a massive growth catalyst. Meeting this global demand requires a significant expansion of pipeline capacity to route feedgas from the Permian, Haynesville, and Appalachian basins directly to the major export hubs along the Gulf Coast. Ultimately, this surge in volume creates a massive wave of new demand that must pay a toll to the infrastructure owners: midstream companies.

The AI data center buildout will create even greater demand for natural gas. Goldman Sachs projects US data center power demand to rise from 4.1% of the total US peak summer power demand in 2025 to 8.5% by 2027.

The scale of individual developments is breathtaking. Texas has emerged as the epicenter, with 80.6 gigawatts of gas-fired power capacity currently in development. That’s the equivalent of 81 large nuclear reactors (and enough to power 81,000,000 hair dryers set on “high” simultaneously).  

It’s also a nearly four-fold surge over the previous year—eclipsing the capacity of the next seven states combined—with roughly 40 gigawatts of that total earmarked specifically to feed power-hungry data centers. This buildout is unprecedented and will be a substantial demand driver for natural gas going forward.

The companies I see benefitting from this shift in energy demand are already seeing results.

Williams (WMB): Williams owns and operates the Transcontinental Gas Pipeline (Transco), the largest natural gas pipeline in the United States, spanning roughly 10,000 miles from the Gulf Coast to the Northeast, carrying an estimated 20% of the nation’s natural gas. Transco is a bi-directional pipeline, meaning it can route gas both ways along the East Coast to wherever demand is the highest — north into the dense metro corridor from Washington to New York, west to feed Virginia's large scale data center buildout and the hyperscaler clusters along the Northeast, or south to the LNG export terminals lining the Gulf. That single asset does more work than almost anything else in the sector — wherever natural gas demand is growing along the East Coast, there's a good chance it's running through a Williams pipe.

Williams, which is a regular corporation and not an MLP (which makes things simpler), recently bought six natural gas storage facilities in Louisiana and Mississippi directly tied to LNG exports, and is currently in late stage talks with Momentum Midstream to acquire the company for $5.5 billion – one of the largest deals in the company’s history, and one that would tighten Williams’ control around gulf coast infrastructure and LNG export terminals.

Williams’ financials support this growth story. In Q1 of 2026, Williams posted record adjusted EBITDA of $2.254 billion – up 13% year-over-year – alongside a 22% surge in adjusted EPS. Williams is backing up that performance with $7 billion in projected growth spending for 2026. The company hiked its dividend 5% in April 2026, to boot.

Energy Transfer (ET): MLP Energy Transfer owns and operates roughly 140,000 miles of pipeline throughout 44 states and in every major US production basin – the largest network of any midstream company in the country. That means gathering systems, interstate and intrastate transportation, storage, and export infrastructure – all interconnected across the domestic natural gas map. Energy Transfer also delivers gas to Oracle’s Texas data centers.

Energy Transfer raised its 2026 guidance to $17.3 to $17.7 billion in consolidated adjusted EBITDA, with distributions growing more than 3% year-over-year. This cash generation will fully fund Energy Transfer’s expanding portfolio.

The Bottom Line

We’re at a turning point for the midstream sector. While the industry was already a sound defensive play, the simultaneous emergence of global LNG exports and AI data centers has hiked its growth estimates.

For investors who’d like to ride the AI wave in a non-AI way – tapping into growth that’s anchored to rich toll-booth economics – the midstream energy space could be offering a once-in-a-decade buying opportunity.