Pipe Dreams
Pipe Dreams
Don’t bet on natural gas prices; bet on gas volumes.
These 10 charts show why the big pipeline companies will be printing cash for years to come.
Robert Bryce
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Publication Note: The Fire Time Magazine appreciates the opportunity to republish this article, which was originally released on April 6, 2025. It is reprinted with permission from Robert Bryce. Be sure to subscribe to his Substack: robertbryce.substack.com. Further use, duplication, or distribution is prohibited without the author’s written permission.
The U.S. has the world’s biggest natural gas pipeline network. Credit: Wikipedia.
In the early 1990s, Ken Lay and his colleagues at Houston-based Enron, were, as one veteran of the energy business told me, “the kings of the American pipeline business.” Enron owned valuable pipelines across the U.S., and it moved or sold about 17% of all the natural gas consumed in the country. But Lay and his top lieutenant, former McKinsey consultant Jeff Skilling, didn’t believe in pipelines. As I explain in my 2002 book Pipe Dreams: Greed, Ego, and the Death of Enron:
“Skilling’s brain was too big for pipelines…The only thing that mattered to Skilling about Enron’s pipelines was that they kept providing him with cash that he could use elsewhere. For Skilling, elsewhere meant only one place: the trading business.”
Lay and Skilling were sure they could go “asset light” and turn Enron into a trading powerhouse. To help fund that effort, they began selling the company’s pipelines. One of the buyers was Lay’s former second-in-command, Rich Kinder. In 1996, after Lay reneged on an agreement to make him the CEO of Enron, Kinder quit the company. Kinder told another Enron executive that he had no choice. “If you aren’t the lead dog,” he said, “the scenery never changes.”
In early 1997, Kinder and a colleague, Bill Morgan, bought a natural gas liquids pipeline from Enron for $40 million. It was an asset that Enron had determined wasn’t profitable enough to keep. The two men parlayed that bet, and many others, into a pipeline colossus called Kinder Morgan, which now has a market capitalization of $56 billion. Kinder, a lawyer by training, is the company’s largest shareholder. Forbes estimates his net worth is $10.4 billion, and thanks to Kinder Morgan’s annual payout of about $1.16 per share, his income from dividends alone likely exceeds $250 million per year.
Enron filed for Chapter 11 bankruptcy on December 2, 2001. At that time, it was the biggest bankruptcy in U.S. history. The legacy of Enron is still reverberating in the U.S. energy and power sectors. Given the tumult of the last few weeks, and in particular, the losses that happened last week in global equity markets, it may be profitable for investors to consider the lessons that can be learned from Enron’s demise and Kinder’s success. As I noted in Pipe Dreams:
“The pipeline business is more akin to the utility business than the energy business. Pipelines carry a product from one spot to another and the owner of the pipe gets paid a fee for the service. It’s a straightforward, profitable business. As one former Houston Natural Gas executive said of pipelines, “All they do is make money. It’s boring, but it’s dependable.”
These 10 charts explain why U.S. natural gas use is increasing and why pipeline companies—and their investors—will be making money for many years to come.
Last June, I wrote a piece called “3 Reasons Why Natural Gas Prices Will Go Up, 3 Stocks To Buy If They Do, And 3 Reasons Why Natty Could Stay ‘Perpetually Cheap.’” That piece got a lot of traction, including more than 500 likes. I wrote it because it appeared gas prices were going to rally (they have, in a big way) and because I’d been debating nat gas prices with my brother, Wally, for months.
Wally is older and smarter than me. He’s a CPA and an avid stock-market watcher and investor. He’s also a perma-bull on nat gas prices. By contrast, my Favorite Nephew, who works in the energy sector, is not bullish. He believes that when oil and gas prices rise, upstream companies will always drill and that the never-ending improvements in drilling and hydraulic fracturing technology will allow the U.S. to produce vast amounts of cheap methane for decades to come. Favorite Nephew concludes that the smart play is not to bet on gas prices. Instead, bet on gas volumes. That is: Bet on the pipeline companies, not the drillers or the companies that do hydraulic fracturing.
I borrowed/stole that idea, and yesterday, I spoke about it in Dallas at an investor conference. With that presentation fresh on my mind, I put together these 10 charts to help explain why betting on gas volumes may be a clever play for investors looking for income and a relatively safe investment during these uncertain times.
Before going further, it’s essential to understand how the shale revolution changed the U.S. energy landscape.
As seen above, gas production in the U.S. has more than doubled over the past two decades. That production is even more remarkable given that in 2007, Lee Raymond, who was then the head of Exxon Mobil, declared that the U.S. was running out of natural gas.
Another reason to bet on volumes is that consumption keeps rising. Remember, this is U.S. consumption. Add in the gas that will be exported as LNG, and the numbers are even larger.
Enron was a forceful advocate for using natural gas in the power sector. As seen above, when Enron failed, about 16% of U.S. electricity came from gas-fired power plants. Today, it’s slightly more than 43%. The electric power sector now accounts for about 40% of all the gas burned in the U.S. As more coal plants are shuttered, many of them (most of them) will be replaced by gas-fired power plants.
While alt-energy gets massive subsidies and favorable media coverage, gas-fired generation continues to grow faster than solar and wind.
Last month, S&P Global released a report that predicts enormous growth in U.S. power demand. As seen above, it expects another 100 gigawatts of new gas capacity to be built over the next 15 years. That appears to be a safe bet. Last week, Pennsylvania officials announced a former coal-fired power plant, the Homer City Generating Station, would be the home of a new 4.5 gigawatt gas-fired power plant. If completed as expected, the plant will be the largest gas-fired power plant in the country. Kiewit, one of the country’s biggest engineering, procurement, and construction firms, will build the plant using seven large gas turbines (model 7HA.02) supplied by GE Vernova.
The chart above is a collection of headlines from the past few weeks about the surge in looming gas demand due to data centers and AI. On March 4, Tulsa-based Williams announced a $1.6 billion deal to supply natural gas and power infrastructure to an unnamed hyperscaler, which is almost certainly one of Big Tech’s brand names. (It was identified as “an investment-grade company.”) That project is expected to be completed by the end of next year if all the needed permits are delivered on time. Also, note the green box on the bottom left of the chart. That’s a screen grab from Energy Transfer’s latest investor presentation (see page 13). In addition to the requests to connect to 70 data centers in 12 states, ET, the largest pipeline company in the U.S., says it has “requests to connect to 60+ power plants in 13 states for new connections, and to 15 plants already served today.”
When calculated in inflation-adjusted dollars, the price of natural gas has been declining for nearly two decades. As mentioned above, the price of gas has rallied in recent months, and Enverus expects U.S. gas to sell for an average of $3.90 for the rest of this year. However, Enverus also said that the U.S. drilling sector “continues to outperform our expectations and is producing at record levels.” If the economy weakens or enters a recession, that increase in production could (repeat, could) mean lower prices.
I used this chart yesterday to spell out the main reasons for betting on pipelines.
Here’s the final chart. Some of these companies trade as master limited partnerships. Kinder Morgan converted its structure away from the MLP model to a corporation in 2014. MLPs have some tax advantages for investors but require filing a K-1 form with your income taxes. As always, do your research. Further, I am compelled to republish this snappy disclaimer, which I borrowed/stole from a fellow Substack writer, Quoth The Raven:
“This post represents my opinions only. In addition, please understand I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. . . . Also, I just straight up get [stuff] wrong a lot. I mention it twice because it’s that important.”
I’ll conclude by reiterating the top point on the ninth slide. Pipelines have the ultimate wide moat. They cannot be duplicated, particularly given today’s lengthy permitting process. Back in 2015, Kinder explained why he likes pipelines. “I don’t like a lot of risk,” he said. “To me, these toll roads in the form of pipelines and terminals that are overwhelmingly fee-based give you a lot of comfort the cash is going to be there.”
Those toll roads—and the cash they produce—made Kinder a billionaire.
What happened to Kinder’s former colleagues? Skilling spent 12 years in federal prison for his role in the Enron scandal. He was released in 2019. Lay died of a heart attack in 2006, three months before he was to be sentenced.
Last week, after President Trump’s tariffs were announced, the S&P 500 dropped 10% in two days. Given that drop and the possibility of more declines, a fee-based business with predictable cash returns sounds pretty good.
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Robert Bryce
Robert Bryce is a Texas-based author, journalist, podcaster, film producer, and public speaker. Over the past three decades, his articles have appeared in numerous publications including the Wall Street Journal, New York Times, National Review, Field & Stream, and Austin Chronicle. He has given nearly 400 invited or keynote lectures to dozens of groups including the Marine Corps War College, Sydney Institute, Jadavpur University, Northwestern University, and a wide variety of professional associations and corporations. He has also appeared on dozens of TV and radio shows, including NPR, BBC, MSNBC, Fox, Al Jazeera, CNN, and PBS.
