Q2 2024 earnings season has begun and as usual, the pipeline, drilling and fracing companies report earnings first before the oil and gas producers. Kinder Morgan and Liberty Energy are the first to report earnings this season. Both companies gave broad macro views on the natural gas markets.
Kinder Morgan
The pipeline and storage company expects natural gas demand to grow 78% from now until the year 2030. The doubling of demand for LNG exports and a 50% increase in natural gas exports to Mexico are some of the factors leading to the large multi-year increase in US natural gas demand. The other factors contributing to future natural gas demand growth are electric generation demand increases associated with artificial intelligence operations, cryptocurrency mining, data centers and industrial re-shoring. Kinder Morgan is already seeing anecdotal evidence of the coming large future increase in natural gas demand. Amazon alone will add 200 data centers over the next several years and ERCOT is predicting large increases in electric loads out until the year 2030.
Estimates for annual electricity demand growth vary from 2.6% to 4.6%. In prior decades, electricity demand has grown at a much smaller rate annually of around 0.5%. Therefore, the next several years for electricity demand growth are going to be well above long-term trends and much of the electricity demand growth will have to be met from the use of natural gas.
Kinder Morgan has a few major natural gas pipeline projects that are slated to come online over the next year. The largest project being the Evangeline Pass Project. The first phase of the $670 million Evangeline Pass project was placed in service on July 1, 2024. Construction continues for the second phase of the project, which has an expected in-service date of July 1, 2025. The two-phase project involves modifications and enhancements to portions of the Tennessee Gas Pipeline and Southern Natural Gas systems in Mississippi and Louisiana, which will result in the delivery of approximately 2 Bcf/d of natural gas to Venture Global’s Plaquemines LNG facility.
Construction activities are well underway for the Kinder Morgan Tejas Pipeline’s $94 million South Texas to Houston Market expansion project. The project will add compression on Tejas’ mainline to increase natural gas deliveries by approximately 350 MMcf/d to the Houston markets. The expansion project is expected to come online in the first quarter of 2025.
Liberty Energy
Liberty Energy recently deployed Sentinel, a custom-built AI empowered logistics software platform, across all U.S. basins. The company expects to see significant operational efficiencies from this new AI technology.
The company achieved record pumping efficiencies and safety performance during the 2nd quarter of 2024. Frac industry trends have moderated marginally in recent quarters due to softer drilling activity in both oil and natural gas basins during the first half of 2024. Industry-wide completion activity has declined to levels consistent with roughly flat YOY oil and gas production.
For the U.S. to witness rising oil and gas production levels, completion activity will need to increase over the coming quarters. The company believes that it is quite possible there will be signs of tightness for quality frac crews in 2025 when the market sees a strong demand pull for energy. Liberty Energy anticipates total North American completions activity will be modestly softer in the second half of the year due to budget front-loading by some oil and gas producers.