Energy Transfer Is Quietly Becoming One of the Biggest Natural Gas Suppliers to AI Data Centers
Matt DiLallo, The Motley Fool
Sun, August 30, 2026 at 10:35 PM GMT+3 5 min read
If you were making a list of the companies cashing in on the AI data center build-out boom, a gas pipeline company known for paying dividends probably wouldn't be there. That could be a costly omission. Pipeline giant Energy Transfer (NYSE:ET) has quietly become one of the biggest natural gas suppliers to data centers. That's putting it in a strong position to cash in on the AI power boom.
Here's a closer look at why Energy Transfer should be on your AI investment list.
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Turning on the gas
Data centers need lots of power, and they need it quickly. The country's electric grid can't keep up with the load requirements or the need for speed. As a result, natural gas is becoming a critical solution to the AI power problem. A growing number of data center developers are turning to gas to fuel on-site power from gas turbines and fuel cells.
They're also turning to Energy Transfer as their gas supplier of choice. Its extensive gas infrastructure includes nearly 107,000 miles of pipelines linking supply sources to demand centers. It has signed several deals to supply gas to support AI data center demand.
One of its biggest deals is with cloud giant Oracle. Energy Transfer will provide about 900,000 Mcf/d of natural gas to three of its U.S. data centers. Oracle is using this gas to power Bloom Energy's advanced fuel cells at one of the sites. It also has a 150,000 Mcf/d deal to supply Nexus with gas for an AI hyperscale campus currently under construction, and an agreement to supply gas to support a 900-megawatt AI factory campus for Crusoe. Additionally, it has an agreement to provide 150,000 Mcf/d of gas to a data center site in Arkansas.
Energy Transfer is also providing more gas to utilities to support growing power demand from AI data centers. It signed a 20-year deal with Entergy to provide at least 250,000 MMBtu/d of gas starting in December 2028. Entergy needs more gas to power data centers, including those Meta Platforms is building in Louisiana. Additionally, it's supplying a total of 300,000 Mcf/d of gas to four new gas-fired power plants in Oklahoma between now and the end of 2028.
High-return investments
Those projects are only the beginning. Energy Transfer is in advanced discussions with multiple power plants, data centers, and other demand customers for significant additional gas volumes.
Most of its projects will involve building a pipeline lateral from its existing network to connect a new data center or power plant. These projects require a minimal capital investment and generate strong returns. Additionally, growing gas demand is enabling the company to make larger investments, including constructing larger-scale pipelines to transport additional volumes to demand centers and developing additional gathering and processing infrastructure in production basins. Energy Transfer currently has several large-scale gas pipelines under construction, including the $2.7 billion Hugh Brinson and up to $5.6 billion Desert Southwest to support data center and power demand growth in Texas and Arizona, respectively. These larger-scale projects have strong returns.
These investments support Energy Transfer's continued strong growth. It expects to grow its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by at least 17.5% this year. It currently has projects underway that should enter commercial service through early 2030, including those to support growing demand for oil and natural gas liquids. These projects give it strong growth visibility. That supports its view that it can increase its already high-yielding distribution (over 6%) by 3%-5% annually.
There are risks involved with this backlog. Energy Transfer recently ran into a permitting issue that will delay one Oracle-linked gas pipeline project by six months. There will likely also be delays to future data center developments due to local opposition and other issues. Despite that, gas-fueled onsite power remains a faster solution than waiting on the grid.
Don't overlook Energy Transfer
The AI data center build-out story is broader than you might think. It's fueling robust demand for natural gas, which is benefiting sleepy pipeline stocks like Energy Transfer. The master limited partnership (an entity that issues a Schedule K-1 Federal tax form) is an overlooked way to cash in on the boom. That cash will come each quarter via its high-yielding payout.
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Matt DiLallo has positions in Bloom Energy, Energy Transfer, and Meta Platforms and has the following options: long December 2028 $650 calls on Meta Platforms, short December 2028 $660 calls on Meta Platforms, and short October 2026 $150 puts on Bloom Energy. The Motley Fool has positions in and recommends Bloom Energy, Entergy, Meta Platforms, and Oracle. The Motley Fool has a disclosure policy.
Energy Transfer Is Quietly Becoming One of the Biggest Natural Gas Suppliers to AI Data Centers was originally published by The Motley Fool
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