Dallas-based EnLink Midstream LLC, whose natural gas transport options extend from the Permian Basin to Louisiana, is looking to the “longer-term setup” for incremental demand growth, including the potential to power artificial intelligence (AI) data center growth, CEO Jesse Arenivas said.
He discussed first quarter performance during a recent conference call and highlighted how the company overcame the slump in natural gas prices.
“While our operations were not immune to the impact of the winter weather during the quarter, our results showcase the resiliency of our business,” Arenivas said. In addition to the Permian and Louisiana, EnLink also serves customers in North Texas and Oklahoma.
“We are seeing customers respond to the shifting market dynamics as they look to secure the natural gas critical to their operations,” the CEO said. Management sees Louisiana as one of the big growth opportunities.
“We are approaching the Louisiana gas opportunity in three phases,” Arenivas explained. In the first phase, the commercial team has “successfully renewed the vast majority of the contracts up for renewal in 2024.”
The second phase involves leveraging assets for “quick-to-market projects,” he noted. On that note, EnLink announced it would add 210 MMcf/d of compression to increase gas supply to the Mississippi Corridor.
The 26-inch diameter Henry Hub to the River pipeline, estimated to cost around $70 million, is expected to begin commercial operations in late 2025. It already is fully subscribed.
EnLink also is marketing an expansion of the Jefferson Island Storage & Hub facility in Louisiana. If it garners enough customers, the company could “nearly double our working gas storage capacity through brownfield expansions,” Arenivas said.
‘AI Revolution’
“Beyond just Louisiana, though, the need for natural gas to help power our modern society becomes more apparent as industries look to secure reliable and affordable energy,” the CEO told analysts. “Like you, we have been amazed at the rapid emergence of the data center demand for power, particularly driven by the AI revolution.”
The potential demand for additional capacity “is occurring across the country, even right here in North Texas. We understand and can appreciate that these are early days and that consultants, policy makers, utilities and the investment community are still trying to get their collective arms around the ultimate impact of this growth in demand.
“But the initial forecasts are staggering,” he said. “While data center electricity consumption was approximately 2.5% of the U.S. total in 2022, there are forecasts for this demand to triple or more by 2030.”
Arenivas pointed to a study by the Boston Consulting Group. Researchers said data center consumption growth could be “the equivalent to adding 40 million homes,” Arenivas said. “What is key for our industry is that these AI data centers are not only voracious users of energy, but they run 24-7 and do not turn off at all.
“Renewables will surely play a key part, but because of this dynamic, we expect natural gas to be a large contributor to meet the increased baseload demand for power generation. We consider this to be a potential incremental growth driver, creating a rising tide that will lift all boats in the natural gas industry and one that is likely to drive rapid and exciting change for our business.”
CCS Still Emerging
Meanwhile, the carbon capture and storage (CCS) industry, in which EnLink is invested, “as a whole has been slower to develop than we initially anticipated,” Arenivas said. The company is continuing to develop its carbon dioxide (CO2) “expertise” by operating newbuild and brownfield CO2 pipelines.
Discussions continue “regarding CCS opportunities with ExxonMobil, as well as other parties,” with an update expected when “definitive terms” are reached, Chief Commercial Officer Dilanka Seimon said. ExxonMobil has firm commitments with EnLink for 3.2 mmty of transportation capacity in Louisiana.
As the CCS industry is still emerging, “it’s been more challenging to find a mutually beneficial transportation option…We have to proceed at the pace of the emitters and sequesters. Until they define the definitive agreements, then our role can’t be consummated.”
CCS is a sector in which EnLink management continues to believe, Seimon said. “We have not lost conviction at all. We think CCS will play a major role in decarbonizing the industrial sector. We think we’re very well-positioned to take advantage of that, and ultimately, the timing hasn’t been as planned, but longer term, we believe we will win.”
Net income was $50 million (3 cents/share) in 1Q2024, versus $95 million (12 cents) a year earlier. Net cash from operating activities topped $293 million, up from $272 million in 1Q2023. Total revenue was $1.65 billion, compared with year-ago sales of $1.77 billion.
