Goldman Sachs Lifts Natural Gas Demand Forecast, Citing Data Center Power Needs

Goldman Sachs has identified an emerging value opportunity in natural gas midstream stocks, citing a significant upward revision to its demand forecasts for gas-fired power generation. The investment bank points to the soaring energy requirements of data centers as the primary driver for this increased demand, creating a bullish outlook for key infrastructure providers.

Surging Demand Forecast

In a recent research note, Goldman Sachs boosted its forecast for natural gas demand growth to 10-11 billion cubic feet per day (bcf/d) from 2025 to 2030. This is a substantial increase from its previous estimate of 7-8 bcf/d earlier this year.

The revision is directly linked to updated projections from the firm's utilities and power research team. That team now anticipates total data center power demand will reach 108 gigawatts (GW) by 2030, a roughly 30% increase from its prior forecast of 83 GW.

Market Pullback Creates Opportunity

According to the bank, the midstream pipeline sector has declined 12% from its peaks in mid-May, creating what its analysts view as an "attractive entry point" for investors. Goldman Sachs noted it sees an average upside of 11% to its price targets across its coverage of companies most directly exposed to this theme.

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The investment thesis rests on the need for significant natural gas transmission infrastructure to support the new power generation required by the technology sector. As existing pipeline capacity remains tight, companies positioned to expand are set to benefit.

Analyst Stock Picks

Goldman Sachs highlighted several companies it believes are well-positioned to capitalize on this trend:

• Williams (WMB): Rated as a top buy, Williams is seen as a key beneficiary of new pipeline development. The firm also noted its potential in "behind-the-meter" power opportunities, where generation occurs on-site at a data center.
• Kinder Morgan (KMI): The bank maintained its buy rating on Kinder Morgan, citing its direct exposure to the growth in gas demand from data centers and its strategic position in a market with limited spare pipeline capacity.
• Kodiak Gas (KGS): Goldman Sachs identified Kodiak Gas as a provider of behind-the-meter power solutions. Analysts believe the company's stock is trading at a level that does not fully value the potential of its power generation business.