By Avi Salzman
North America is in the midst of a record pipeline-building boom, with companies laying hundreds of miles of new pipes across the U.S. and Canada. But investors have been wary of buying in, because similar booms have led to messy busts in the past.
Pipeline stocks have done just OK this year, and some have done worse than that. A decade ago, pipeline companies were forced to cut their dividends when an oil bust caused producers to stop drilling.
U.S. companies are investing tens of billions of dollars this year to move fossil fuels to the Gulf Coast for shipment overseas, and to expand natural-gas pipelines to serve power plants for new data centers. Some are even expanding pipelines in the Northeast, where little fossil fuel infrastructure has been built in the past decade.
A similar spending spree is taking place in Canada, where pipeline companies have built new routes to export fuel to Asia. In all, companies in North America are on track to spend more money to expand their networks this year than they have ever before, according to Parag Sanghani, a portfolio manager at Dallas investment firm Westwood Group. They are expected to plow $53 billion into growth projects this year, Sanghani said, referencing data from Wells Fargo. They spent $49 billion in 2019, the prior peak.
Much of the expansion is to supply the liquefied natural-gas terminals in Texas and Louisiana that are sending LNG to Europe and Asia. Kinder Morgan, which is building pipelines to supply those terminals, projects that U.S. natural-gas demand could jump by 28 billion cubic feet a day by 2030, or more than 25% above 2024 levels. The expansions were under way before this year, but President Donald Trump's promotion of fossil fuels has paved the way for even more growth. The Trump administration has rapidly approved new LNG export terminals and oil export facilities.
Some of the pipeline expansion is being driven by data center expansions. Energy Transfer, for instance, is building natural-gas pipelines to three Oracle data centers, two of which are in Texas. Other companies are looking to transport fuels like gasoline. Oneok is building fuel pipelines into Denver, for instance. For some companies like Ohio-based MPLX, the growth in their expected capital expenditure budgets is partially related to acquisitions.
On one hand, all this growth is exciting to investors. The adjusted earnings of pipeline companies are now expected to rise at a faster rate in the future as they serve new customers. "We had been expecting growth rates of around 4% to 6%," Sanghani said. "It now looks like you're getting growth that's coming in closer to 6% to 8% for the next few years."
But pipeline expansions also carry risks. Pipeline stocks, which include both traditional corporations and master limited partnerships, or MLPs, have been forced to cut their dividends in the past because they grew too fast before commodity prices plunged. The most recent selloff happened in 2015, when even giants like Kinder Morgan cut their dividends.
The fear that history could repeat may be one reason pipeline stocks have underperformed the market this year, despite their growth opportunities, Sanghani said. The Tortoise North American Pipeline Fund, for instance, is up 4% for the year, versus the S&P 500's 16% gain. There has been a wide dispersion among the stocks, which may have something to do with their business models. Williams Cos., which focuses on natural gas and has a side business supplying power plants for data centers, is up 10%. But Energy Transfer, which serves both oil and natural gas markets, is down 15%.
Rob Thummel, senior portfolio manager at Tortoise Capital, said that he thinks pipeline stocks have been dragged down mostly by weak oil prices, which have fallen 15% this year.
Oil prices are expected to stay low next year, which could weigh on the stocks again. But Sanghani expects most pipelines to weather the difficulties. Unlike in 2015, they have a larger cash flow cushion to cover their dividends.
He thinks investors interested in the industry should focus on natural-gas pipeline companies over companies that transport oil or other liquids.
"We've had a pretty nice correction in the month of October, with a small bounce back," he said. "But we think this is a great time in general to be allocated to the space."
Write to Avi Salzman at avi.salzman@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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December 02, 2025 01:30 ET (06:30 GMT)
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