It’s buying season for America’s pipeline giants.
As they prepare for a wave of new U.S. natural gas production to power AI data centers or export overseas, the leading pipeline players are quickly buying up their smaller private rivals to consolidate the industry and expand their size.
This week, Tulsa, Oklahoma-based ONEOK purchased the Permian Basin assets of West Texas-based Brazos Midstream for $4.42 billion. This comes shortly after pipeline giant Williams acquired Momentum Midstream and its pipeline gathering and processing facilities in Texas and Louisiana for $5.5 billion. In May, Western Midstream paid $1.6 billion for Brazos’ Delaware Basin assets in the western lobe of the Permian.
In the 20 years of the U.S. shale gas boom since 2006, U.S. natural gas production has more than doubled – after more than three decades of stagnant production – and is expected to continue to skyrocket through 2050. The U.S. now produces about a quarter of the world’s natural gas – almost twice as much as second-place Russia – and is the world leader in liquefied natural gas (LNG) exports, although the U.S. only began shipping LNG a decade ago.
Continued expansion of LNG export facilities in Texas and Louisiana, coupled with increasing domestic demand to power AI, means U.S. natural gas production could rise another 35% to as much as 150 billion cubic feet per day (Bcf/d) between now and 2050 – up from 50 Bcf/d 20 years ago – according to U.S. Department of Energy forecasts.
London Spivey, energy analyst at East Daley Analytics, told Fortune that the Brazos deal gives ONEOK good value to expand its large footprint in the more mature Permian midland basin.
“They get the gas to meet the AI demand and make profits at every step of the value chain,” Spivey said, acquiring the gathering lines from the wells and the gas processing plants. “They get it out of the ground, they bring it to their facility, they process it, they can put it into one of their pipelines and transport it to that end user, whether it be data centers or to feed LNG.”
The Brazos contract includes 700 miles of gathering pipelines and 1.2 Bcf/d of gas processing capacity.
“It underscores the trend that we’re seeing across the industry of these large public companies buying up and consolidating all these private companies,” Spivey added.
In an interview before the Brazos deal, ONEOK CEO Pierce Norton said Assets that the company is positioning itself for the increase in natural gas supply.
“At some point there will need to be more drilling in the United States than there is now, which is likely what will happen [gas] “The price is actually going up,” Norton said. “The demand will be there and it will be driven by LNG exports and the AI data centers.”
Norton said he’s constantly talking to several data center developers: “The focus really seems to be on Texas right now.”
Separate from the Brazos deal, ONEOK and partners are building the 450-mile Eiger Express pipeline to transport gas from the Permian to the Houston region. The pipeline is scheduled to go into operation in 2028. Customer interest was so great that they quickly increased planned pipeline capacity from 2.5 Bcf/d to over 3.5 Bcf/d.
Numerous long-distance pipelines are currently being developed from West Texas to the Gulf Coast to solve a congestion problem that has at times resulted in negative regional spot prices – with some producers literally paying to have excess gas transported away. “The gas price problem in the Permian will be solved if all these pipes are built,” Norton said.
Increasing demand
The gas-rich Haynesville shale in Louisiana and East Texas, as well as the booming Permian Basin, which produces gas as well as oil, are poised to increase output to meet demand.
Geographically, the expansion of LNG exports is concentrated on the Gulf Coast of Texas and Louisiana. Now, it’s no coincidence that data center developers are concentrating their projects in the same states – close to sufficient natural gas reserves to provide electricity and in an industry-friendly regulatory environment.
As Norton noted, as the oil-bearing Permian matures and depletes, its volumes will produce higher proportions of natural gas. Even if oil production stays the same, natural gas production will inevitably increase without additional activity.
“Our little motto is that we want to touch as many molecules as possible for as long as possible,” Norton said. “It’s this integrated value chain.”
A few years ago, ONEOK was too small to meet those ambitions, he said. So ONEOK went on a shopping spree.
In 2023, ONEOK purchased Magellan Midstream for $18.8 billion, including debt. In 2024, the company acquired both EnLink Midstream and Medallion Midstream. The Magellan and Medallion deals largely focused on crude oil and refined products. However, the EnLink deal focused heavily on gas infrastructure in Texas, Louisiana and Oklahoma. “EnLink was a perfect fit,” said Norton.
The new Brazos deal expands that scale and fits well into ONEOK’s existing footprint, Norton said in a conference call this week. “This is a crucial step in the strategy we have been pursuing for years, expanding economies of scale in the most attractive production regions and connecting this supply to ONEOK’s integrated system.”
The only problem is that ONEOK had taken on a lot of debt in its previous deals. To finance the acquisition of Brazos, Apollo Global Management is taking a minority stake in ONEOK through a $9 billion investment – $4 billion for Brazos and $5 billion for debt reduction.
For ONEOK, it’s a bullish bet on gas from the country’s most productive basin, the booming Permian.
“They pick the pools they want to fight over and they conquer them one by one as they try to establish dominance,” Spivey said.