Buried within the recent Q1 2024 earnings call for AltaGas lies a subtle yet potentially explosive revelation: a burgeoning data center boom within its utility service territory, poised to dramatically reshape the company's future. While analysts focused on the imminent REEF project FID and continued LPG export success, this quieter narrative of rising natural gas demand from the digital infrastructure surge flew largely under the radar.

This isn't mere speculation. AltaGas executives themselves acknowledged the trend, with Blue Jenkins, President of Utilities, highlighting 'rising energy demand for AI and data centers within the WGL service area.' He further pointed to industry projections indicating a 5 to 10 Bcf per day surge in U.S. natural gas demand specifically driven by data center growth by 2030.

To understand the magnitude of this potential impact, consider that AltaGas's current total throughput across its entire midstream business, including gas processing, fractionation, and global exports, is roughly 1.2 Bcf per day. A 5 Bcf/day increase from data centers alone would represent over a 400% increase on this existing throughput figure. Even at the lower end of projections, this represents a significant demand catalyst that could dwarf current midstream operations.

But this goes beyond mere volume. Jenkins revealed that AltaGas is actively engaged in FEED studies for potential 'short builds' to provide on-site gas-fired power generation for data centers within its service territory. This hints at a strategic pivot beyond their core residential and commercial customer base, venturing into the lucrative industrial sector with tailored infrastructure solutions.

Imagine this: AltaGas, traditionally a utility and midstream player, now becoming the go-to energy provider for the data center behemoths powering the AI revolution. It's a compelling narrative that aligns with the broader energy transition towards decarbonization while capitalizing on a unique regional advantage.

The implications are manifold. Firstly, it underpins the long-term stability and growth potential of AltaGas's utility business, further justifying its investment-grade credit rating and capacity for significant infrastructure investment. Secondly, it creates a synergistic loop with their midstream operations. As gas production rises in Western Canada to feed LNG exports, a portion could be diverted to this burgeoning domestic demand hub, further leveraging AltaGas's existing transportation and storage infrastructure.

But this isn't without challenges. Successfully executing on these short builds requires navigating complex regulatory landscapes, ensuring timely cost recovery through tailored contracts, and mitigating the risk of stranded assets if demand growth doesn't materialize as projected.

Nevertheless, AltaGas's early engagement with these data center customers, combined with their proven execution track record on projects like RIPET and the imminent REEF terminal, suggests they are well-positioned to capitalize on this emerging opportunity.

This silent revolution may not be grabbing headlines today, but its impact on AltaGas's future could be far more profound than the current market narrative suggests. As the AI revolution accelerates, the company is quietly positioning itself as an essential energy infrastructure provider for the digital age, a story that investors would be wise to follow closely.

Projected Increase in US Natural Gas Demand (Bcf/day)

Source: AltaGas Q1 2024 Earnings Call Transcript

"Fun Fact: The amount of data generated globally each day is staggering. It's estimated that by 2025, we'll be creating 463 exabytes of data daily. To put that in perspective, one exabyte is equivalent to one billion gigabytes!"