Spire Inc., the St. Louis-based natural gas company, recently held its second-quarter 2024 earnings call. While analysts focused on the impact of warmer-than-normal weather on the utility segment, a subtle shift in the Midstream segment might be signaling a much larger story – one that could reshape Spire's future and send ripples through the Western U.S. natural gas market.

The quiet star of the call was Spire Storage West, the company's natural gas storage facility located in Wyoming. Spire completed the open season for its expansion project this quarter, locking in rates "well above initial estimates." While this statement seems like a typical celebratory remark, a closer look reveals a potential tectonic shift in Spire's Midstream strategy.

The company increased its total investment in the Spire Storage West expansion by a hefty $55 million, bringing the total to $250 million. This increase was attributed to an expanded project scope, higher drilling costs, and inflated construction expenses. However, the real bombshell is the projected return on this investment. The expansion, coupled with a full year of operations from the recently acquired MoGas pipeline, is expected to boost Midstream earnings by $10 to $12 million in fiscal year 2025.

Let's put these numbers in perspective. Spire's Midstream segment contribution margin in FY 2023 was $48 million. A $10 to $12 million increase represents a staggering 20% to 25% growth in just one year. This leap isn't simply a result of added capacity; it points to a dramatically altered pricing landscape for natural gas storage in the Western U.S.

"The call revealed a critical detail often overlooked – the average contract term for the new storage capacity is four years, smack in the middle of the current market range of three to five years. This signals a shift from short-term, opportunistic storage towards longer-term contracts, indicating a growing appetite for secure, reliable natural gas storage in the West."

Spire's ability to lock in rates "well above initial estimates" while securing these longer-term contracts speaks volumes. It suggests burgeoning demand outstripping supply, creating a seller's market for natural gas storage. This trend could be driven by several factors, including:

Increased LNG Exports: The Western U.S. is becoming a key hub for LNG exports, requiring substantial storage capacity to manage seasonal demand fluctuations.

Renewable Energy Integration: As renewable energy penetration grows, the need for flexible, dispatchable resources like natural gas storage becomes even more critical to balance intermittent supply.

Pipeline Constraints: Existing pipeline infrastructure might be struggling to keep pace with growing demand in the West, further amplifying the value of strategic storage assets.

While Spire executives remained tight-lipped about further expansion plans beyond Spire Storage West, their language hinted at an awareness of this burgeoning opportunity. They mentioned considering "additional expansion opportunities" but stressed their current focus on existing projects.

Projected Midstream Earnings Growth

The following chart showcases the projected growth in Spire's Midstream segment contribution margin, fueled by the Spire Storage West expansion and MoGas pipeline acquisition.

The potential for a Midstream gold rush in the West is intriguing. If Spire leverages this favorable market dynamic, it could unlock significant value for investors and potentially transform the company from a primarily regional utility into a major player in the national natural gas landscape.

"Fun Fact: Wyoming, where Spire Storage West is located, boasts the largest coal reserves in the United States. Despite the shift towards cleaner energy sources, Wyoming remains a significant energy producer, highlighting the complex and evolving nature of the U.S. energy landscape."