As data centre developers seek to secure firm energy supply, midstream companies must capture as much value as they can from the data centre boom. Sapphire Technologies’ CEO explains how they can
For decades, midstream pipeline companies have been valued as toll roads. Their business model was straightforward: transport hydrocarbons from production basins to demand centres under long-term, fee-based contracts.
Now, the rise of AI-driven electricity demand and the surge in behind-the-meter generation have created an opportunity for midstream operators to capture some of the value created by the rapid development of new data centre infrastructure.
To operationalise on time, these large energy consumers are no longer waiting for grid upgrades; they are pursuing direct supply arrangements, co-locating with generation assets and, increasingly, signing contracts that bypass traditional utility intermediation.
This shift reflects a structural response to load growth that is arriving faster than transmission and utility-scale generation can be built.
Midstream companies are uniquely positioned at the intersection of that shift because natural gas, combusted in turbines, engines, or fuel cells, is often the quickest path to behind-the-meter generation and facility start-up.
This is not new territory for the midstream companies. As transporters of natural gas, they have long engaged in power innovation. They were early industrial adopters of fuel cells. They have powered electrolysers to blend hydrogen into natural gas systems. They have deployed organic Rankine cycle units to capture waste heat from compressor stations. They have installed turboexpander generators to convert pipeline pressure drops into electricity.
Historically, these initiatives were efficiency projects or incremental revenue streams. In the context of today’s demand growth, midstream companies engaging with these projects gain something important: familiarity with power generation. These technologies are now being deployed to power the next generation of compute. As key suppliers, midstream companies should be capturing as much value as they can from the data centre boom, and some are better prepared to do so than others.
The Williams Companies offers one of the clearest examples of how this process is unfolding. In 2025 and 2026, Williams advanced a series of behind-the-meter gas-fired power projects designed to serve hyperscale data centres directly, including its 440MW Project Socrates development in Ohio under long-term agreement with Meta Platforms. Shifting from its traditional model of transporting fuel, Williams is repositioning portions of its footprint as ready-to-develop power hubs, and deploying generation assets directly adjacent to large-load energy consumers.
A multi-state pipeline network built over decades provides Williams with the physical proximity required to bypass grid constraints and deliver power behind the meter under long-term contracts, capturing value that would traditionally accrue to utilities or independent power producers.
The company’s growing exposure to direct generation has coincided with valuation metrics that sit well above traditional midstream averages. Williams is currently trading at a forward price-to-earnings ratio of approximately 34.5x, compared with a peer average near 15.3x. While multiple factors influence valuation, the market appears willing to treat Williams as more than a pure transport utility.
Kinder Morgan presents a subtler version of the same shift. The company continues to emphasise fee-based, take-or-pay cashflows in its investor communications, but it has also highlighted expanding opportunities tied to natural gas demand from the power sector and large industrial loads.
During its Q1 2026 earnings call, Kinder Morgan shared that the company is developing projects to serve more than 10 billion cubic feet per day to the power sector. This includes building pipeline extensions to service the unique demand being created by data centres. Extensions to large, dedicated facilities like new data centre campuses typically burden the consumer with project development costs, creating opportunities for Kinder Morgan to fund network expansion from a highly creditworthy counterparty.
Even without a wholesale repositioning, Kinder Morgan currently trades at a price-to-earnings ratio of approximately 24.4x, above many US oil and gas peers and industry averages. The company remains structurally conservative, yet the market narrative around it increasingly includes growth vectors tied to power demand.
The deeper question is whether these developments represent isolated projects or the early stages of a reclassification of midstream economics.
McKinsey’s analysis of energy storage monetisation provides a useful parallel. The firm notes that assets capable of stacking multiple revenue streams, providing capacity, reliability, arbitrage and grid services simultaneously, can command materially higher value than single-purpose infrastructure. Flexibility and service layering change the economic profile of an asset.
Pipelines have historically monetised throughput, but when transport infrastructure also captures generation revenue, contracted capacity payments and reliability services for data centres or industrial campuses, the revenue mix begins to resemble that of IPPs, participating directly in generation markets and benefit from long-term PPAs.
Midstream firms are not becoming commodity-exposed producers in the traditional sense. These new opportunities to monetise behind-the-meter generation, and contracted on-site supply can be structured under long-term capacity and service agreements, preserving cashflow stability investors expect while adding participation in power economics.
One interesting, less discussed, opportunity for midstream companies to participate in power revenue streams is embedded in pipeline infrastructure itself. Across the US, thousands of pressure-regulating stations reduce transmission gas to distribution pressures. Traditionally, pressure reduction has been handled by valves that dissipate energy. Turboexpander generators can be used to convert pressure drop into emission-free electricity and create high-capacity thermal cooling, transforming these regulating stations into distributed generation nodes embedded within existing pipeline networks.
Put simply, these small-scale turbines replace regulating valves and capture energy that would otherwise be lost during pipeline operations. Because pressure reduction is required to deliver gas safely downstream, the produced electricity and cooling is a byproduct of normal system function. Integrating turboexpanders into these processes is a capital-light way to create distributed power at existing infrastructure nodes. These assets are well suited to support data centre campuses because they are capable of supplying two bottlenecked requirements to data centre development: power and cooling.
If even a fraction of these assets is developed under long-term service contracts with data centre operators, midstream companies could monetise a substantial energy supply already flowing through their systems. The revenue would not depend on drilling new wells or assuming commodity volatility. It would depend on physical proximity to pipeline infrastructure and the ability to structure long-term service or capacity agreements with nearby energy offtakers.
As direct energy demand reshapes procurement models and behind-the-meter supply becomes normalised, the line between toll road and power platform grows thinner. The opportunity to provide an established natural gas solution to a willing blue-chip company may be enough to create transformational change in the midstream sector.
“As key suppliers, midstream companies should be capturing as much value as they can from the data centre boom”
Freddie Sarhan is CEO of Sapphire Technologies, a developer of modular power generation and cooling solutions for data centres, gas infrastructure and utilities, based in California
