East Daley: Midstream Investors Drawn to Southeast as Demand Heats Up

Zach Krause and Oren Pilant are energy analysts at East Daley Analytics.

Midstream investors are pouring billions into new pipeline expansions to meet natural gas demand growth in the Southeast. The region has many advantages, including big interest from developers of data centers, that could fuel the next expansion cycle for the natural gas industry.

Kinder Morgan (KMI), Williams Cos. (WMB), Energy Transfer and Boardwalk Pipeline Partners are all planning pipeline projects to bring more gas to the Southeast. Taken together, these expansions would draw supply from basins across the U.S., including the Marcellus and Utica shales in Appalachia, the Haynesville on the Gulf Coast, the Anadarko Basin in the Midcontinent and potentially even the Permian Basin in West Texas.

Both Kinder Morgan and Boardwalk have advanced competing projects to a final investment decision (FID), bringing the new market opportunity into focus. Boardwalk on Dec. 11, 2024, announced it would move forward with its Kosci Junction project for 1.16 Bcf/d of capacity, while KMI made FID a week later on the Mississippi Crossing project. 

Boardwalk’s Kosci Junction will extend east from the existing Greenville Lateral on the Texas Gas Transmission system. The new 36-inch pipeline is designed to travel 80 miles to Clarke County, Mississippi, to an interconnect with the Southern Natural Gas system, and an additional 18-mile segment will deliver gas into the Gulf South system near Destin Pipeline.

The Kosci Junction project is anchored by a 20-year agreement for 600 MMcf/d, and Boardwalk said negotiations are underway to market the remaining capacity, potentially up to 1.58 Bcf/d. Boardwalk expects to enter the Federal Energy Regulatory Commission (FERC) pre-filing process in the first quarter and is targeting the start of service on the expansion in the first half of 2029.

Meanwhile, Kinder Morgan subsidiary Tennessee Gas Pipeline is moving forward with the Mississippi Crossing project at an estimated $1.6 billion capital cost. The project includes new pipeline between Greenville, Mississippi, and Choctaw County, Alabama, where Compressor Station 85 of the Transcontinental Gas Pipe Line (Transco) sets the price for much of the Southeast market.

On the company’s fourth-quarter earnings call, Kinder Morgan said it has secured binding agreements for 1.8 Bcf/d of capacity for Mississippi Crossing. The company plans to build out the project with 2.1 Bcf/d of capacity and is targeting startup in November 2028.

Energy Transfer is pursuing a third expansion, the South Mississippi project, that competes along a similar eastbound route as the Boardwalk and KMI projects. Subsidiary Energy Transfer Interstate Holdings held a non-binding open season in October to take gas from the Carthage and Perryville hubs in East Texas and northeastern Louisiana further into the Southeast, including Florida Gas Transmission’s Zone 3 as a primary delivery point.

The South Mississippi project is a brown/greenfield hybrid and includes a mix of new large-diameter pipes and compression facilities, as well as leases and possible expansions on existing pipes. The project is currently scoped for 1 Bcf/d but is potentially expandable to 2 Bcf/d.

Williams, KMI team up to deliver gas south on Transco

Meanwhile, Kinder Morgan and Williams are coordinating projects to bring gas supply south from Appalachia on the Transco system to meet growing demand.

Kinder Morgan’s South System Expansion 4 (SSE4) will expand the Sonat system in Georgia and Alabama, adding up to 1.3 Bcf/d of capacity. KMI estimates a $3 billion project cost with an in-service in late 2028.

SSE4 will deliver additional flows on Transco from WMB’s Southeast Supply Enhancement (SSE). The project will expand Transco’s southbound capacity by ~1.6 Bcf/d, with 1.3 Bcf/d of the capacity offered from Station 165 in southern Virginia to Station 85 at the Alabama-Mississippi border. The Transco expansion creates more southbound egress from the Northeast, and SSE4 will help deliver that gas to end-markets in Alabama and Georgia.

The Southeast market is proving fertile ground for Transco expansions. The pipeline placed the Southside Reliability Enhancement (SRE) project into full service on Dec. 30, 2024. SRE expands capacity in southeastern Virginia by 423 MMcf/d on Transco’s South Virginia Lateral. Local utility Piedmont Natural Gas has contracted for the expansion.

Data centers, utilities drive demand growth

Midstream investors are chasing a market with strong prospects for growth. Populations in the Southeast are growing rapidly, and a friendly business climate is attracting new industries. These factors are fueling growth in energy demand, especially for electricity. The region historically has leaned heavily on coal to generate power, but utilities like Southern Company and Georgia Power are shuttering older coal plants to meet long-term goals for net-zero carbon emissions.

Data centers to power AI are another big driver of demand. East Daley Analytics tracks these data center projects across the U.S., and the Southeast has been a particular draw for developers. In Virginia, for example, we are tracking over 22,000 megawatts (MW) of planned generation capacity to meet load growth for data centers, and over 5,000 MW of generation to power data centers in Georgia.

Natural gas won’t fuel all this new electricity demand, but the market opportunity is significant, and investors are stepping in to fill the gap. For example, Chevron announced in January that it will partner with Engine No. 1 and GE Vernova to build up to 4 gigawatts of scalable gas-fired generation to power AI. The JV plans to build co-located power plants at data centers and will target customers in the Southeast, Midwest and West regions. 

East Daley sees a target-rich environment for the midstream sector. Projects like Kinder Morgan’s SSE4 and Transco’s SSE are expected to charge rates at least 200% higher than current firm transport tariffs for similar routes to the Southeast. We estimate a rate of about $1.50/Mcf on the SSE4 expansion and about $0.86/Mcf on SESE and build multiples of 4-5x. The high rates and low multiples are a bullish signal for new investments.

East Daley also expects more competition for gas supply as new LNG projects start on the Gulf Coast. Venture Global’s Plaquemines LNG in southeastern Louisiana in particular will raise the bar by creating more demand in the eastern Gulf Coast market. We expect gas at points like Transco Station 85 to trade at a premium in the near term until new pipelines are built, particularly when the Plaquemines Phase 2 project comes online in fourth-quarter 2026.

While midstream projects will not be online soon enough to mitigate price volatility in the region, these expansions will play an important role balancing long-term domestic and LNG demand growth.