I already own some shares of natural gas giant EQT Corp (EQT +2.18%). I think it's in a strong position to capitalize on growing demand for gas in the future from AI data centers and other catalysts. That's why I'd consider adding to my position this year.
However, there's one natural gas stock I'd buy before EQT in 2026: Kinder Morgan (KMI +2.43%). The gas pipeline company has considerably less direct exposure to commodity prices, making it a much lower-risk way to invest in the expected surge in gas demand in the coming years.
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Significant free cash flow growth potential
EQT Corp is a premier natural gas company. It controls a vast gas resource position in the Appalachian basin. Additionally, it owns extensive natural gas infrastructure, including gas gathering lines, gas storage capacity, and long-haul transmission pipelines. The company's vertical integration makes it one of the lowest-cost gas producers in the country, with a breakeven level of around $2 per MMBtu.
The gas producer's low operating costs, expanding pipeline capacity, and strategic agreements to export gas from liquefied natural gas terminals position it to generate robust and growing free cash flow in the coming years. EQT estimates that it can produce between $10 billion to over $25 billion of cumulative free cash flow through 2029 at an average gas price between $2.75 and $5.00 per MMBtu. That will provide the funds to repay debt, repurchase shares, and increase its 1.2%-yielding dividend.
NYSE: EQT
Key Data Points
More predictable and visible earnings growth
EQT Corp is an upstream gas producer with integrated midstream operations. As a result, it still has significant exposure to volatile commodity prices, which it aims to partially mitigate through hedging contracts for a portion of its volumes. Kinder Morgan, on the other hand, is a midstream company with some upstream operations (primarily enhanced oil recovery). It produces much more predictable cash flow. Roughly 69% of its earnings come from take-or-pay and hedging contracts, which eliminate commodity price and volume risk, while another 26% are fee-based and carry minimal volume risk.
In addition to producing much steadier cash flow, Kinder Morgan has more predictable growth. It currently has $9.3 billion of organic expansion projects in its backlog, which it expects to complete through the middle of 2030. Notable projects include three large-scale gas pipelines that should enter service in the 2027 through 2029 time frame. Additionally, the company is pursuing another $10 billion of natural gas project opportunities that it could approve in the coming months.
NYSE: KMI
Key Data Points
Kinder Morgan's stable cash flow enables it to pay a higher-yielding and steadily rising dividend. The gas pipeline giant's payout currently yields 4.3% and it expects to deliver its ninth consecutive annual increase in 2026.
A lower-risk way to cash in on the gas boom
Catalysts such as AI data centers and new LNG export terminals should fuel robust demand for gas in the coming years. However, while volumes will rise, gas pricing could be volatile, which may impact EQT's ability to fully capitalize on the opportunity. That's why I'd buy shares of the more predictable Kinder Morgan to cash in on the gas boom before adding to my EQT position.
