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Commodity Prices, Export Demand to Drive Strong US Midstream Q2 Earnings, RBC Says

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Commodity prices, export demand and new infrastructure should drive strong second-quarter US midstream earnings across the sector, RBC Capital Markets said in a Tuesday note.

Waha basis spreads, spot export cargoes, expanding natural gas and power demand continue to provide favorable operating conditions for the sector, RBC said.

RBC expects the Iran conflict and additional Permian pipeline capacity to strengthen long-term demand for US hydrocarbons, support new export infrastructure and restore previously curtailed production as takeaway constraints ease.

RBC highlighted Kinetik Holdings (KNTK) and Targa Resources (TRGP) as its preferred picks, expecting both companies to post solid second-quarter results.

The firm expects Kinetik to enter the second half of 2026 and 2027 with positive momentum, while Targa should benefit from supportive commodity prices and rising gas volumes as new takeaway capacity comes online.

Kinder Morgan (KMI) could transfer projects from its shadow backlog into its formal project backlog during the quarter, while Williams (WMB) may provide updates on its Power Innovation financing platform, new power projects and Momentum Midstream, RBC said.

RBC's second-quarter EBITDA forecasts remain within 2% of consensus across most of its coverage. It projects Venture Global (VG) about 4.4% above consensus after incorporating recent cargo and fee disclosures.

RBC also expects Targa to outperform consensus on stronger-than-expected volume growth. Kinetik's margins should offset curtailed production, while the Kings Landing 2 final investment decision supports higher future output.

Waha natural gas prices averaged negative $3.10 per million British thermal units during Q2 and briefly fell to about negative $8/MMBtu before recovering as additional pipeline capacity eased transportation constraints.

The 570 million cubic feet per day Gulf Coast Express pipeline expansion entered service late in the quarter, helping restore some curtailed volumes. Energy Transfer (ET) also expects the first 1.5 billion cubic feet per day phase of the Hugh Brinson Pipeline to start in Q4, with some flows possible in Q3.

RBC expects 5.27 Bcf/d of new Permian takeaway capacity to enter service between mid-2026 and Q1 of 2027, creating favorable conditions for higher regional production.

The Iran conflict has increased spot exports of liquefied petroleum gas, crude oil and liquefied natural gas while reinforcing the need for diversified energy supplies, supporting long-term demand for US hydrocarbons and export infrastructure, RBC said.

RBC identified Energy Transfer, Enterprise Products Partners, Targa Resources, ONEOK (OKE), Cheniere Energy (LNG) and Venture Global among the companies positioned to benefit from stronger export demand and future infrastructure investment.

The firm also expects natural gas demand to remain a long-term growth driver as US liquefied natural gas export capacity nearly doubles by 2030 and electricity demand rises from reshoring, electrification, artificial intelligence and data center expansion, benefiting Williams and Kinder Morgan.

Price: $50.47, Change: $-0.64, Percent Change: -1.25%

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