Plugged In is a short-form video series from the Energy Infrastructure Council and VettaFi featuring candid one-on-one interviews with energy infrastructure executives. Each week will feature a new conversation leading up to the 23rd Annual Energy Infrastructure CEO & Investor Conference on May 18-20 in Aventura, Florida.
Key Takeaways
- Energy Transfer (ET) continues to see robust growth opportunities related to its natural gas infrastructure, with two major pipeline projects from the Permian under construction.
- Over time, ET’s crude pipeline system in the Midwest will have more access to Canadian crude.
- From a capital allocation standpoint, the distribution remains ET’s top priority, followed by growth capital spending.
The note below includes key takeaways from a recent conversation with Dylan Bramhall, Chief Financial Officer of Energy Transfer (ET). The discussion covered ET’s growth opportunities related to natural gas, the optionality provided by its Bakken crude pipeline, and the company’s capital allocation priorities.
Natural gas continues to provide compelling growth opportunities.
The outlook for North American natural gas demand growth is arguably unprecedented, with Bramhall saying it’s unlike anything he has ever seen in his career. Energy Transfer has two major Permian natural gas pipeline projects under construction, Hugh Brinson and the Desert Southwest expansion, while continuing to see strong interest in smaller lateral pipelines to service power demand, including for data centers.
Hugh Brinson will help alleviate natural gas takeaway constraints in the Permian by moving barrels east when it comes online in phases beginning in 4Q26. The pipeline also helps satisfy growing natural gas demand, which supported upsizing the project to 2.2 billion cubic feet per day (Bcf/d) from its initial scope of 1.5 Bcf/d. Hugh Brinson will have bidirectional capabilities, allowing the transport of over 1 Bcf/d to the west, adding valuable optionality.
Last year, ET announced the Desert Southwest expansion to move Permian natural gas to the Phoenix area, primarily supplying utilities in Arizona. The pipeline was initially planned to move 1.5 Bcf/d at a capital cost of $4.7 billion, but the project has been upsized to 2.3 Bcf/d with only an additional $900 million in capital required. The 50+% increase to capacity at 20% of the capital cost helps drive attractive project returns. The Desert Southwest expansion is expected to come online in late 2029.
More broadly, power demand, including from data centers, is adding to a robust growth outlook for natural gas demand, complementing growing liquefied natural gas export capacity. Energy Transfer has signed multiple agreements to supply natural gas to data centers (read more) and continues to see strong customer interest, as data centers turn to natural gas for its reliability and speed to market. While ET has seen plentiful opportunities in Texas, Bramhall highlighted conversations with data center developers in 13 or 14 states. As one example, two expansions projects for Florida Gas Transmission with partner Kinder Morgan (KMI) will support growing power needs driven by population growth and data centers.
Bakken Pipeline to see more Canadian crude flows over time.
While natural gas is the key driver for broad midstream growth in the coming years, growing Canadian oil production is also creating opportunities for midstream. For ET, Canadian crude will be increasingly transported through the Bakken Pipeline system in the coming years. First, ET and Enbridge (ENB CN) are partnering on the ~60-mile Southern Illinois Connector to transport Canadian crude from Wood River to the Energy Transfer Crude Oil Pipeline (ETCOP) in Patoka beginning in 2028. ET would receive ~100 thousand barrels per day (MBpd) at Patoka to then move south to ET’s Nederland, Texas, complex.
Enbridge’s proposed Phase 2 optimization of its Main Line system would eventually bring 250 MBpd of light sweet Canadian crude to ET’s Dakota Access Pipeline (DAPL), enabling volumes to move to refineries in the upper Midwest. ET has 38.25% interest in ETCOP and DAPL, while ENB has a 27.6% interest. In short, supply growth from Canada and greater pipeline connectivity can help keep crude pipelines well utilized even as Bakken production potentially moderates.
Distribution front and center for capital allocation.
When it comes to capital allocation, the distribution remains ET’s top priority. The MLP typically pays out 50-60% of cash flow in distributions and continues to target 3-5% annual distribution growth. Growth capital is the second priority, with ET expecting to spend $5-5.5 billion on growth projects this year. With cash flows rising, the company has the ability to take on more debt, while maintaining similar leverage metrics. Finally, M&A is also a capital allocation priority, with ET having a long history of acquisitions, albeit things have been quieter on the deal front lately.
To view the full, 10-minute interview, click here.
Energy Transfer (ET) is a key constituent in Alerian MLP and Midstream Indexes, which underlie ETFs and exchange-traded notes. As of April 9, ET was a top-three holding in the Alerian MLP ETF (AMLP) and the Alerian Energy Infrastructure ETF (ENFR).
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Related Research:
Surging U.S. Power Needs Drive Gas Infrastructure Opportunity
Energy Transfer Seizes Data Center Growth Opportunities
Natural Gas, Demand-Pull Pipelines & Midstream Valuations
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