In a fast-evolving energy landscape, Energy Transfer (ET) is capitalizing on burgeoning demand from U.S. data centers. The midstream company is leveraging its extensive pipeline network to secure new contracts and sustain robust project returns.
In the recent webcast, “MLP Spotlight: Energy Transfer on Natural Gas Opportunities and More,” Bill Baerg, vice president of investor relations at Energy Transfer, shared insights on how the company is meeting the unique needs of this rapidly expanding sector.
“We’re building a couple of big projects right now,” Baerg said, highlighting the importance of Energy Transfer’s Hugh Brinson pipeline running near Abilene, Texas – home to Oracle’s (ORCL) new data center facilities. “We’re doing a project with Oracle, who’s building out facilities there in Abilene, and so [they are a]major customer,” he added.
This contract with Oracle underscores a wider trend: Hyperscale data centers, critical to artificial intelligence, require unprecedented levels of reliable energy. Baerg summed up this demand, noting that clients need “99.999% reliable power. To do that, you need a consistent, reliable source of fuel, and that’s what natural gas can provide.”
Leveraging Its Pipeline Network
Energy Transfer’s value proposition lies in its scale and reach. The company operates 140,000 miles of pipelines, making it the largest pipeline network in the U.S., strategically connecting supply sources with high-demand locations. This enables the company to serve customers at both ends of the spectrum – from “behind the meter” power supply for tech companies like Oracle, to major utilities like Entergy (ETR) expanding power output for clients such as Meta (META).
Financially, data center-related projects can offer compelling returns. Baerg likened the model to a “grocery store,” where smaller, higher-margin laterals serving specific sites (comparable to gourmet nuts or other specialty products) complement main pipeline expansions (comparable to milk and basic products). “Those small little laterals that don’t cost a lot of capital … add a lot of revenue, and the returns on those are extremely high because we’re situated in the right place.”
Diversification Beyond Data Centers
While data center growth powers much of the current excitement, Energy Transfer has other opportunities in the natural gas sector and in natural gas liquids (NGLs). The company reports 40% of earnings from natural gas, steadily growing infrastructure to meet population and industrial demand. For instance, the $5 billion Desert Southwest project is backed by 25-year contracts, projected to deliver over $800 million in annual EBITDA.
NGLs are also a significant profit engine, with Energy Transfer controlling 20% of global exports. This provides access to markets like Asia, where demand for plastics and feedstocks continues to see tremendous growth (read more).
On capital allocation, Baerg emphasized a disciplined approach: half of the distributable cash flow goes to its distribution, returning value to investors. Meanwhile, the other half funds strategic growth projects. The company aims to increase distributions 3–5% annually, while maintaining a strong investment-grade balance sheet.
For investors looking to gain exposure to the broader MLP/midstream landscape, Energy Transfer is a holding in both the Alerian MLP ETF (AMLP) and the Alerian Energy Infrastructure ETF (ENFR).
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