The rapid expansion in Permian gas pipeline egress in 2026-27 will help the basin’s producers but may put the kibosh on outsized profits for certain midstream players. One such company is Kinetik (KNTK). East Daley Analytics has dug deep into KNTK’s latest 10-K and found a data point critical to any analysis of the company’s future.
Kinetik’s marketing unit, nested within the Midstream Logistics segment, generates revenue through sales of condensate, residue gas and NGLs. In the 10-K, KNTK states its cost of sales “primarily consists of purchases of NGLs and natural gas from our producers at contracted market prices to support product sales to other third parties.” Moreover, product revenues are “included entirely” in Midstream Logistics, and “more than 99%” of the cost of sales are housed in the marketing segment.
The disclosures provide insight into Kinetik’s ability to profit from marketing. Charting the unit’s gross margin against the price spread between Waha and the Houston Ship Channel reveals a high correlation (see figure at right). This connection makes sense, since KNTK owns a 55.5% non-operating interest in the Permian Highway Pipeline connecting the two gas hubs.
East Daley estimates a 0.79 correlation since 2022 between Midstream Logistics’ gross margin and the regional price spread, a strong positive linkage. KNTK’s marketing unit has benefited tremendously as Permian egress has become constrained in recent quarters, booking steady growth in gross margin. But what happens when new pipelines start and the spread tightens?
Unfortunately for Kinetik, the future looks less rosy for the marketing arm. With the expected start of the Blackcomb and Hugh Brinson pipelines, the market is pricing in much stronger Waha hub prices starting in 4Q26. As a result, the wide spread between Waha and the Houston Ship Channel is expected to significantly narrow (see figure at right).
Kinetik plans to report 1Q26 results on May 7 after markets close. East Daley believes we have insight into the outlook for the KNTK marketing arm, based on the historical connection between the Waha-Ship Channel spread and Midstream Logistics’ gross margin. The regional basis has blown out recently given gains in WTI prices linked to the Iran conflict. As a result, we expect KNTK will book large earnings from its marketing arm in 1H26, with the unit’s gross margin to peak in 2Q26. Thereafter, markets are pricing in a sharp contraction in the spread, and with it, the gross margin for Midstream Logistics. We estimate margins will fall back to 2022 levels as early as 3Q26.
Our forecast is included in the KNTK Financial Blueprint, available in Energy Data Studio. The Midstream Logistics segment still benefits from bullish macro trends in the Permian, including volume growth and new fee-based revenue from its ECCC Pipeline (see the Midstream Logistics EBITDA forecast above from Energy Data Studio). But the days of fat profit margins based on the Permian pipeline bottleneck are likely near an end.
Bottom Line: While Kinetik’s marketing segment has benefited significantly from recent Permian constraints and wide gas spreads, this tailwind appears to be petering out once new egress capacity comes online in late 2026 and into 2027. What remains to be seen is how KNTK will manage this new dynamic, and what it means for the company’s long-term outlook. – London Spivey Tickers: KNTK.
Download Part II of East Daley’s Permian Basin White Paper Series
The Permian Basin’s next big buildout is already taking shape, but this time the driver isn’t crude oil. In The Permian Basin at a Crossroads: Why This Pipeline Boom is Different, East Daley Analytics’ latest white paper reveals how gas demand from AI data centers, utilities and LNG exports is rewriting the midstream playbook in the leading US basin. Over 10 Bcf/d of new capacity and $12 billion in investments are reshaping flows, turning the Permian into a gas powerhouse even as rigs decline. Read Part II: Why This Pipeline Boom is Different
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