Energy Transfer (ET) could reach a final investment decision (FID) on the Warrior Pipeline within weeks, management said on the company’s 3Q24 earnings call. Although East Daley appreciates the value of Warrior and its interconnectivity to markets beyond Carthage, the additional capacity would certainly overbuild Permian Basin gas egress in 2027 and crush Waha spreads.
While ET would likely prefer to own a fee-generating asset than protect its own marketing earnings, we would be surprised if Permian producers are willing to do the same. If Mexico Pacific LNG reaches FID (expected in early 2025), and thus ONEOK (OKE) moves ahead with its Saguaro pipeline, the basin will have plenty of capacity through 2030. The figure shows this outlook including Warrior, based on the forecast from East Daley Analytics’ Permian Basin Supply & Demand Report.
We were surprised Blackcomb Pipeline (owned by Targa Resources (TRGP), MPLX (MPLX), Enbridge (ENB) and WhiteWater Midstream) reached FID first. Blackcomb heads to the Agua Dulce hub in South Texas, a market that looks oversupplied until LNG facilities ramp up, Mexico demand increases, and/or more pipe is built to connect the hub to Katy/Houston. Although the Katy/Houston market is also oversupplied, new proposals like Kinder Morgan’s (KMI) Trident Pipeline and Venture Global’s CP Express would help move that gas to Louisiana.
So, why would ET still build Warrior? One answer is data centers and increasing power demand in the Dallas-Fort Worth area, where Warrior terminates. ET’s management hinted as much, saying contracting is “weighted a little bit heavier towards market pool than it is on producer push.” Unlike producers, demand-pull customers like electric utilities do not care about overbuilding the basin as much as securing supply.
With ever-increasing demand estimates from data centers and general population growth, Texas will need a lot generation capacity, and natural gas plants will be a part of the solution. The Electric Reliability Council of Texas (ERCOT) expects peak generation capacity will need to grow 72% by 2030 to meet demand, from 86 GW in 2024 to 148 GW. Those estimates are significantly higher than other independent system operator (ISO) forecasts, and we would not be surprised if a more conservative outlook materializes. Nonetheless, EDA expects a large increase in power (and thus natural gas) demand ahead.
Voters established the Texas Energy Fund last year to fund construction, maintenance, and modernization of electric generating facilities. The Public Utility Commission of Texas operates the fund, and in August recommended 17 gas-fired projects totaling 9.8 MW of capacity that would potentially receive $5.38B of loans. Five of the 17 projects are in the general vicinity of Dallas, right in the back yard of ET’s Warrior Pipeline.
The theme of higher power demand is starting to crystalize into real investments, and ET could be an early winner with Warrior. It has been a long road to FID, with the 1.5-2.0 Bcf/d project first proposed in mid-2022, but demand could realistically pull it over the finish line. — Ajay Bakshani, CFA Tickers: ENB, ET, KMI, MPLX, OKE, TRGP.
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