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Energy Transfer Partners (ETP) is having a tough year. Through the first two quarters, the company's segment-adjusted EBITDA is 2.6% lower compared to last year. Meanwhile, distributable cash flow is even weaker, slumping 13% resulting in a worrisome distribution coverage ratio of 0.89 times. That said, it is not all bad news for the pipeline company, with growth at one segment standing out.

Drilling down into what's going right

As the chart below shows, the liquids transportation and services segment is the best performer so far this year:

Data source: Energy Transfer Partners press releases. Chart by the author. In millions of dollars.

Through the first six months, adjusted EBITDA in the liquids transportation and services segment is up 38.4% to $447 million. That is much stronger segment-adjusted EBITDA growth than either the investment in Sunoco Logistics (NYSE: SXL) or the intrastate transportation and service segment, which are up 8.6% and 11.6%, respectively.

Rising liquids transportation volumes was a key driver of this strong performance. NGL transportation volumes increased in all the main producing regions. Meanwhile, volumes on the company's crude oil transportation pipeline in the Eagle Ford shale continued to ramp up. In the first quarter, volumes averaged 44,000 barrels per day, in contrast to 38,000 barrels per day in the first quarter of 2015. Volume improved to an average of 45,000 barrels per day in the second quarter, compared to just 36,000 barrels per day in the same period of 2015. Finally, the company, and its partners Sunoco Logistics and Phillips 66 Partners (PSXP), began transporting crude on the first segment of the Bayou Bridge Pipeline project in April, with that pipeline averaging 57,000 barrels per day during the second quarter.

In addition to that, processing and fractionation margins improved due to the ramp-up of the company's third fractionator in Mont Belvieu, Texas, as well as the impact from the commissioning of the Mariner South LPG export project last year. Furthermore, storage volumes were higher due to strong demand for storage capacity. Overall, the combination of new projects going into service as well as rising demand for capacity on legacy assets drove earnings growth in the liquids transportation and services segment.

Can this segment keep driving growth?

Energy Transfer Partners currently has several expansion projects underway that should maintain the momentum of its liquids transportation and services segment. It is investing $470 million in building the fourth fractionator in Mont Belvieu, which it expects to be in service by November. It has the space to build three more fractionators on its current footprint if demand materializes.

In addition to that, the company and several partners are working on the Bakken Crude Pipeline, which is a $4.8 billion project that is supposed to be in service by the fourth quarter of this year. That said, several groups are protesting its construction, which recently led a judge to halt construction on a portion of the pipeline temporarily. Because of that, it is a possibility that this project will not be complete in the fourth quarter as planned. However, once it is in service, Energy Transfer Partners expects it to deliver significant cash flow because of the long-term, fee-based contracts that underpin the project.

Finally, the Bayou Bridge Pipeline project's second section is under construction and on pace to go into service in the first half of next year. Energy Transfer Partners believes that the project could create additional growth opportunities and market diversification in the future.

Investor takeaway

While several of Energy Transfer Partners' segments are underperforming due to poor market conditions or other factors, its liquids transportation and service segment is picking up some of the slack. Not only is there a healthy demand for capacity across its legacy assets but recent expansion projects are driving incremental gains. With several expansion projects nearing completion, this segment is poised to deliver robust growth over the next year and should remain one of Energy Transfer Partners' best segments.