Demand for fossil fuels has steadily risen for years, propelled by population and economic growth. It has driven the need for more infrastructure like pipelines, processing plants, and export terminals to support rising volumes of oil and gas. That has enabled Enterprise Products Partners (EPD +0.62%) to steadily expand its infrastructure network, giving it the fuel to increase its cash distribution to investors for 24 straight years.
While the world is working hard to transition to cleaner energy sources like renewable energy, demand for fossil fuels won't evaporate overnight. That's evident from these four charts. They suggest Enterprise should have plenty of power to sustain and grow its 7.6%-yielding distribution in the coming years.
NYSE: EPD
Key Data Points
Fossil fuels won't go extinct anytime soon
There's a misguided belief that the transition to renewable energy will eliminate the need for fossil fuels in the coming years. Under hopeful net-zero scenarios, demand for fossil fuels would rapidly decline over the coming decades as renewables replace them. However, that scenario seems unlikely, given the expected population growth over the next several decades, as shown in the chart.
Data source: Enterprise Products Partners.
Instead of declining, the International Energy Agency (IEA) sees demand for oil and natural gas rising by 18% by 2040, driven by economic and population growth. The IEA expects demand for oil to continue growing for at least the next decade in the most likely scenarios, as the chart shows.
Data source: Enterprise Products Partners
This forecast suggests that oil and gas infrastructure will remain vital in the decades ahead.
It's not a transition but an addition
For years, biomass was the world's primary fuel source, as people used wood to heat their homes. While most people have shifted away from wood as their primary heating fuel -- first to coal and then to fuel oil and natural gas -- demand for traditional biomass hasn't gone down, as we've added other fuels to the mix:
Data source: Enterprise Products Partners.
Instead of an energy transition, we've steadily seen energy additions as newer, cheaper, and more sustainable energy sources get added to the mix to help meet growing demand. That seems a likelier scenario than a complete transition from fossil fuels to renewables over the next few decades as the population keeps growing.
The fuel to continue growing
Given these scenarios, Enterprise Products Partners believes that U.S. energy supplies will grow significantly in the coming years to help meet growing global demand, says this chart.
Data source: Enterprise Products Partners.
Under the company's base-case scenario, oil, natural gas, and natural gas liquids supplies will expand meaningfully over the next several years. Meanwhile, its high case sees even faster growth.
This forecast implies that the U.S. will need more pipelines, processing plants, storage facilities, and export terminals to move supplies from production basins to markets. Enterprise Products Partners already has $5.5 billion of major projects under construction to support additional energy supplies over the coming years. These projects should help grow its cash flow through 2025, when the last one is on track to enter service. That should give Enterprise the growing cash flows to continue increasing its distribution to investors.
Meanwhile, it's pursuing several additional large-scale projects. Carbon capture, utilization, and sequestration (CCUS) is one sector where it sees significant growth potential. The company is working with oil giants Chevron (CVX +1.75%) and Occidental Petroleum (OXY +1.74%) on developing potential CCSU projects.
Enterprise could repurpose existing pipelines and build new ones to transport captured carbon dioxide to sequestration and utilization sites operated by Chevron and Occidental Petroleum. CCUS has the potential to lower the carbon intensity of oil and gas production, enabling it to continue playing a vital role in a lower-carbon world for decades to come. Those potential CCUS projects could provide Enterprise with more fuel to grow its high-yielding payout in the future.
Plenty of fuel to sustain and grow its big-time dividend
Demand for fossil fuels isn't going to evaporate overnight. Instead of an energy transition, we'll likely see an energy addition, where renewables add to the energy mix. This means fossil fuel demand should continue growing for the next several years, with the industry potentially seeing additional growth in the longer term as it reduces its carbon intensity through CCUS.
These factors all suggest that Enterprise Products Partners should be able to continue expanding its energy infrastructure in the coming years. Those investments should give it the fuel to keep growing its high-yielding distribution, making it a great option for those seeking an attractive, sustainable passive income stream.
