Energy Transfer (ET -1.22%) makes a lot of money transporting, processing, and storing fossil fuels. Because of that, the world's ongoing transition to lower carbon energy sources represents an existential threat to its legacy business -- and to its big-time distribution. However, it's also a potentially enormous opportunity.
One sizable opportunity the midstream company is working to capture is a slice of the emerging carbon capture and sequestration market. It's a multitrillion-dollar market opportunity that could give the master limited partnership the fuel to sustain its massive 9.4%-yielding cash distribution to investors for years to come.
Capturing its first opportunity
Discussing Energy Transfer's progress on the alternative energy front during its fourth-quarter conference call, co-CEO Tom Long stated:
We continue to make progress on our carbon capture and storage project with CapturePoint. That is related to our North Louisiana processing plants. The Class 6 permit for the sequestration side was filed by CapturePoint with the EPA in June of 2022.
CapturePoint has since made a final investment decision to proceed with carbon capture and storage infrastructure investments in the Central Louisiana Regional Carbon Storage Hub. The geologic storage sites in that hub have the potential to be the country's largest onshore deep underground carbon sequestration centers.
The hub's first phase will capture carbon dioxide emissions from natural gas processing facilities owned by Energy Transfer in north and central Louisiana. It will transport the greenhouse gas from those facilities and other emitters in the region to the hub. Energy Transfer expects the project to reduce emissions and generate attractive financial returns thanks to tax credits.
It's one of several projects Energy Transfer is pursuing related to gathering and processing facilities. In addition, the company is evaluating opportunities to transport carbon dioxide from existing underutilized pipelines near carbon dioxide sources to sequestration hubs. That should enable it to generate incremental cash flow with minimal capital spending required.
Linking up with a leader
The master limited partnership is also working on other potentially larger-scale opportunities. As Long said on the earnings call:
We also recently executed a letter of intent with Oxy [Occidental Petroleum (OXY -2.31%)] related to Oxy's Magnolia hub in Allen Parish, Louisiana, north of the Lake Charles industrial complex. Pursuant to the letter of intent, Energy Transfer and Oxy are working together to obtain long-term commitments of CO2 from the industrial customers in the Lake Charles, Louisiana area. If this project reaches FID, Energy Transfer would construct a CO2 pipeline to connect the customers to Oxy's sequestration site in Allen Parish, Louisiana.
Energy Transfer is one of several midstream companies working with Occidental Petroleum as it seeks to build out a network of sequestration hubs in the Gulf Coast region. The Energy Transfer project will support Occidental's point source carbon capture and sequestration business -- in other words, capturing carbon dioxide directly from emissions sources for permanent sequestration. The oil company also aims to build out several direct air capture projects to extract the greenhouse gas from the atmosphere for sequestration.
Projects like these will enable Energy Transfer to build new pipeline systems to support carbon capture and sequestration. That could supply the company with a growing income stream in the coming years as it moves the greenhouse gas from capture points to sequestration hubs owned by Occidental Petroleum and other oil companies.
An important opportunity to capture
Carbon capture and sequestration is vital to the energy industry's future. It could significantly extend the life of the fossil fuel industry while supplying the sector with another revenue source. That's why it's good to see Energy Transfer making strides to capture a piece of this opportunity. It could enable the master limited partnership to sustain and grow its distribution for decades to come.
