Energy Transfer (ET +1.54%) has been on the cusp of a major growth wave. The energy midstream giant has a long list of organic expansion projects on track to enter commercial service through the end of next year. They should fuel meaningful cash-flow growth in 2026 and 2027. That should enable the master limited partnership (MLP) to continue increasing its 7.5%-yielding distribution over the next few years.
The pipeline company's growth outlook is now even better after it recently added several additional expansion projects to its backlog, significantly enhancing and extending its growth profile. That should give investors even more confidence to hold this MLP for at least the next five years.
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Adding a lot more fuel to its growth engine
Energy Transfer recently reported its second-quarter financial results. The company also provided investors with an update on its growth projects. It has recently secured several new expansion opportunities that it expects to complete by the end of the decade.
The biggest project by far is the expansion of its Transwestern Pipeline via the Desert Southwest pipeline expansion project. The 516-mile pipeline will have the capacity to transport 1.5 billion cubic feet of gas per day (Bcf/d) from Texas to markets in Arizona and New Mexico, supporting increased gas demand driven by population growth, high-tech industries, and new data centers. Energy Transfer plans to invest $5.3 billion in building the pipeline, which it anticipates completing by the end of 2029. That's more than the company's entire growth-capital budget for 2025 ($5 billion).
- Hugh Brinson Pipeline Phase II: The company has now secured enough customer commitments to move forward with both phases of this natural gas pipeline, increasing its planned capacity from 1.5 Bcf/d to 2.2 Bcf/d. It will construct phase II concurrently with phase I. The $2.7 billion project should enter commercial service by the end of 2026.
- Delaware Basin NGL Pipe Looping: This upgrade will boost the natural gas liquids (NGLs) pipeline system's capacity by 100,000 barrels per day, with expected completion in the first half of 2027.
- Bethel Storage Expansion: The MLP will construct a new storage cavern to double its Bethel gas storage capacity by late 2028.
These projects will supply the company with significant incremental sources of cash flow through the end of the decade, giving it much more future growth visibility.
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More projects under development
Energy Transfer has several more expansion projects in the works that would further enhance and extend its growth outlook. One of the biggest projects is the long-delayed Lake Charles LNG facility. The company made significant progress toward commercializing the project this year. It secured MidOcean Energy as a 30% equity partner and signed long-term sales contracts with Chevron and a Japanese energy company. The company noted on its Q2 call that it's in advanced discussions with several additional potential customers for its remaining capacity. It's also working on securing additional equity partners. Securing these final agreements would enable the company to approve construction on this needle-moving project.
Additionally, the pipeline company continues to see a significant amount of interest in gas supplies from power plant and data center developers. The company is in advanced discussions with several potential customers. These projects would enable it to generate revenue rather quickly because they're close to its existing pipelines. Energy Transfer has several other projects under development, including an NGL pipeline expansion, a large offshore oil export terminal, a blue ammonia hub, and a carbon capture and storage project.
Securing these and other projects would give Energy Transfer even more fuel to grow its distribution in the future. The MLP currently expects to increase its payout by 3% to 5% per year. That's a very conservative growth rate, given its strong financial position and growing cash flows. These features make the company's lucrative distribution increasingly sustainable.
High-octane total return potential
Energy Transfer has significantly enhanced its growth profile this year. As a result, it should have plenty of fuel to continue increasing its high-yielding payout through at least 2030. This combination of growth and income should enable the MLP to produce attractive total returns in the coming years. That makes it a potentially great long-term investment, as long as investors are comfortable receiving the Schedule K-1 federal tax form it sends them each year.
