Where Will Energy Transfer Be in 5 Years?

Energy Transfer (NYSE: ET) has changed a lot over the past five years. In 2020, the master limited partnership's (MLP) financial profile had weakened to the point that it needed to slash its distribution by 50% to retain additional cash to fund its expansion projects and repay debt.

Fast-forward five years, and the midstream giant is in the best financial shape in its history. It reduced debt and increased its earnings by more than 50%. Its improving financial flexibility has enabled it to raise its cash distribution well past its prior peak.

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The MLP expects to continue growing over the next several years. Here's a look at where Energy Transfer is on track to be by 2030.

Image source: Getty Images.

The coming growth spurt

Energy Transfer is currently investing heavily in expanding its energy midstream network. The company plans to invest $5 billion into capital projects this year, an increase from $3 billion last year. Fueling the higher spending level is a wave of expansion projects it has approved over the past few months.

The biggest project is the Hugh Brinson Pipeline, which will transport natural gas from the Permian Basin to market hubs. The company has started work on the first phase of the 400-mile pipeline that will have the capacity to ship 1.5 billion cubic feet per day when it enters service at the end of next year.

Energy Transfer is working on securing customers for phase two, which would increase its capacity to 2.2 billion cubic feet per day. The combined cost for both phases is $2.7 billion.

Energy Transfer is also building more natural gas processing plants, expanding its Nederland Flexport terminal, and building another NGL fractionator. These and other projects have in-service dates from mid-2025 through the end of 2026.

Given that time frame, "we continue to expect the majority of the earnings growth from these projects to significantly ramp up in 2026 and 2027," stated co-CEO Tom Long on the company's first-quarter earnings conference call. Because of that, Energy Transfer should have plenty of fuel to continue increasing its high-yielding distribution (currently over 7%) for at least the next several years.

Multiple growth catalysts

Energy Transfer's current backlog of expansion projects should all enter service by the end of next year. However, that doesn't mean the MLP is running low on fuel. It has a large pipeline of projects under development.

The biggest is its long-delayed Lake Charles LNG export terminal. After encountering many roadblocks, Energy Transfer is getting close to finally making a final investment decision on this project. It has signed several commercial contracts backing the project. On top of that, it secured MidOcean Energy as a joint development partner (30% equity interest).

Building Lake Charles LNG would enhance and extend Energy Transfer's growth outlook. It would earn incremental income from its retained stake in Lake Charles LNG. On top of that, it would benefit from increased volumes flowing through its natural gas pipeline network to Lake Charles, which would provide it with substantial incremental cash flows.

Lake Charles is one of many expansion projects the company is currently developing. It sees three major catalysts fueling its growth over the next several years:

1. Continued strong Permian Basin volume growth
2. Increasing natural gas power demand
3. Strong global demand for U.S. NGL production

The company is seeing significant demand for natural gas from new and existing customers. It has requests to connect more than 60 power plants to its gas pipelines and over 200 data centers. It has already signed a contract to supply gas to CloudBurst's artificial intelligence (AI) data center in Texas.

Energy Transfer is also exploring lower-carbon investment opportunities (carbon capture and sequestration and blue ammonia). In addition, the company has a long history of making accretive strategic acquisitions. It has made several deals over the past five years, including Enable Midstream (2021), Crestwood Equity Partners (2023), and WTG Midstream (2024). Given its financial strength, Energy Transfer has ample flexibility to continue making acquisitions over the next five years.

A bigger company with an even higher distribution

Energy Transfer will likely be a much bigger company in five years. It has several expansion projects under construction and more in development. It also has the financial flexibility to continue its strategy of consolidating the energy midstream sector.

That growth should give the MLP more fuel to increase its high-yielding distribution. The MLP aims to raise its payout by 3% to 5% per year.

Given what seems ahead, Energy Transfer will likely be a much bigger company with an even higher distribution payment in five years. That growth and income should give it the fuel to produce attractive total returns in the coming years, making it look like a compelling long-term investment opportunity.

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Matt DiLallo has positions in Energy Transfer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.