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3 Pipeline Stocks to Gain in '24 Amid Industry Consolidation
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In 2023, the oil and gas industry has experienced a significant shift, marked by a massive $250-billion acquisition spree. The movement was primarily driven by the post-pandemic economic recovery and high stock prices, allowing companies to acquire low-cost reserves, and prepare for future industry turbulences and expected consolidation.
Shift in Pipeline Companies’ Prospects
Some energy giants made notable acquisitions, with a major focus on the Permian Basin, the largest U.S. shale oilfield. More consolidation deals in the energy industry are likely in the next two years. This trend is affecting not only oil producers but also oilfield service companies and pipeline operators. With fewer customers, the companies may have more control over prices, possibly reducing profits for service companies.
Pipeline operators are facing a changing industry landscape, marked by fewer approvals for new pipelines. While expansions to existing lines offer some relief, estimates indicate that by mid-2025, the pipeline capacity from the Permian Basin will be 90% occupied.
With the approval rate for new pipelines declining, the demand for existing pipeline infrastructure is likely to rise. This scenario could result in steadier and possibly increased revenue streams for operators who manage these existing pipelines.
As the capacity tightens (exemplified by the expected 90% utilization in the Permian Basin by mid-2025), pipeline operators may find themselves with greater leverage in pricing. This enhanced pricing power could lead to higher profits for each unit of oil or gas transported.
Kinder Morgan has been actively involved in expanding its natural gas pipeline capacity in the Permian Basin. In recent developments, KMI increased the capacity of its Permian Highway Pipeline by an additional 550 million cubic feet per day using compression techniques.
The expansion of the Permian Highway Pipeline is part of Kinder Morgan’s response to the rising demand for natural gas, especially with the latest development of several LNG processing plants along the U.S. Gulf Coast. The expansion was necessary to ease transportation constraints from the Permian Basin and enhance gas deliveries from the Waha area to the Gulf Coast markets.
In 2023, MPLX has significantly grown its presence in the Permian Basin through the expansion of the Whistler pipeline. This upgrade boosted the pipeline's capacity from 2 billion cubic feet per day to 2.5 billion.
Additionally, MPLX is advancing the Agua Dulce Corpus Christi Pipeline lateral, which is anticipated to be operational by the third quarter of 2024. These developments underscore the company's strategy to improve its infrastructure in the Permian Basin, aligning with the escalating need for natural gas and crude oil transport and processing in the area.
Enterprise Products Partners has made notable advancements in the Permian Basin in 2023, particularly in the Midland Basin. They have started building the Orion natural gas processing plant, their eighth in the area, with an expected operational date in the second half of 2025 and a capacity of more than 300 MMcf/d.
Concurrently, the Leonidas plant, another facility with a similar capacity, is on track to begin operations in the first quarter of 2024. These developments will elevate Enterprise Products Partners’ total natural gas processing capacity in the Midland Basin to 1.9 Bcf/d, highlighting their dedication to expanding and improving their midstream services in the Permian Basin.
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3 Pipeline Stocks to Gain in '24 Amid Industry Consolidation
In 2023, the oil and gas industry has experienced a significant shift, marked by a massive $250-billion acquisition spree. The movement was primarily driven by the post-pandemic economic recovery and high stock prices, allowing companies to acquire low-cost reserves, and prepare for future industry turbulences and expected consolidation.
Shift in Pipeline Companies’ Prospects
Some energy giants made notable acquisitions, with a major focus on the Permian Basin, the largest U.S. shale oilfield. More consolidation deals in the energy industry are likely in the next two years. This trend is affecting not only oil producers but also oilfield service companies and pipeline operators. With fewer customers, the companies may have more control over prices, possibly reducing profits for service companies.
Pipeline operators are facing a changing industry landscape, marked by fewer approvals for new pipelines. While expansions to existing lines offer some relief, estimates indicate that by mid-2025, the pipeline capacity from the Permian Basin will be 90% occupied.
With the approval rate for new pipelines declining, the demand for existing pipeline infrastructure is likely to rise. This scenario could result in steadier and possibly increased revenue streams for operators who manage these existing pipelines.
As the capacity tightens (exemplified by the expected 90% utilization in the Permian Basin by mid-2025), pipeline operators may find themselves with greater leverage in pricing. This enhanced pricing power could lead to higher profits for each unit of oil or gas transported.
3 Permian Pipeline Stocks Poised to Benefit
Kinder Morgan (KMI - Free Report) , MPLX LP (MPLX - Free Report) and Enterprise Products Partners L.P. (EPD - Free Report) have solid midstream businesses in the Permian Basin — the most prolific oil and gas resource in the United States. These companies, currently carrying a Zacks Rank #3 (Hold), are expected to experience a positive shift in 2024. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Kinder Morgan has been actively involved in expanding its natural gas pipeline capacity in the Permian Basin. In recent developments, KMI increased the capacity of its Permian Highway Pipeline by an additional 550 million cubic feet per day using compression techniques.
The expansion of the Permian Highway Pipeline is part of Kinder Morgan’s response to the rising demand for natural gas, especially with the latest development of several LNG processing plants along the U.S. Gulf Coast. The expansion was necessary to ease transportation constraints from the Permian Basin and enhance gas deliveries from the Waha area to the Gulf Coast markets.
In 2023, MPLX has significantly grown its presence in the Permian Basin through the expansion of the Whistler pipeline. This upgrade boosted the pipeline's capacity from 2 billion cubic feet per day to 2.5 billion.
Additionally, MPLX is advancing the Agua Dulce Corpus Christi Pipeline lateral, which is anticipated to be operational by the third quarter of 2024. These developments underscore the company's strategy to improve its infrastructure in the Permian Basin, aligning with the escalating need for natural gas and crude oil transport and processing in the area.
Enterprise Products Partners has made notable advancements in the Permian Basin in 2023, particularly in the Midland Basin. They have started building the Orion natural gas processing plant, their eighth in the area, with an expected operational date in the second half of 2025 and a capacity of more than 300 MMcf/d.
Concurrently, the Leonidas plant, another facility with a similar capacity, is on track to begin operations in the first quarter of 2024. These developments will elevate Enterprise Products Partners’ total natural gas processing capacity in the Midland Basin to 1.9 Bcf/d, highlighting their dedication to expanding and improving their midstream services in the Permian Basin.