Energy Transfer’s Q4 Is Strong

Energy Transfer ET reported a strong fourth quarter, primarily benefiting from wide natural gas and natural gas liquids marketing spreads. Full-year EBITDA of $13 billion generally matches our expectations, while 2022 EBITDA guidance is a midpoint of $12 billion (factoring in the loss of the one-time winter storm Uri benefits in 2021), modestly higher than $11.7 billion forecast, mainly due to, in our view, Energy Transfer taking advantage of strong demand for natural gas liquids and locking in wide marketing spreads. As an example, Energy Transfer expects ethane export volumes out of its Nederland terminal to increase to 40 million barrels in 2022 and 60 million barrels in 2023 from 26 million barrels in 2021. Natural gas liquids volumes on Energy Transfer’s pipelines also increased to a record 1.9 million barrels per day in 2021 from 1.4 million barrels per day in 2020. As we think the wide gas and natural gas liquids spreads will not last over the medium to long term, we don’t expect to increase our fair value estimate nor change our no-moat rating.

While we think the marketing contributions are more temporary, Energy Transfer is already moving aggressively, as it typically does, with new investments. On the plus side, 2022 growth capital spending is being guided toward a midpoint of $1.75 billion, and factoring in maintenance spend of $640 million, total about $2.39 billion, well ahead of our $1.5 billion estimate. Energy Transfer last quarter guided to just $600 million in 2022 growth capital spending in the third quarter of 2021. Part of the increase is due to $200 million of planned 2021 capital spending that slipped into 2022, as well as Enable-related spending (the deal closed in December 2021) which is mainly the Gulf Run pipeline, but also several smaller short-cycle projects that optimize the existing system at healthy returns and will be in service in under 12 months.

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