Energy Transfer outlines $5.3B Desert Southwest pipeline project as company narrows 2025 EBITDA guidance

Earnings Call Insights: Energy Transfer LP (ET) Q2 2025

Management View

• Co-CEO Thomas E. Long announced, “For the second quarter of 2025, we generated adjusted EBITDA of $3.9 billion compared to $3.8 billion for the second quarter of 2024.” He highlighted record volumes across midstream gathering, crude transportation, NGL transportation, refined products terminal, and NGL export operations. Distributable cash flow attributable to partners was reported at approximately $2 billion.

• Long stated the company spent approximately $2 billion in the first six months of 2025 on organic growth capital, primarily in NGL and refined products, midstream, and intrastate segments.

• Long introduced the Desert Southwest pipeline project, explaining it as a $5.3 billion expansion of the Transwestern pipeline, including a 516-mile, 42-inch pipeline adding 1.5 Bcf per day of capacity from the Permian Basin to Phoenix, Arizona. The project is expected in service by Q4 2029, backed by long-term commitments with investment-grade counterparties.

• Updates were provided on other major projects: Hugh Brinson Pipeline Phase 1 (1.5 Bcf per day by Q4 2026), Phase 2 with 2.2 Bcf per day, and a $140 million Bethel storage facility expansion. Flexport NGL Export Expansion Project has entered ethane and propane service, aiming for 250,000 barrels per day of new export capacity at Nederland terminal by 2026.

• Long affirmed, “We now expect to be at or slightly below the lower end of our guidance range of $16.1 billion and $16.5 billion.” He attributed this to “weakness in the Bakken, slower recovery in the dry gas areas than we expected and a lack of normal volatility in our gas optimization business.”

• CFO Dylan A. Bramhall stated, “For midstream, adjusted EBITDA was $768 million compared to $693 million for the second quarter of 2024. The increase was primarily due to higher legacy volumes in the Permian Basin, which were up 10% as a result of processing plant upgrades and increased plant utilization as well as the addition of the WTG assets in July of 2024.”

Outlook

• Long maintained organic growth capital guidance at approximately $5 billion for 2025, including new projects, and projected mid-teen returns on the majority of growth projects.

• He projected the majority of upcoming earnings growth from Flexport, Permian processing, NGL transportation, and Hugh Brinson expansions, with ramp-up expected in 2026 and 2027.

• Management expects the Desert Southwest project to be fully contracted after the open season and indicated the possibility of expanding beyond 1.5 Bcf per day depending on demand.

• Guidance for 2025 adjusted EBITDA is now expected at or slightly below the lower end of the previous $16.1 billion to $16.5 billion range.

Financial Results

• Adjusted EBITDA for Q2 2025 was $3.9 billion. Segment-level highlights included:

• NGL and refined products adjusted EBITDA at $1 billion, midstream at $768 million, crude oil at $732 million, interstate natural gas at $470 million, and intrastate natural gas at $284 million.

• The company reported record processing volumes in the Permian Basin, reaching nearly 5 Bcf per day, and noted new records in Y-grade transportation throughput.

• DCF attributable to partners was approximately $2 billion for the quarter.

Q&A

• Theresa Chen, Barclays: Asked about commercialization of gas-to-power projects for data centers and project gating factors. Co-CEO Marshall S. McCrea detailed recent deals, noting, “These data centers have come out of nowhere. It’s a huge and enormously upside for companies like us that have big inch pipes all over the U.S.” He confirmed three deals signed in Texas and more in negotiation but refrained from giving timing.

• Chen: Sought details on the Desert Southwest project build multiple and commitments. McCrea responded, “We haven’t fully sold that out. We have zero concerns about selling out… we’re going to be in that mid-teens kind of worst case on the returns on this project.”

• Jeremy Tonet, JPMorgan: Asked about Lake Charles EPC process. McCrea said, “We’ve had our own expectations as we’re waiting kind of for the numbers that have come in, and they’re dead on to what we expected.”

• Tonet: Inquired about construction cost risk and tribal land. McCrea stated, “We expect to have zero right of way across travel lands… very confident that we will meet or come in under the cost that we are estimating at this time.”

• Keith Stanley, Wolfe Research: Questioned competitive advantage for Desert Southwest. McCrea cited patience, asset synergies, and customer focus as key factors.

• Jean Ann Salisbury, BofA Securities: Asked about 2025 fundamentals and Bakken weakness. Bramhall acknowledged lower-than-expected volumes and catch-up needed in the back half of the year.

• Salisbury: Queried on NGL pipeline competition and Lone Star offsetting volume loss. McCrea explained new project expansions and aggressive contracting efforts.

• Other analysts explored EBITDA contributions from AI power projects, growth capital allocation, and NGL pipeline incremental growth.

Sentiment Analysis

• Analysts maintained a constructive but probing tone, often seeking clarification on commercialization timelines, project returns, and volume outlooks. There were repeated questions on project timing and risk management, reflecting caution on guidance and underlying volumes.

• Management’s tone remained positive, with statements like “we are confident” and expressions of excitement about future opportunities. However, there was some caution in prepared remarks regarding guidance, and more detailed explanations were given during Q&A when pressed on project specifics and operational headwinds.

• Compared to the previous quarter, sentiment shifted slightly more cautious regarding near-term volume and earnings growth, with both analysts and management focusing more on execution risk and guidance precision.

Quarter-over-Quarter Comparison

• The previous quarter’s call maintained guidance at $16.1 billion to $16.5 billion, while current guidance now points to the lower end or just below it.

• Strategic focus has shifted toward large-scale gas infrastructure projects, particularly the $5.3 billion Desert Southwest pipeline, while continuing to push data center and power plant demand as a growth engine.

• Analysts’ focus evolved from general optimism about project ramps and export market demand to greater attention on specific volume risks and timing of project contributions.

• Management’s confidence in long-term growth remains, but the tone is more measured regarding immediate returns and guidance, reflecting operational challenges.

Risks and Concerns

• Management cited “weakness in the Bakken, slower recovery in the dry gas areas than we expected and a lack of normal volatility in our gas optimization business” as drivers for lower guidance.

• Analysts raised concerns about commercialization timelines for new data center projects, potential NGL pipeline competition, and the impact of recent export market disruptions.

• The company emphasized ongoing negotiations and risk mitigation in project execution, right-of-way, and cost management.

Final Takeaway

Energy Transfer’s Q2 2025 call showcased a robust backlog of large-scale gas infrastructure projects, headlined by the $5.3 billion Desert Southwest pipeline. While the company achieved record volumes in several segments and continues to invest aggressively in organic growth, management now expects 2025 earnings at or slightly below the lower end of previous guidance due to Bakken weakness and slower dry gas recovery. Project execution, commercialization of new demand opportunities from data centers and power, and the timing of earnings ramp from major projects will be critical areas for investors to monitor going forward.

Read the full Earnings Call Transcript