Energy Transfer Subsidiary Initiates Open Season for Permian-Southwest Gas Expansion

Energy Transfer Advances Southwest Natural Gas Infrastructure with Desert Southwest Expansion

Energy Transfer LP's (NYSE: ET) subsidiary, Transwestern Pipeline Company LLC, has initiated a binding open season for its ambitious Desert Southwest Expansion Project. This strategic move underscores ongoing efforts to bolster natural gas takeaway capacity from the prolific Permian Basin, aiming to serve escalating demand across the U.S. Southwest region, particularly New Mexico and Arizona.

Project Details and Scope

The Desert Southwest Expansion is designed to transport a minimum of 1.5 billion cubic feet per day (Bcf/d) of natural gas from various receipt points within the Permian Basin. This significant capacity addition will be facilitated through a new 516-mile, 42-inch large-diameter pipeline, complemented by enhanced compression and metering facilities. The project's route is planned to traverse Texas, New Mexico, and Arizona, providing a crucial new long-haul natural gas corridor. Energy Transfer has secured sufficient binding commitments to proceed with the project, with the ongoing open season (running from September 26 to October 25, 2025) intended to determine the optimal final size and design, potentially allowing for expansion beyond the initial 1.5 Bcf/d based on shipper interest. The estimated capital investment for the project stands at $5.3 billion, inclusive of approximately $0.6 billion in Allowance for Funds Used During Construction (AFUDC), with the majority of the expenditure projected for 2027 and beyond. Subject to necessary regulatory approvals and permitting, the project is anticipated to commence service by the fourth quarter of 2029.

Addressing Critical Regional Demand and Market Dynamics

The impetus behind the Desert Southwest Expansion is the rapidly growing demand for natural gas in the Southwest. This surge is primarily driven by significant data center development, robust population growth, and the energy requirements of new industrial consumers. Utilities in the region, such as Arizona Public Service (APS) and Salt River Project (SRP), have already committed to firm capacity, signaling the critical need for new infrastructure. APS alone projects approximately $7.3 billion in gas purchases over 25 years linked to this project, underscoring the long-term nature of the demand. Existing interstate pipelines serving Arizona are reportedly fully subscribed, highlighting a structural supply deficit that the Desert Southwest Expansion is positioned to alleviate.

Furthermore, the project aims to address persistent takeaway constraints within the Permian Basin, which have historically pressured Waha natural gas prices. By providing additional egress for Permian shippers, the expansion could increase competition for molecules, potentially supporting higher Waha prices and providing greater market stability for producers. This initiative also represents a competitive move within the midstream sector, potentially sidelining alternative proposals, such as the Bullet Pipeline by Kinder Morgan (KMI).

Broader Context and Implications for Energy Transfer

The Desert Southwest Expansion aligns with Energy Transfer's broader strategy of enhancing its interstate network and capitalizing on robust demand for energy infrastructure. The company has demonstrated strong operational and financial performance, reporting record adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $15.5 billion in 2024, a 13% increase from the previous year. This growth was fueled by acquisitions and organic expansion projects that led to record volumes across various segments, including crude oil transportation, NGL fractionation, and natural gas transport.

East Daley Analytics has previously identified a growing supply shortage in the Southwest, projecting a regional imbalance of over 1.6 Bcf/d by year-end 2030, driven by data center development and the anticipated startup of ECA LNG on Mexico's Pacific coast. This expansion directly responds to such projections, positioning Transwestern as a critical conduit. The project also emphasizes domestic industrial benefits, prioritizing U.S. steel pipe manufacturers and projecting the utilization of up to 5,000 local and union workers during its construction phase.

Outlook and Future Considerations

The successful implementation of the Desert Southwest Expansion hinges on securing all necessary regulatory approvals and permits. The outcome of the binding open season will be crucial in determining the project's final design and potential for increased capacity, reflecting market interest. As Energy Transfer continues to pursue a significant backlog of expansion opportunities, including the Hugh Brinson Pipeline and the ninth NGL fractionator at its Mont Belvieu complex, the Desert Southwest Expansion represents a cornerstone of its long-term growth trajectory. The project's substantial capital investment and projected in-service date in 2029 underscore the multi-year commitment required to meet evolving energy demands and strengthen the company's market position within the dynamic natural gas sector. Investors will be closely monitoring regulatory developments and commercial commitments as the project progresses toward its anticipated completion.