Is Energy Transfer Stock a Buy Now?

With Donald Trump stepping into the presidency, an opportunity is on the horizon for the energy sector. Many expect more favorable policies to drive exploration and drilling within the United States, which could pave the way for expansion opportunities for oil and gas companies.

One area to watch is midstream energy stocks. These companies play a critical role in the energy supply chain, specializing in gathering, processing, transporting, storing, and exporting oil and gas. Midstream operators stand to gain from an uptick in production, and one midstream energy stock investors should consider today is Energy Transfer (NYSE: ET). Here's why.

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Natural gas production in the U.S. continues to climb

Energy Transfer is a powerhouse in the midstream sector, specializing in the transportation, storage, and terminal operations of vital energy commodities, including natural gas, crude oil, natural gas liquids (NGLs), and liquefied natural gas (LNG). The company boasts an extensive network of pipelines and storage facilities, ensuring efficient movement of natural gas from production sites directly to utilities, industrial clients, and other pipelines.

What sets Energy Transfer apart is that it is one of the largest integrated midstream operators in the United States, and recent trends have benefited it significantly. Since the 2010s, the U.S. has experienced an explosion in natural gas output, propelled by advancements in hydraulic fracturing (also referred to as fracking) and horizontal drilling -- techniques that have tapped into vast reserves of shale gas.

The U.S. is making significant strides in natural gas production, reaching 1,035 billion cubic meters in 2023, thanks to improved extraction techniques. Not only that, but many see natural gas as a bridge fuel to transition from higher-carbon sources like coal to more renewable sources such as wind, solar, and nuclear energy. Natural gas emits about 50% less carbon dioxide than coal.

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Energy Transfer has made significant moves to grow its footprint

With steady revenue streams generated from transportation fees and storage services, Energy Transfer is well-positioned to benefit from the increasing volumes of products flowing through its systems. The company has also made moves to boost its natural gas infrastructure footprint.

The company has reached a positive final investment decision for constructing the Hugh Brinson pipeline through central Texas. Previously known as the Warrior Pipeline, this infrastructure will link the Permian Basin to key markets and trading hubs, enhancing transportation capacity to satisfy the increasing demand for natural gas.

This project will be completed in two phases. In phase one, 200 miles of pipeline will be constructed, with a capacity of 1.5 billion cubic feet per day (Bcf/d). This part of the project is expected to be in service by the end of 2026. In phase two, the new pipeline's capacity would be increased to about 2.2 Bcf/d. The buildout will cost about $2.7 billion.

Image source: Getty Images.

In other news, Energy Transfer is making solid progress with its Lake Charles export facility in Louisiana. The company, which has spent years securing customers to commercialize this facility, entered into a 20-year LNG sale and purchase agreement with Chevron. As part of the agreement, Energy Transfer will supply Chevron with 2 million tonnes per annum (MTPA) of capacity.

Is Energy Transfer a buy today?

Demand for natural gas is growing, and Energy Transfer is well positioned to capitalize on this growth. The U.S. Energy Information Administration projects that natural gas demand in the U.S. will grow more than supply. In its forecast, the agency projects demand will rise by 1.4 Bcf/d while demand grows by 3.2 Bcf/d, primarily due to growing exports.

Investors must remember that Energy Transfer operates as a master limited partnership (MLP). This structure offers advantages to investors, including consistent cash flows and appealing distribution yields. However, it also comes with specific reporting requirements that could delay and complicate your taxes come tax season.

That said, Energy Transfer is one of the largest midstream operators in the U.S. and is priced quite reasonably compared to its peers. The MLP has also done a good job expanding its footprint, and a more favorable regulatory environment should bode well for it going forward -- making it a solid energy stock for investors to consider buying today.

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Courtney Carlsen has positions in Chevron. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.