In September 2024, ONEOK announced its strategic acquisition of a controlling interest in EnLink from Global Infrastructure Partners (GIP) along with its plans to acquire all EnLink’s publicly held interest. This acquisition is a significant strategic step for ONEOK, positioning it to not only gain a foothold in the prolific G&P play in the Permian but also takes it a step closer to full midstream value chain vertical integration in natural gas liquids (NGL) space. With one piece of the value chain puzzle remaining, ONEOK has positioned itself to become a part of the “NGL Club” joining their brethren Energy Transfer, Enterprise, Targa and P66.

Importance of Vertical Integration for NGLs

There seems to be little doubt that vertically integrated midstream companies with scale in the NGL space that own and operate gathering systems, interconnected processing plants, Y-grade and residue pipelines, downstream large fractionation, NGL storage and NGL export dock, have a significant competitive edge over smaller and less integrated companies. It allows them to control the entire value chain, from “wellhead to ship” which is critical when market is competitive. Specifically:

1. By gaining control of NGLs via the G&P footprint, vertically integrated midstream companies can ensure maximum use of their assets by ensuring product can flow through multiple assets, filling capacity and generating revenue at each step.
2. Ability of vertically integrated companies to accept a lower rate (than market) for one piece of the value chain only to make up margins in other value chain components is a huge competitive advantage over non-vertically integrated companies. An example is offering discounted G&P fees in return for ring-fencing the NGLs to feed downstream pipes, fractionation and export terminals.
3. Allows for better control of costs thus improving profitability.

ONEOK’s acquisition of EnLink

It appears that ONEOK’s playbook is trying to replicate what other fully integrated midstream companies have achieved over the past few years. As shown in the figure below, ONEOK is one step away from achieving full vertical integration, which happens to be a NGL export terminal.

ONEOK and EnLink Combined Asset Coverage

Gas Processing: ONEOK’s existing focus on the Bakken and Mid-continent areas will be greatly enhanced by the acquisition of EnLink’s assets. The most important additions will be in Permian Basin where they will have a major presence. ONEOK will also more than double their processing capacity in Oklahoma and gain processing in Barnett and Louisiana, thereby strengthening its vertical value chains for NGL supplies targeting U.S. Gulf Coast markets. 

Permian & Gulf Coast NGL Pipelines: ONEOK has the West Texas LPG pipeline which transports NGLs from the Permian basin to Gulf Coast Mont Belvieu fractionation.  Currently at 365 MBPD, this pipeline is being looped to double its capacity to 740 MBPD by 1Q 2025. The inclusion of EnLink’s Cajun-Sibon pipeline will add connectivity between the Mont Belvieu area and the acquired Louisiana fractionation capacity.  Both the Cajun-Sibon pipeline and Louisiana fractionation are fully utilized providing ONEOK with immediate and consistent earnings and cash flow. 

Fractionation and NGL Storage: The acquisition will add fractionation capacity for ONEOK in Louisiana where they previously had no presence. ONEOK will also own 38.75% share in the Gulf Coast Fractionator, strengthening ONEOK’s current position in Mont Belvieu fractionation. Additionally, the acquisition adds minor fractionation capacity in the Barnett. While ONEOK had substantial storage at Belvieu (~17 Million barrels), EnLink acquisition will add 7 MMBbls storage at the Napoleonville facility in Louisiana, adding flexibility in NGL portfolio.

NGL Export Capacity: As illuded to before, ONEOK lacks NGLs export capacity (ethane and LPG) which leaves them just short of achieving full vertical integration.  They did acquire a small amount of LPG export capacity from EnLink at Riverside, Louisiana, but in the larger scheme of things that is negligible. For context, the total U.S. existing ethane export capacity is ~490 MBPD, while the total U.S. existing LPG export capacity stands at 2,400 MBPD; none of which is owned/operated by ONEOK.

Conclusion:

ONEOK acquisition is well aligned with fundamental need and timing for incremental capacity along the NGL value chain. While EnLink acquisition provides scale and entry into the prolific Permian G&P space for ONEOK, development of a world scale NGLs export terminal will be essential to ensure improved NGL value chain margins and higher market share. “Well to Ship” asset connectivity will be required if ONEOK has to achieve its NGL growth ambitions.

-Sue Neville

If you are interested in a deeper dive into U.S. NGLs outlook and company level analysis, please contact us at info@enkonenergy.com. We encourage you to subscribe to our articles to get weekly articles via email.

Enkon Energy Advisors is a boutique consulting firm specializing in oil & gas, and energy transition since 2012. We bring deep expertise in a range of markets including natural gas, NGLs, Oil, LNG, and Energy Transition where we provide commercial and market advisory to investors, energy companies, and project developers with consulting services, subscription reports, and analytics, with the goal of delivering commercially actionable outcomes to our client.