February 22, 2024 [Microsoft Start]- Energy Transfer (NYSE: ET) has grown significantly over the years. The master limited partnership (MLP) has invested billions of dollars to build and buy energy midstream assets. These investments have given it the fuel to grow its earnings and high-yielding distribution.
The MLP expects to continue growing in the future, even as the global economy transitions to lower carbon fuels. That energy transition is leading the MLP to seek new sources of future growth. One opportunity it’s currently evaluating is blue ammonia. Here’s a look at how that lower carbon fuel could give Energy Transfer another future growth driver.
What is blue ammonia?
Ammonia is a fuel with a range of potential applications. The versatile fuel has lots of uses, including in transportation, power generation, and industrial production of things like cement and fertilizer. Companies make it from nitrogen and blue hydrogen produced from natural gas.
The blue designation for ammonia and hydrogen means that while the production process used to make these fuels emits carbon dioxide, the greenhouse gas subsequently gets captured and stored. Using carbon capture and sequestration to significantly reduce the emissions of blue ammonia and blue hydrogen makes them lower carbon fuels.
Evaluating blue ammonia opportunities
Energy Transfer’s co-CEO Tom Long discussed the blue ammonia opportunities it’s evaluating during the fourth-quarter conference call. Long stated:
On the blue ammonia front, we are working with several companies to evaluate the feasibility of ammonia projects. That would include the opportunity to supply and transport natural gas to the ammonia facility and to transport CO2 to third-party sequestration sites. We’re also looking at opportunities to provide other infrastructure services, including transport and sequestration, ammonia storage, and deepwater marine loading on property near our Lake Charles and Nederland facilities.
As Long points out, the midstream company is taking a multi-pronged approach to capturing blue ammonia growth opportunities. It’s evaluating several potential projects with partners. The projects include using its extensive pipeline network to transport natural gas to the production facility and transport the captured carbon dioxide associated with the production to sequestration hubs. It’s also reviewing opportunities to utilize its existing export facilities to ship the blue ammonia to overseas markets.
That approach would enable the company to leverage its existing infrastructure to support the production of lower-carbon blue ammonia. It could repurpose existing assets (like using existing pipelines to transport carbon dioxide and blue ammonia) and build new ones to produce, transport, and store the lower carbon fuel.
Energy Transfer could take a similar approach as Enbridge (NYSE: ENB). Last year, the pipeline and utility giant partnered with an affiliate of Yara International to develop a low-carbon blue ammonia project at the Enbridge Ingleside Energy Center. The partners would invest up to $2.9 billion to build a blue ammonia production plant at Enbridge’s existing oil storage and export facility near Corpus Christi, Texas. They would produce the blue ammonia from natural gas (shipped in by Enbridge’s pipelines). Meanwhile, the plant would aim to capture 95% of the associated carbon dioxide emissions, which Enbridge would transport to a nearby carbon storage hub under development by Occidental Petroleum. Yara would export the blue ammonia out of Enbridge’s terminal.
Blue ammonia is one of several lower carbon opportunities Energy Transfer is pursuing. It’s also evaluating unrelated carbon dioxide projects that would use existing or new pipelines to transport the greenhouse gas from emissions sites to sequestration hubs. It also has a growing renewable natural gas business and has supported solar energy projects to power its existing operations. Future lower-carbon energy projects could increase the utilization of the company’s existing assets while providing new growth opportunities, which would grow its cash flow.
The potential to add a new fuel source
Blue ammonia could help Energy Transfer to add more fuel to its growth engine. The midstream company could utilize existing assets and build new ones to support the growing demand for the low carbon fuel. Those factors would help grow its cash flow, giving the MLP more money to increase its already lucrative 8.7%-yielding distribution. That makes its evaluation of blue ammonia opportunities an exciting development for investors to watch.
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