Industry Risks NGL Overbuild as Growth Slows
US NGL infrastructure has quietly transitioned from tight to overbuilt. While production continues to grow, the pace has moderated significantly following ‘Liberation Day’ and a softer WTI price environment.
Permian NGL takeaway capacity, once a constraint, now exceeds demand by a wide margin. Total pipeline capacity nears 5.5 MMb/d, and utilization slides back below 80% (see figure above from East Daley Analytics’ NGL Hub Model). This mirrors the dynamics seen in 2020-21, when too much pipe chased too few barrels during the downturn and led to downward pressure on transportation rates. It’s a scenario that is poised to return and persist through the end of the decade without more upstream investment.
At the same time, LPG export capacity along the Gulf Coast is rapidly expanding and will exceed 3.4 MMb/d by 2028. With major players like Enterprise (EPD), Energy Transfer (ET) and Targa Resources (TRGP) bringing new dock and refrigeration capabilities online, PADD 3 export capacity has grown from constrained to a surplus. Utilization is flattening even as global demand rises, underscoring a structurally overbuilt system.
In this environment, the path to margin protection lies in full-chain integration. Operators who control the barrel from the wellhead to water stand to capture the most value, potentially $11/bbl, by keeping volumes on their assets. EPD, ET and TRGP are well positioned here, while players like ONEOK (OKE) and MPLX, lacking full-chain integration, are increasingly exposed (OKE and MPLX are pursuing the Texas City Logistics joint venture to join the integrated players). The result will be a more competitive fight for barrels at the wellhead, where East Daley expects to see more loss-leader behavior: midstreamers discounting tariffs upstream to secure volumes they can monetize downstream.
This overbuild will force a commercial reckoning across the sector. Tariff compression is likely to accelerate as contracts roll over and expose pipelines to lower rate resets, and asset utilization becomes a key battleground.
See the NGL Hub Model for more information. As barrels become stickier, EDA expects to see a growing divide between players with integrated value chains and those with standalone transport assets. Contract structures may evolve to favor bundled services, and producers may lean toward counterparties who offer security of flow to docks. In short, infrastructure alone is no longer a differentiator: alignment across the chain is now the only way to win. – Julian Renton Tickers: EPD, ET, MPLX, OKE, TRGP.
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