Analysis-US pipeline firms wrestle buy/build conundrum as Trump pushes energy expansion

Despite President Trump's pro-energy policies, many U.S. oil and gas pipeline operators are favoring acquisitions over new construction due to factors such as tariffs, labor shortages, and low oil prices, which increase project costs and uncertainty; Q1 2025 saw the highest number of midstream deals since late 2021 as companies like Targa Resources and MPLX bought back stakes in joint ventures, though some firms like Energy Transfer and Tallgrass Energy are still pursuing select new pipeline projects where economics remain favorable.

Analysis

U.S. oil and gas pipeline operators are increasingly favoring acquisitions over new construction, despite President Trump’s pro-energy policies, due to a confluence of factors including higher costs from U.S. tariffs, labor shortages, low oil prices, and the persistent risk of legal and regulatory delays. This trend is evidenced by the 15 U.S. midstream deals in Q1 2025, the highest quarterly number since late 2021, with notable transactions such as Targa Resources' (TRGP) $1.8 billion buyback of preferred equity in its Targa Badlands system and MPLX's $715 million acquisition of a 55% interest in the BANGL pipeline. Private equity firms are contributing to this M&A activity by selling developed assets like Northwind Midstream. While the industry appreciates the supportive rhetoric, tariffs on materials like steel directly inflate new project costs, and weak global crude prices have made pipeline firms cautious, as exemplified by the Mountain Valley Pipeline which took six years to build and more than doubled its initial $3.5 billion budget. Consequently, some companies like Kinder Morgan (KMI) prefer smaller-scale expansions, and DT Midstream (DTM) is observing producer reactions to commodity prices before committing to new plans. However, select operators such as Energy Transfer (ET), with its $2.7 billion Hugh Brinson pipeline, and Williams Companies (WMB), with its $1.6 billion Socrates project, are proceeding with new builds, citing favorable project-specific economics and, in WMB's case, a more supportive regulatory environment for infrastructure development.

Key Decisions for Investors

• Investors should differentiate between midstream operators focusing on M&A for potentially de-risked expansion, such as Targa Resources and MPLX, and those pursuing greenfield projects like Energy Transfer and Williams Companies, which may offer higher returns but entail greater execution and regulatory risk.
• Carefully monitor the impact of U.S. tariffs, skilled labor availability, and global energy price trends, as these factors significantly influence the economic viability of new pipeline construction versus acquisition strategies for companies across the sector.
• Evaluate midstream companies based on their capital allocation discipline, balance sheet strength, and demonstrated ability to navigate the complex operating environment, whether through successful project execution or strategically sound acquisitions.