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ONEOK to Expand Capacity by 1.7 Bcf/d in Permian & Oklahoma

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ONEOK Inc. OKE has decided to increase its natural gas takeaway capacity in the country’s two most prolific natural gas production areas, namely the Permian Basin and Oklahoma. The new pipeline infrastructure will increase the natural gas transportation capacity by 1.7 billion cubic feet per day (Bcf/d).

The expansion projects are all backed by multiple firm transportation commitments. Demand for the Gas Distribution services is growing across the United States due to increasing consumption of clean-burning natural gas. No doubt, increasing shale production calls for expansion and addition to the existing pipeline infrastructure.

Pipeline Capacity to Expand

Per a Pipeline and Hazardous Materials Safety Administration release, at present 2.21 million natural gas pipelines are in operation in the United States compared with 1.47 million miles in operation three decades ago. The natural gas pipelines are going to expand further in the near future.

According to a release from PointLogic Energy, total natural gas consumption in the Lower 48 states averaged 87.4 Bcf/d during the first half of 2018, which is 8.4 Bcf/d or 11% greater than the first half of 2017. Undoubtedly, greater usage of natural gas will call for expansion of pipeline infrastructure and storage capacity.

Hence, the decision of ONEOK to expand its pipeline is well timed and will allow it to reap benefits from high production volumes. These projects when completed will increase adjusted EBITDA of the company by nearly $40 million.

Solid Outlook for Gas Distribution

The Gas Distribution companies enjoy the benefits of long-term contracts from the producers to transport natural gas or NGLs, which give a clear visibility of earnings. In addition, rising demand and higher production of natural gas will lead to a steady increase in the demand for pipeline services, thereby improving the prospects of pipeline operators. The increasing export of hydrocarbon gas liquids also has a positive impact on demand for gas distribution.

Both the existing and new gas distribution pipelines will create a link between natural gas production areas and storage facilities with consumers and export facilities.    

Price Movement

In a year’s time, ONEOK has gained 34.1%, outperforming its industry’s rally of 11.2%.

Zacks Rank & Key Picks

ONEOK currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry are Atmos Energy Corporation ATO, Northwest Natural Gas Company NWN and Chesapeake Utilities Corporation CPK, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Atmos Energy’ EPS estimate for 2018 has moved up 0.8% in the past 60 days to $3.99. In the past 12 months, shares of this company have gained 9.0%.

Northwest Natural Gas Company’ EPS estimate has moved 0.9% higher for the current year to $2.23 over the past 60 days. The stock has gained 8.1% over the past year.

Chesapeake Utilities’ EPS estimate has been revised 1.4% upward for the current year to $3.49 over the past 60 days. The stock has gained 6.8% over the past year.

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