Over the last three years, Tulsa-based ONEOK has grown into one of the largest midstream companies in the U.S. Hart Energy had a chance during CERAWeek in March to sit down with President and CEO Pierce Norton and discuss ONEOK’s expansion, including the recent JV deal with MPLX that created a “wellhead to water” NGL system from the Permian to the southeast Texas Gulf Coast.
This interview was edited for length and clarity.
Sandy Segrist: To start off with, what are you seeing here at CERA?
Pierce Norton: We have an all-encompassing goal when it comes to CERAWeek. We usually bring a contingent down of up-and-coming talent in the company and some other executives. It’s one place that we can get more done in a week because it’s where we see the people we need to see. We can listen to some important conversations. It’s just a great place to get the feel for what’s going on in the industry.
The biggest takeaway I’ve had, so far, is last year, there was discussion about AI. But when we met with AI data center companies, they were more interested in, “How can we use AI to help you?”
That’s flipped. Now they’re saying, “How can you help us?” And it’s because they need energy, and they all seem to be in a hurry for it, which the midstream part of the industry is not going to slow that part down. (Tech companies) could site these facilities in and around the existing production in the Permian, or in the Midcontinent, or in North Dakota or even the Marcellus. That’s going to be speed to market, in and around our existing assets.
The question mark is going to be, can they get the combined cycle engines to convert the natural gas to electricity?
SS: It looks like a lot of energy and midstream companies are focusing on onsite power.
PN: Some people refer to it as behind the meter, yeah, because you’re not having as much interaction with the utility and the transmission systems.
SS: Is that a new game for ONEOK?
PN: Well, we have always looked for opportunities to make interconnects with anybody wanting to generate electricity with natural gas. Before, it was power plants starting up because the power was needed for the oil production. Now it’s not only needed for the oil production, but it’s also needed for the AI data centers. That’s what we do, and that’s what we’ll continue to do. I think there are several tailwinds to the industry.
If you look at how many Tcf have been produced from 2007, which was the beginning of the shale revolution, the country was moving about 20 trillion cubic feet per year. Last year, we moved around 41 trillion cubic feet. Now, LNG is embedded in that, so the 14 BCF or so that we’re moving today started from basically zero in 2015, and there was a little bit in 2016 and then it started to ramp up from 2017 on.
If you look at that kind of growth, yes, there’s going to be more growth in LNG, yes, there’s going to be more growth in the AI data centers, but there will still be some conversions of coal-fired plants.
SS: Talking about the tailwinds to the gas industry: Everyone is talking about growth. AI, LNG …
PN: There’s one other piece of that, too, which is petrochemical growth. Not all of the gas, but a significant amount of this gas production increase is going to come with liquids, and that’s one of the reasons we decided to go ahead and build a dock. [Editor’s note: The dock is a 400,000 bbl/d LPG export terminal in Texas City, Texas. MPLX will build the facility, a key part of the companies’ JV announcement in February.]
When we looked at our forecast for propane, and we realized that we’re the number two fractionator capacity-wise in the U.S., and we were the only ones that didn’t have a dock.
We found a partner willing to go with us and build a world-scale dock, and that was [MPLX], so we’re able to build a 400,000-bbl/d world-scale dock facility as opposed to either one of us doing 200 (bbl/d), for which the economics would not have worked.
SS: Why the focus on NGLs for export?
PN: Our belief is that, if there’s any growth at all in propane demand in this country, domestically, it’s going to be small. All this propane that’s going to come with the movement of additional natural gas, it’s got to go somewhere. There are seven or so billion people in the world that don’t live like we do in the United States. One simple solution is “Let’s just start with how we cook.” The easiest way to do that is with propane, because you can transport the propane over on a ship, unload it, put it in canisters and then distribute it with trucks. That’s a lot easier than moving it around with pipelines…
SS: Is the demand for NGLs that strong or do we just have so much available?
PN: Demand is there because of ethane in the petrochemical business. You’ve got propane, which also is used in the petrochemical business, as well as to improve the standard of living in some countries. Then you’ve got the isobutane and normal butane, which actually is an LPG. People think, OK, that's a liquefied propane, but there's butane loaded on those ships as well. And then you’ve got your natural gasoline, which is pretty small in comparison to the gasoline from the crude oil that’s produced. That’s a new business that we’re in now—refined products—when we bought Magellan.
SS: When is the dock going into service?
PN: 2028, that’s going to be about a three-year project. We (ONEOK and MPLX) both got it approved by our boards, and it’s moving forward. (MPLX) will actually build the dock.
(The dock site) was the perfect place for us, because it’s only two miles from open water. You stay out of the congestion of the Houston Ship Channel. It’s a brownfield opportunity, which means that a lot of the infrastructure that you need to build one of these things is already there because of the Marathon refinery. And on top of that, of all the places we looked to connect our Mont Belvieu, Texas, facility, this was the shortest distance for us. Because it’s a short distance, you can upsize the pipe and get ready for an expansion in the future if you need it. It checked all the boxes for us: great partner, great location. I think you probably heard us say on the (fourth-quarter earnings) call “location, location, location,” and it’s true. That’s going to be a really good project for us.
SS: With all of the expansion plans for LNG and AI and otherwise, is there a possibility that there’s too much demand out there, even for the supply of natural gas available?
PN: Well, I think on the LNG side, if you’ll look, there are five LNG facilities that are in construction right now. All those together are around 9 Bcf/d of incremental capacity. The others are either being looked at – they’re not FID. There’s another nine that are being looked at, but that other nine actually (are) expansions on the existing ones. It gets us up to maybe that 14 Bcf/d or so number. But when you convert that to Tcf a year, it’s about 5 Tcf a year, so five divided by 41 (Tcf/y) is not insurmountable.
And frankly, what we do in this business—whether or not it’s turbines or electric generation plants or whatever—when there’s a bottleneck, people figure it out. That’s just part of the innovation that comes from this industry. Like I said before, it went from 20 Tcf/d to 41 Tcf/d from 2007 to 2024. That’s a decent period, 20 years, but still, that’s a heck of a feat.
SS: What has been ONEOK’s growth strategy?
PN: (ONEOK) alone, from 2017 until 2024, spent $10 billion on organic growth projects. Then on top of that, we spent another $25 billion doing acquisitions, but those are very intentional and strategic for us. Every one of those we initiated, somebody didn’t walk up to the door and say, “Hey, I’m here and I got my company for sale.” We went to them, and we were able to convince them that these companies together were far better than they were apart.
SS: Are there areas out there you’re targeting for growth?
PN: What we're interested in doing is getting more gas into what we call our Louisiana Intrastate Gas System. We acquired that through the EnLink acquisition and like to call that the last mile to the customer. It’s a really large pipe. It’s interconnected with some of the LNG plants down there already. We’re looking at those, we’re looking at ammonia plants along the Mississippi—there’s still some talk about hydrogen plants.
So that’s one of the areas we’re looking into, how do we get gas supply into that system, either from the Marcellus, the Haynesville, the Permian, the midcontinent, wherever it comes from?
SS: With the rapid growth of ONEOK, how has the company changed?
PN: What I’m most excited about is our employee base. In 2023, actually, September 24th of 2023, before the closing of the Magellan acquisition, we had 2,800 employees. Today, we have over 6,000, and so I'm excited to see what we found when we bought these assets. We knew that there were synergies and things that we could do commercially with them. We didn’t know how many because you don’t know until you get your employees together and they start talking.
I mean, we can look on a map and say, “This looks like something that ought to be doable,” but the people on the ground are the ones who really make that happen, and they have found more things to do than what we originally thought. That’s a really exciting part about where ONEOK is going.
We don’t need to do any more M&A for quite some time. We’re going to focus on integration, but at the same time … Here's the way I explain our M&A strategy: There’re two ways to go to the grocery store, with a list and without. If you go without one, I don’t know about you, but I do impulse buys. I’ll come home with Oreos and all kinds of stuff.
But because you have a list, the same thing works in M&A. You know what you’re looking for, and more than that, you know what you don’t need.
Because we have that list and continue to refine it, our M&A strategy will be intentional and the same thing we’ve done so far—not just react to what’s on the market. We’re looking for things that greatly enhance the competitive advantage of this company.
The difference is when you have somebody show up on your doorstep and say this is for sale, they'll tell you they're running the process, and you have to turn in your bid in 30 days. The Magellan negotiation took nine months to get done. So as long as you’re patient and you know what you’re looking for, we think that’s the right strategy for M&A.
SS: Last one: Could you give a hint as to what’s left on the M&A list?
PN: (Laughs) That’d be the one I probably won’t tell you.