The price of oil was $106.50 a barrel when Dallas-based Energy Transfer Partners announced plans last June to build a 1,134-mile pipeline that would pump crude from North Dakota’s Bakken shale through an Illinois terminal to the Gulf Coast.
The price had dropped to $69 when the 100 Grannies activist group protested the pipeline at a Dec. 1 meeting in Fort Madison, Iowa. By March 12, when a coalition of South Dakota business and labor interests declared support for the project, oil was at $47.05 and still hadn’t hit bottom.
Nobody was happier about the crash than Energy Transfer Chairman and CEO Kelcy Warren, Bloomberg Markets magazine reports in its June issue. “We got so lucky,” he says, flashing a giddy smile during an interview in his capacious Dallas office. “All of our competition vaporized.”
Enterprise Products Partners, a giant rival of Energy Transfer, shelved plans to build its own Bakken line as producers grew skittish about future drilling and shied away from commitments to pay for more pipeline capacity. Warren stabs a finger at North Dakota on a U.S. map. “I don’t think there’s ever going to be another pipeline built to the Gulf Coast out of there,” he says. Unless the star-crossed Keystone XL pipeline wins approval, “we’re all by ourselves.”
Warren, a solidly built 59-year-old with a head of cottony white hair, is among America’s new shale tycoons who’ve amassed fortunes by tapping gas and oil deposits in dense rock that’s being cracked open by horizontal drilling and hydraulic fracturing. His company does no divining or drilling. Rather, it takes the stuff others pull from underground and moves it from one place to another, chilling, boiling, pressurizing, and processing it until it’s worth more than when it burst from the wellhead.
The fracking revolution that has generated a glut of oil and gas has been a boon for Warren and his cohorts in the pipeline industry. They’re remapping America’s 2.5 million-mile (4 million-kilometer) pipeline network, reversing the historical south-to-north flow that carried crude imports and refinery products away from the Gulf Coast. Oil gushing out of North Dakota and gas flowing from Ohio and Pennsylvania have created new and more-complex transportation needs.
More than 40 pipeline projects are in the works in Ohio’s Utica and Pennsylvania’s Marcellus fields alone, says Rick Smead, who specializes in natural gas markets at Houston-based RBN Energy. The U.S. could need more than $600 billion in new oil and gas infrastructure by 2035, the industry-funded Interstate Natural Gas Association of America Foundation estimates.
Some pipeline companies are feeling pain, thanks to the oil bust. A Standard & Poor’s pipeline industry index fell 18 percent from July, when oil prices started to plunge, through mid-March, before it began to recover. A prolonged shale bust could begin to test Energy Transfer, not just its rivals. If oil prices stay low, Smead says, demand for new infrastructure will tail off. A growth slowdown that curtails investment could start a vicious cycle, he says. Partnerships like Energy Transfer need to be careful where they invest—and need to not run out of places to invest.
Warren voices no such worries. He says the price shock will weed out weak players so that well-capitalized and diversified outfits—such as Energy Transfer, which accrued $3.2 billion in cash last year to distribute to its investors—can snatch them up cheap and put their assets to better use. “Like Mother Nature, the energy industry purges itself now and then,” says Warren. “I don’t wish any negatives on my friends, but the most wealth I’ve ever made is during the dark times.”
The Bloomberg Billionaires Index estimates Warren’s net worth at $7.3 billion. The polished mahogany desk in his office is draped with maps of bountiful natural gas and oil fields that Energy Transfer now serves after a five-year, $40 billion acquisition binge. Across the room stands a chrome sculpture of a 42-inches-in-diameter circle meant to signify a pipeline. It celebrates a risky but lucrative decision Warren made to build an unusually large connector pipeline from his home state’s Barnett field, America’s first major shale play, to Louisiana.