Energy Transfer's 2026 Growth Plan: Assessing Scalability Within the $150B Midstream TAM

Energy Transfer is making a decisive, multi-billion dollar bet on the durability of U.S. natural gas demand. The company's 2026 plan centers on a growth capital investment of $5.0 billion to $5.5 billion, a significant step up from last year's spending. This isn't just incremental maintenance; it's a strategic allocation to enhance its natural gas network, explicitly targeting the accelerating demand from power generation and data centers in Texas. The thesis is straightforward: by scaling its infrastructure now, ET aims to capture a larger share of an expanding market.

This aggressive capital plan arrives after a period of deceleration. In 2025, the company's adjusted EBITDA growth slowed to less than 4%, a notable drop from the 10% compound annual earnings growth rate delivered from 2020 to 2024. That slowdown was driven by challenging market conditions and fewer project completions. The 2026 budget signals a clear intent to reaccelerate. Management's initial outlook calls for consolidated adjusted EBITDA of $17.3 to $17.7 billion this year, implying growth of 7.5% to 9.9%-a return to more robust expansion.

The scalability of this growth hinges on the strength and diversification of the demand drivers. ET is positioning its nationwide network to serve multiple growth engines simultaneously: upstream production from the Permian, LNG and NGL export capacity on the Gulf Coast, and the massive new power needs of AI-driven data centers. This alignment with secular trends-from the energy transition to digital infrastructure-aims to create a durable earnings base. The company's reaffirmed long-term distribution growth target of 3% to 5% provides a floor, but the real investment case is built on the potential for the business to scale faster than that, fueled by this capital commitment and the underlying market expansion.

Market Scalability and Competitive Positioning

Energy Transfer's growth plan is built on a foundation of a massive and expanding market. The U.S. oil and gas midstream sector represents a total addressable market of approximately $150 billion annually, driven by the nation's extensive pipeline and storage network. This market is projected to grow at a steady 5.0% compound annual rate through 2032. For a company focused on scaling, this provides a durable, secular backdrop. The real opportunity, however, lies in capturing growth within this market, particularly in high-demand corridors.

ET's strategic positioning is clearest in its Desert Southwest expansion project. The company has recently upsized this key initiative, increasing the mainline pipeline diameter to meet surging regional demand. The project's capacity is now expected to reach up to 2.3 billion cubic feet per day, a significant boost to serve power generation and data center needs in Arizona and New Mexico. This isn't just incremental; it's a direct capital allocation to a specific, high-growth segment of the TAM. The project's estimated cost of up to $5.6 billion underscores the scale of the bet and the company's commitment to securing its position in this critical energy corridor.

Yet, the path to capturing this scalable growth is becoming more contested. The very demand drivers ET is targeting-data centers and power generation-are creating a bottleneck. As one analyst notes, 2026 is shaping up to be a more disciplined and more contested year for infrastructure development, defined by power and pipeline scarcity. This introduces tangible execution risks. With multiple projects competing for the same capital and regulatory approval, ET's ability to complete its Desert Southwest expansion on time and within budget, and to secure sufficient contracted capacity, will be under increased pressure. The competitive landscape for securing the most valuable, high-growth routes is tightening.

The bottom line is that ET's scalability thesis is sound in theory, aligned with a growing TAM. But the 2026 execution environment introduces a new layer of friction. The company must now navigate a market where demand is fierce and infrastructure supply is constrained, turning its capital plan into a race against both time and competitors.

Financial Impact and Distribution Sustainability

The financial impact of Energy Transfer's 2026 capital plan is clear in its earnings outlook. Management's initial target is for consolidated adjusted EBITDA of $17.3 to $17.7 billion this year. That implies a growth rate of roughly 7.5% to 9.9% from 2025, marking a decisive reacceleration from last year's sub-4% expansion. This projected growth is directly tied to the ramp-up of multiple new projects, from Permian processing plants to Texas data center pipelines, which are designed to convert the planned $5.0 to $5.5 billion in growth capital into higher cash flow.

This earnings growth is the fuel for the company's distribution policy. Energy Transfer has reaffirmed its long-term annual distribution growth target of 3% to 5%. The company's management believes it has "plenty of fuel" to support this commitment, citing its growing asset base and geographic diversity. For a yield-focused investor, this creates a clear setup: the aggressive capital investment is intended to drive earnings growth that comfortably exceeds the distribution growth target, providing a margin of safety and the potential for future distribution increases.

Yet, this sustainability is not guaranteed. The company operates in a sector where its earnings are directly determined by economic regulation. The rates pipelines can charge are set by regulators, which in turn shapes their profitability and valuation. This regulatory risk means that even with a strong capital plan, the actual return on investment depends on regulatory outcomes. It also requires exceptionally careful capital allocation; every dollar spent must be justified by a clear path to regulatory approval and a rate base that supports the desired returns. In a more contested 2026, where infrastructure scarcity is a theme, this regulatory layer adds another dimension of complexity to executing the growth plan and sustaining the distribution.

Catalysts, Risks, and What to Watch

The success of Energy Transfer's 2026 growth plan hinges on a handful of forward-looking events that will validate its scalability thesis. The primary catalysts are the execution and demand uptake for its major pipeline projects. Investors should watch the progress and contracted capacity sales for the Desert Southwest expansion project, which now aims for a capacity of up to 2.3 billion cubic feet per day. Similarly, the ramp-up of Gulf Coast projects like the Nederland Flexport NGL expansion and new natural gas pipelines serving data center facilities in Texas will be key indicators. Strong contracted demand for these new assets will signal that the company is successfully capturing the growth in its $150 billion TAM.

A primary risk to this growth narrative is intensifying regulatory and political scrutiny. As data center demand surges and infrastructure struggles to keep pace, the development of new energy projects is becoming a more contested arena. One analyst notes that 2026 is shaping up to be a more disciplined and more contested year for infrastructure development, with political scrutiny complicating AI-driven growth. This could slow permitting, increase costs, or even alter project scope, directly challenging ET's ability to execute its capital plan efficiently.

For investors, the most concrete metrics to monitor are quarterly EBITDA results against the company's $17.3 to $17.7 billion annual target. Consistent beats or clear acceleration toward the top end of that range would confirm the earnings ramp-up is on track. Equally important is the pace of contracted capacity sales for new projects. High take-rate from major utilities and data center operators would provide a tangible signal of underlying demand strength and reduce the risk of overcapacity. The bottom line is that 2026 will be a test of execution in a tighter market, where both project success and regulatory navigation will determine if the growth thesis holds.