EnLink Midstream: Right Place, Right Time, Right Size

DALLAS—A native of the Permian Basin with two decades of navigating the maze of North American midstream challenges, Jesse Arenivas is now reshaping the space.

Just shy of 20 years at Kinder Morgan, Arenivas in July 2022 took on the top job at EnLink Midstream, where he led a ground-breaking deal with Exxon Mobil in October. EnLink is repurposing half of the firm’s existing natural gas pipeline network to deliver CO₂ from the Mississippi River corridor in southeastern Louisiana to Exxon Mobil’s 125,000-acre CO₂ storage location under development in Vermilion Parish.

Arenivas learned the ropes of the midstream business and cultivated a niche expertise in CO₂ transportation during his time at Kinder Morgan. As president of both the CO₂ business and energy transition ventures group, he oversaw the workings of the largest transporter of CO₂ in North America, delivering approximately 1.3 Bcf/d for use in EOR projects.

EnLink’s transportation service agreement holds an ultimate available reserved capacity of up to 10 million metric tons per year (mtpy), with initial reserved capacity of 3.2 mtpy, beginning early 2025. It’s the first agreement of its kind in the U.S. Arenivas shared his vision for EnLink, the midstream sector and the energy industry with Hart Energy’s Deon Daugherty, editor-in-chief of Oil and Gas Investor, during a wide-ranging discussion at the firm’s downtown Dallas headquarters in July.

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Deon Daugherty: Does the nomenclature of ‘energy transition’ best describe the dynamics of the current cycle?

Jesse Arenivas: It’s more of an energy transformation. The industry is going to utilize multiple products rather than only hydrocarbons. You’re going to have bluer, greener products that emerge onto the market. Growth in hydrocarbons will continue for the next three decades, and the consensus is pretty well aligned on that.

We view this as a transformation to include hydrocarbons, hydrogen and other synthetic fuels, as well as other energy sources, such as wind and solar; the future is transforming into multiple options.

DD: What does that mean for the traditional hydrocarbon space?

JA: I think it’s an opportunity. You have the option now to invest in higher quality cash flows—those that are not dependent on commodity prices or drilling activity, and they don’t have a decline rate.

It’s also an opportunity to decarbonize the industrial sector. Obviously that benefits economic activity in that it facilitates growth in hydrocarbon and industrial uses. EnLink sees the energy transformation as a real opportunity to grow our base business—which today is 90% natural gas and NGLs—to a more diversified portfolio and a higher quality cash flow. It strengthens the company and it strengthens the industry.

The industry as a whole will have opportunities to invest in capture technology, capture equipment, transportation, sequestration and utilization.

The industry should look at this as an opportunity to continue to invest in fossil fuels and develop greener products by utilizing carbon capture. The world’s demand for blue products and green products facilitates growth in the industrial sector. It also facilitates growth in the hydrocarbon sector. So overall it is an opportunity to contribute to reduction in greenhouse gas emissions while maintaining our standards of living.

DD: In many ways, EnLink is a first mover as far as midstream companies go in handling carbon capture, technologies and integration. What was the impetus behind it? What interested EnLink in taking this risk?

JA: We did a lot of research ahead of it that quickly led us to focusing on Louisiana.

EnLink operates two of the four market systems for gas delivery in Louisiana. We had redundancy in our systems, and we had very large diameter pipe. So that presented the opportunity, and that’s where our innovation mindset came forward and we asked, ‘Can we move large quantities of CO₂ in our existing pipeline infrastructure?’

Historically, carbon has moved at a super critical dense phase of high-pressure pipelines. After all of the analysis, thorough engineering work, hydraulics studies and metallurgy studies, it became apparent that in short distances with large diameter pipe, you can move large quantities of CO₂ in existing natural gas pipelines. In short, EnLink is sitting in the perfect position due to what I call the ‘trifecta’: first, there is an existing large concentration of CO₂ emissions in the state of Louisiana—80 million metric tonnes per annum (mtpa) in the industrial Mississippi River corridor; secondly, this overlays existing, underutilized pipeline infrastructure that can be repurposed to move CO₂; and thirdly, there is nearby, high quality geologic sequestration sites. This trifecta provides the opportunity for EnLink to execute on our first mover advantage.

DD: Louisiana has recently filed with the U.S. Environmental Protection Agency for primacy of Class VI injection wells. Would that have any impact on EnLink’s plans?

JA: Absolutely. Primacy in Louisiana would remove an uncertainty around regulation and permitting timelines—and that uncertainty is a big one in the decision to go to FID for our customers’ projects. We believe Louisiana gaining primacy will accelerate the development of these projects, which is good for the industry, good for the economy and good for the state which has set its own CO₂ reduction goals.

DD: What would the impact be on the natural gas business in Louisiana when you complete the conversion to CO₂?

JA: EnLink has two of the four natural gas market systems, so that redundancy allows us to continue to service our existing industrial customers with natural gas. We see growth in the natural gas sector continuing, as well as growth in the LNG sector. EnLink is positioned to where we don’t have to cannibalize our natural gas business, and we will be able to grow both the industrial and the LNG markets while we capture the CO₂ opportunity.

DD: EnLink has a transportation deal with Exxon Mobil. What can you share about those steps and that project and how that’s coming along?

JA: We are in the execution phase, which includes permitting.

EnLink entered into an agreement to transport an initial volume of 3.2 mtpa with a reserved capacity up to 10 mtpa. We are well on our way with the project, which will be in service in 2025. Those are near-term, real cash flows in this space in less than 24 months from today. We’re very excited to be a first mover and are executing on that advantage. We anticipate that, over time, Exxon Mobil will fill the 10 mtpa in our contract.

We’re also very excited about EnLink’s multiple letters of intent with other highly regarded, high-quality credit companies such as ConocoPhillips, Oxy, Shell and Talos, and we’re in multiple discussions beyond those. We feel very good about positioning ourselves as the CO₂ transporter of choice in Louisiana. We’re not competing with any of these parties—the emitters or the sequesters. We are the transportation solution, so we will facilitate the transportation of CO₂ emissions to be permanently sequestered by one of those parties. We feel very good about being able to capture the lion’s share of the CO₂ transportation opportunity in Louisiana.

DD: In an industry that is as capital intensive as energy, does carbon capture have unique financial upside?

JA: Today in Louisiana, our emitter customers are focused on sequestration. Obviously, that’s the highest tax credit value due to the IRA. Also from an ESG perspective, the emitters are highly focused on reducing their emissions through permanent sequestration. Industrial facilities, like ammonia and fertilizer facilities, already separate their emissions as part of their existing processes. So then you’re just capturing, compressing, transporting and permanently sequestering the carbon. CCS is highly economic today because of that. The market will grow and expand the addressable market with post-combustion CCS, but I think there’s still a ways to go to make that economic. On top of that, there are various newer technologies being developed to utilize, rather than permanently sequester CO₂. We’re watching those technologies, but it’s clear that transportation will still be a big component of the value chain.

DD: Tell us about your CCUS projects in North Texas.

JA: We have two CCUS projects in North Texas. One—with our customer, BKV—will be operational late this year. For EnLink, the project with BKV is a great pilot to see where we can take this technology and this type of project to other areas where we operate.

Both North Texas projects also provide an added benefit of reducing EnLink’s own emissions. We’re on our way to reaching our 2030 target to reduce our Scope 1 CO₂e emissions intensity by 30% over 2020 levels. Overall, it is a value-added proposition for our customers and for our asset base in general.

DD: EnLink’s year-end and first-quarter earnings reports showed record-setting profit, and at this point, none of that includes profit from CCS. When you consider future profit growth, how will CCS contribute on top of your base business?

JA: Our base business is 90% natural gas and natural gas liquids, and it’s been very, very resilient in the temporarily negative gas macro environment the industry is in. Our largest segment, the Permian Basin, continues to grow exponentially over the last few quarters. Even our Oklahoma segment is going to have double digit growth year-over-year. Our North Texas assets have been very resilient, and in Louisiana, we’re seeing in our downstream markets growth in NGLs, propane and others due to the resiliency on the demand side there. We feel very good about growing our base business and that it will grow organically. Longer term, we are bullish on natural gas prices, which will lead to further investment and earnings growth in our basins, not only the Permian, but north Texas and Oklahoma, as well as our downstream business in LNG growth and in industrial demand growth in the Louisiana area.

But as you said, this carbon transportation business will be above and beyond that growth. We believe we can grow our carbon capture business to be about 25% of EnLink’s 2023 cash flow. That is very robust growth. We feel like these are very differentiated and higher quality cash flows because they are not dependent on commodity prices, they do not decline and they are growing.

As worldwide demand for cleaner energy continues to grow worldwide, we see the addressable market in the state of Louisiana as actually not just 80 mtpa, but 80 mtpa and growing. For example, CF Industries and Mitsui recently have announced a $2 billion investment in a blue ammonia facility in Louisiana. We feel very good about the growth we anticipate of our carbon business, especially as a company of our size, as this business will provide highly sought after cash flows and should add tremendous enterprise value to EnLink.

DD: Have these CCS projects had any impact on reversing the negative sentiment of generalist investors toward the oil and gas business?

JA: Yes; what we’re seeing is a return of the generalist’s interest in the space, at least in seeking a way to participate in energy security. The energy transformation sentiment is changing slowly to [recognize] that energy security is paramount. The affordability and the reliability of energy has taken center stage. So the growth in this space is now a lot more conducive for a generalist to be interested in the space.

I think the EnLink investment opportunity is unique because we have this carbon capture opportunity that we’re executing on today, which allows a generalist to participate in midstream in a differentiated way that gives them upside in the next several decades of the energy transformation.

DD: How do you view the role of CCS in U.S. energy security and independence?

JA: From an independence perspective, carbon capture and sequestration allows for a reduction in greenhouse gas emissions that are associated with the utilization of oil and gas production. It allows for the growth that is necessary to meet energy demand worldwide, enabling the production of more hydrocarbons without increasing the associated emissions.

We see this as a solution for growth in the oil and gas space, for growth in the industrial space, and ultimately, as a benefit not only to the [physical] environment, but also to the political environment worldwide as we’re able to supply our allies with cleaner, more reliable energy, ultimately creating a safer environment worldwide.

DD: Where does the midstream sector fit into the energy security equation?

JA: The midstream space is paramount to energy security, as it provides the ability to get the production to the end user. I believe today is the day for midstream to participate in a big way, both in energy security and in the push for lower greenhouse gas emissions.

Our role as the midstream industry is to facilitate the movement of not only hydrocarbons to a global hydrocarbon demand market, but also to transport carbon to sequestration sites as a way to reduce emissions. There’s a dual role for us to play, and EnLink is uniquely situated to do that.

The industry has transformed post-IRA due to economic incentives coupled with motivations to reduce emissions from an ESG perspective. In short, I think all interests are aligned, and midstream will continue to be a vital part of both the energy transformation and energy security for many, many years.

DD: How do you view the future of midstream, if you will? What will it look like in 10 years from now?

JA: As evidenced by our Exxon Mobil deal, I think the midstream space is going to look different. Traditionally we moved hydrocarbons, but now there are going to be multiple products—there’s going to be carbon, there’s going to be hydrogen, there’s going to be other synthetic fuels—that need to be moved through midstream.

I think the future of midstream is combining a sustainable set of assets that facilitates both traditional hydrocarbon gathering, processing, transportation and storage with assets that facilitate a CCS business and the transportation of other products.

The future of midstream is one that’s going to solve energy demands, facilitate growth in demand and ultimately play a vital role in getting energy to the world in a way that can sustain our standard of living in the U.S., while helping emerging markets worldwide get more energy, security, reliability and prosperity. And it will do all this while at the same time lowering emissions and reducing environmental impacts through CCS.

DD: How do your peers view CCS as a midstream growth component?

JA: I think the opportunity set for EnLink is unique.

Historically, midstream is a hard business because you’ve got multiple challenges, from regulatory and permitting to economics.

EnLink is a first mover and has a unique opportunity for two reasons. One is we’re the right size of company. To grow a business 25% is extremely rare. On top of that, we’re sitting in the trifecta of opportunities. We’ve got all three of the necessary components to execute and be a first mover. Many midstream companies have developed teams around how to capture these opportunities. But the reality is, you’ve got to have pipes to move the product, you have to have high concentrations of emissions, and you’ve got to have nearby sequestration, each of which EnLink has in Louisiana.

For example, in the Midwest, they have a high concentration of emissions, but there’s not pipeline infrastructure in place today. There’s not nearby geologic sequestration.

There’s a lot of complexity around the CCS business. I think the midstream space is highly incented and highly interested to develop carbon transportation deals, but it’s finding those opportunities and being able to execute that is the challenge today for most and what sets EnLink apart as a first mover.

DD: Is midstream seizing on the CCS opportunity in terms of investment?

JA: EnLink is definitely the first in the midstream space that’s actually investing and has near-term cash flows. The industry has seen multiple announcements of projects that have not gone to FID, and there are no real hard dollars going into the space.

That’s the uniqueness of EnLink’s agreement with Exxon Mobil. Not only do we have a real 25-year contract with the highest credit quality producer in the space, we’re actually executing on that. And we have near term line of sight to revenues, which no one else in the space can say today.

DD: How much has EnLink invested?

JA: We’re investing $40 million this year and another $160 million over ‘24 and ‘25 on the existing Exxon Mobil deal. And, we also have four or five projects in discussion. We have strong cash flows. We’ve got a great balance sheet and free cash flow profile. We believe that we can execute on multiple deals utilizing our internal cash flow.

DD: So essentially, you are your own bank when it comes to these investments.

JA: Today, we are. It’s a great place to be in.

EnLink has done a great job of getting the balance sheet in order. We’re at 3.4 times levered, so we’re in a great position to execute on multiple opportunities within our existing cash.

DD: Do you anticipate opportunities for growth in the emerging LNG market?

JA: We have longstanding relationships and decades of supplying natural gas as a feedstock to industrial customers in Louisiana. We also are uniquely situated. We have over 4,000 miles of pipe in the state of Louisiana alone and are very well positioned to grow along with the LNG space. Two years ago, 0% of our volumes we’re associated with LNG. Today, that’s 11%. We anticipate by the end of 2024, that’ll be about 25% of our Louisiana natural gas business.

We are very excited about the multiple ways for EnLink to win in Louisiana. We spend a lot of time talking about carbon, but there’s also strength in our LNG and our industrial growth prospects. We see growth in both areas. Having multiple systems in the state allows us to participate on both fronts, and we view that as a big growth driver for EnLink in the next few years.