Energy Transfer bids for Sunoco

Put that in your pipe

A pipeline deal to exploit America's fast-changing energy landscape

NODDING donkeys, offshore platforms, refineries and filling stations are the bits of the oil industry you can see. A vast and largely invisible network of underground pipes joins them all together. It is worth a lot, which is why Energy Transfer Partners (ETP) said it would pay $5.3 billion for Sunoco on April 30th. It hopes to pull together two networks and shift more of America's booming oil and gas output.

ETP is ambitious. Last year its parent company, Energy Transfer Equity, agreed to buy Southern Union and its gas-pipeline network for $5.7 billion.The latest deal will make ETP the country's second-biggest pipeline firm, behind Kinder Morgan, after the latter's merger with El Paso is concluded later this year.

Sunoco comes with storage facilities, 4,900 filling stations and the remains of a refining business that it is trying to spin off in a joint venture with Carlyle, a private-equity firm. But the pipelines are the main attraction. ETP currently operates 17,500 miles (28,160km) of the arteries that transport gas and natural-gas liquids such as propane and butane. Adding Sunoco's 6,000 miles, built to carry crude oil and refined products, will reduce ETP's reliance on gas. After the deal, 30% of its revenues will come from oil.

This is important. In a few years shale gas's share of America's total gas output has gone from almost nothing to around a fifth. It will account for much more in the years to come. This changes the logistics of energy delivery, says Ronald J. Barone of UBS, a bank. Shale gas is much more widely distributed than the conventional sort. It is also more scattered than the ports through which imported gas arrives.

The more shale gas America uses, the more local the energy business becomes. Deliveries from gas basins in the south-west to the markets of the heavily populated Atlantic seaboard in the north-east are dwindling. The development of the Marcellus shale is displacing long-distance supplies with gas from Pennsylvania, Ohio and West Virginia.

Transporting gas still brings big and stable revenues. But diversifying into oil makes sense too. America's oil pipelines are largely unfettered by the rigid regulations that govern gas-pipeline tariffs. So transporting gloopy oil is far more profitable than shifting lighter-than-air gas.

And the oil business is looking peachy. A barrel of West Texas Intermediate fetches around $100, even as gas prices recently hit a ten-year low. This has encouraged gas producers to scurry after oil in liquid-rich shale beds such as the Bakken in North Dakota. To do this, they use the same rigs and techniques, such as fracking and horizontal drilling, as they use for gas. Within a few years the Bakken and other shale beds could be producing up to 3m barrels of oil a day, reckon optimists. That is around a third of current imports.

Owning the pipes that make all this possible should be lucrative. America has long failed to invest in pipes, since investors assumed that the country would continue to rely on imports. So there is too little capacity in many places where it is now needed. And American buyers are clamouring for more oil from Canada, which will also need pipes. Targets like Sunoco are rare. ETP was wise to swoop on it.