Midstream Taps Private Equity to Fund Growth Projects

The North American midstream sector is entering a period of accelerated growth. Surging liquefied natural gas (LNG) exports and rapidly expanding power generation demand are driving record multi-billion-dollar project backlogs. To fund this massive wave of new energy infrastructure while strictly preserving balance sheet discipline, midstream operators are increasingly turning to strategic private equity joint ventures.

Private equity is increasingly using joint ventures to fund midstream natural gas projects and acquisitions. These strategic partnerships allow midstream companies to execute major infrastructure growth while strictly maintaining target leverage ratios. This collaborative funding model secures predictable cash flows and preserves financial flexibility for continued shareholder returns.

Private equity has a long history of investing in midstream assets, with a notable wave of deal activity peaking around 2018. During past growth cycles, funds typically acquired standalone midstream platforms or took minority stakes in specific pipeline and liquefied natural gas (LNG) export projects. Historically, these investments targeted Permian Basin gathering and processing infrastructure to support surging crude production. Then later, they targeted natural gas pipelines serving LNG demand. While LNG is the largest single driver of incremental U.S. natural gas demand, recent deals highlight growing private equity interest in projects serving rising power demand. This is fueled by broad electrification, coal-to-gas switching, and data center proliferation. To capture these opportunities, private equity is increasingly adopting an emerging, structured joint venture model. These deals help support large public midstream companies in funding their multi-billion-dollar project backlogs. In turn, they provide private equity partners with long-term, contracted, fee-based yields and often buyback windows as a liquidity option down the line. Crucially, public operators retain majority ownership, operational control, and commercial management of the assets.

A number of deals of this type have been announced over the past few months. Most recently, ONEOK (OKE) secured a $9.0 billion nonvoting equity investment from Apollo (APO) to fund its ~$4.4 billion acquisition of Brazos Midstream’s Permian Midland Basin natural gas gathering and processing assets and use the remaining proceeds to pay down debt. Notably, this transaction is structured as a parent-level investment. This means that Apollo receives a percentage of OKE’s operating cash flows up to a fixed return cap, rather than a project-specific joint venture. The investment features a structured buyback provision, granting OKE the option to acquire Apollo’s interest beginning on the eighth anniversary of the transaction's closing.

In contrast, Williams (WMB) utilized a project-level structure, announcing a ~$5.3 billion capital commitment from a Blackstone-led consortium to fund a 49% stake in five behind-the-meter data center power projects. This agreement provides WMB with a buyout right exercisable between years 7 and 14, valued at the consortium's outstanding investment balance at the time of exercise. WMB expects that the partnership structure will help it fund its current power projects and advance its growing project backlog, while preserving the company’s balance sheet capacity and supporting its long-term leverage target.

Canadian operators Enbridge (ENB CN) and Pembina (PPL CN) have also recently executed comparable joint venture agreements to fund natural gas infrastructure. Similar to the WMB deal, ENB’s partnership includes a structured repurchase option, allowing the company to buy back the...