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. Key Takeaways 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 Joint Ventures Help Fund Infrastructure Growth 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. Recent Private Equity Joint Ventures 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 Midstream Joins the Trend 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 private equity partners' interest between years 7 and 14. Together, this string of recent investments highlights the growing importance of the collaborative funding model as a financing tool for North American energy infrastructure development. These minority equity investments help to bridge the gap between private capital seeking stable, long-term yields, and large public midstream companies executing on significant growth backlogs while maintaining long-term leverage targets. Preserving Balance Sheet Strength and Financial Flexibility A decade ago, it was fairly common for midstream companies to operate with leverage ratios (defined as net debt-to-adjusted EBITDA) around 5.0x. Since then, midstream MLPs and corporations have shifted their focus, utilizing robust free cash flow and steady EBITDA growth to pay down debt and significantly strengthen their balance sheets. Protecting these improved balance sheets is a top priority across the sector. Today, most midstream names have established strict target leverage ratios between 3.0x and 4.0x, and most kept their year-end 2025 leverage ratios below 4.0x. While there is some variation, with large Canadian C-Corps historically operating with higher leverage to support larger project backlogs, the sector's average leverage stands at a healthy 3.8x. With new power generation opportunities rapidly expanding project backlogs, bringing in private equity partners allows midstream companies to fund significant infrastructure growth without burdening their balance sheets with new debt. Midstream companies often tap the debt markets to build new projects, making an investment-grade credit rating essential for accessing capital at lower interest rates. By partnering with private equity as a substitute for taking on new debt, companies can fund large new projects without risking a credit downgrade or significantly inflating borrowing costs. Ultimately, this approach ensures companies possess the financial flexibility to execute strategic growth without compromising their credit profiles or interfering with shareholder return priorities. Ways to Gain Exposure Private equity is drawn to the midstream space by its predictable, fee-based cash flows alongside new growth opportunities. For midstream MLPs and corporations, these strategic joint ventures offer a way to fund expansion while maintaining strict capital discipline. Ultimately, the sector remains well-positioned to generate strong cash flows and continue returning cash to shareholders through growing dividends and opportunistic buybacks. The Alerian Midstream Energy Select Index (AMEI) includes ENB, OKE, PPL, and WMB and mostly consists U.S. and Canadian midstream corporations, with a 25% weighting to MLPs. The Alerian MLP Infrastructure Index (AMZI) focuses solely on midstream MLPs. AMEI underlies the Alerian Energy Infrastructure ETF (ENFR), and AMZI underlies the Alerian MLP ETF (AMLP). As of September 4, AMEI was yielding 4.5% and AMZI was yielding 6.4%. Looking for midstream insights in your inbox? Subscribe here to keep a pulse on midstream investing through our weekly updates. AMZI is the underlying index for the Alerian MLP ETF (AMLP) and the ETRACS Alerian MLP Infrastructure Index ETN Series B (MLPB). AMEI is the underlying index for the Alerian Energy Infrastructure ETF (ENFR) and the Alerian Energy Infrastructure Portfolio (ALEFX). Related Research: Midstream Scales Up Natural Gas Infrastructure Strong Midstream 2Q26 Earnings Boost Full-Year Outlook Midstream/MLPs Deliver Durable Free Cash Flow Midstream: Robust Gas Backlogs Drive Growth Visibility 2025 Midstream/MLP Leverage Ratios Signal Flexibility U.S. LNG Exports Surge Despite 4Q25 Headwinds vettafi.com is owned by VettaFi LLC ('VettaFi'). VettaFi is the index provider for AMLP, MLPB, ENFR, and ALEFX, for which it receives an index licensing fee. However, AMLP, MLPB, ENFR, and ALEFX are not issued, sponsored, endorsed or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing or trading of AMLP, MLPB, ENFR, and ALEFX. For more news, information, and analysis, visit the Energy Infrastructure Content Hub.