Energy Transfer recently announced an important step forward in addressing the surging energy demands of the Southwestern United States with the final investment decision (FID) for its Desert Southwest pipeline expansion project. This 516-mile, 42-inch pipeline, an extension of the existing Transwestern pipeline, will transport 1.5 billion cubic feet per day (Bcf/d) of natural gas from the Permian Basin to growing markets in Arizona and New Mexico.
The Permian region, one of the top-producing shale basins in the world, accounts for nearly half of all U.S. oil production. Additionally, in 2024, the Permian region contributed 22% of U.S. marketed natural gas production and drove nearly all of the increase in U.S. output. Production increased by 12% (2.7 Bcfd) to 25.4 Bcfd, primarily due to associated gas from oil production. However, due to years of policy-driven underinvestment in energy infrastructure, pipelines are near capacity in the Permian Basin.
This project, with an estimated cost of $5.3 billion, including $600 million for Allowance for Funds Used During Construction, and backed by long-term commitments from investment-grade customers, is a critical investment in energy infrastructure that promises to enhance reliability, support economic growth, and meet the needs of a rapidly growing region. Scheduled for completion in Q4 2029, the Desert Southwest expansion is a forward-thinking solution to energy demand growth in the Southwest, particularly in Arizona, where the data center boom is driving unprecedented demand.
Meeting the Energy Demands of a Data-Driven Future
Arizona is emerging as a global hub for data centers, with over 129 facilities already operating in the state. The data center sector is a cornerstone of the digital economy, powering everything from cloud computing to artificial intelligence, and these facilities are energy-intensive. According to Data Center Dynamics, Arizona’s major utilities, Arizona Public Service (APS) and Salt River Project (SRP), are stepping up to meet this challenge by securing natural gas capacity from the Desert Southwest pipeline.
APS, the project’s anchor customer, has committed to spending up to $7.3 billion over 25 years to purchase gas from the expansion to fuel new gas-fired power plants. These plants, set to come online in 2029 alongside the pipeline, will directly support data centers within APS’s service territory, which spans 11 of Arizona’s 15 counties and serves 1.4 million customers. APS currently faces nearly 4.5 gigawatts (GW) of committed demand, primarily from data centers, with an additional 20GW of uncommitted large-load customers in its interconnection queue. This staggering demand underscores the urgency of reliable, scalable energy solutions like the Desert Southwest pipeline.
Safely Enhancing Energy Reliability in a Growing State
Arizona’s energy mix is heavily reliant on natural gas, which accounts for 45% of the state’s electricity generation, according to the U.S. Energy Information Administration. Nuclear power contributes 27%, solar 13%, and coal 8%. As the state faces limitations in scaling renewable energy to meet round-the-clock demand, natural gas will remain an important energy source going forward. The Desert Southwest pipeline expansion will enhance the reliability of the Transwestern pipeline system, ensuring a steady supply of natural gas to power plants serving both residential and industrial customers.
The agreements between Energy Transfer, APS, and SRP provide priority delivery of natural gas, offering a stable and predictable energy source for Arizona’s utilities. This is particularly vital for data centers, which require uninterrupted power to operate effectively. By extending the Transwestern pipeline’s reach, the project adds optionality and resilience to the region’s energy infrastructure, mitigating risks of supply disruptions and supporting Arizona’s reputation as a reliable destination for tech investment.
Pipelines are critical to modern life, delivering the energy and resources that power homes, businesses, and industries. Most importantly, they do so with an impressive safety record, thanks to advanced engineering, real-time monitoring, and strict oversight. The National Pipeline Performance Measures Report, published by the Pipeline and Hazardous Materials Safety Administration (PHMSA), provides annual summaries of pipeline safety data for gas transmission, hazardous liquids, and gas distribution systems across the country. Over the past 20 years (2005–2024), PHMSA data show a 40% decline in significant pipeline incidents, defined as those involving fatalities, injuries requiring hospitalization, costs exceeding $50,000, liquid releases of five barrels (highly volatile) or 50 barrels (other liquids), or unintentional fires/explosions. This strong safety record underscores the reliability of projects like the Desert Southwest expansion, ensuring a steady and secure natural gas supply to meet Arizona’s growing energy demands.
Economic and Strategic Benefits
Beyond energy reliability, the Desert Southwest pipeline expansion is a catalyst for economic growth. By enabling utilities to meet the needs of high-growth sectors like data centers, the pipeline supports Arizona’s position as a leader in the tech industry. The state’s favorable business climate, combined with reliable energy infrastructure, makes it an attractive destination for investors looking to support projects with intensive energy demands.
Moreover, the project’s long-term commitments from investment-grade customers signal strong market confidence in its viability. These commitments reduce financial risk and ensure the pipeline’s capacity will be fully utilized, maximizing its economic impact. The expansion also aligns with broader energy trends, as natural gas continues to play a pivotal role in balancing affordability and reliability.
A Step Toward a Resilient Energy Future
The Desert Southwest pipeline expansion is a strategic investment in the Southwest’s energy and economic future. By connecting the Permian Basin’s abundant natural gas resources to Arizona’s and New Mexico’s growing markets, the project is addressing the immediate needs of utilities like APS and SRP while laying the groundwork for long-term growth. The project’s focus on reliability, supported by significant financial commitments and a clear timeline for completion, makes it a cornerstone of Arizona’s emergence as a tech powerhouse.
As data centers continue to drive demand and Arizona solidifies its role as a regional tech hub, the Desert Southwest pipeline expansion stands out as a pragmatic and forward-thinking solution. It ensures that the region’s energy infrastructure can keep pace with its economic ambitions, delivering reliable power to millions of customers and supporting the industries that will shape the future.
