Customers recently canceled some liquid petroleum gas (LPG) loadings at Enterprise Products Partners LP's Gulf Coast terminal, but this month the company loaded a record number of polymer grade propylene (PGP) cargos. And the first ethane commissioning cargo is due to leave next month from the company's Houston Ship Channel (HSC) terminal.
Enterprise had three LPG loadings cancelled for July and has received notices from customers cancelling five more for August at its HSC marine terminal. However this month, Enterprise loaded a record nine cargos of PGP at HSC for export to international markets.
"Currently, the partnership expects to load an additional nine cargoes of PGP in August 2016," Enterprise said. "We expect that the decrease in total gross operating margin from the cancelled LPG loadings will be more than offset by the associated cancellation fees and the additional fees earned from the PGP export activity."
During a second quarter earnings call, analysts were curious about the LPG cancellations, but executives were mum on where the canceled cargos would have been destined. Jim Teague, CEO of Enterprise's general partner, downplayed the significance of the canceled cargos.
"We are in the middle of the summer so this isn't the highest demand period of the year," Teague said. "From a petrochemical perspective, I guess there's a pretty good overhang of naphtha, which may be hurting the appetite of crackers in other parts of the world. But bottom line...it's got to export and it will export, in my mind.
"We have a facility that can export things like polymer grade propylene and crude and refined products. We had some cancellations, but we had a record month in polymer grade propylene out of our facility, too.
"Our strategy around propylene, frankly, is evolving," Teague said. "I believe it will be another product out of the U.S. that other parts of the world will have an appetite for, which is why we put the capability to export propylene at our Ship Channel facility, and we can expand that. We are, in fact, in negotiations with people for supply out of the Gulf Coast to other parts of the world. Frankly, I think that has the potential to grow."
Teague and other Enterprise executives also are bullish on demand for ethane. Enterprise pipeline capacity out of the Permian Basin and the Rockies can handle more ethane output from processing plants there, Teague said. "We could add capacity down in South Texas to bring on more ethane..." he said. "The one place where we have some constraints is our ability to move more ethane on Atex [Appalachia-to-Texas Express]." That ethane pipeline is fully subscribed and any incremental increase in throughput would require an expansion.
In anticipation of domestic ethylene oversupply and demand overseas, Enterprise is considering an ethylene export facility, Teague said.
"If you believe crude prices are not sustainable at this level, and you believe there's plenty of natural gas in the U.S., then you have to believe that the gas-to-crude price is going to be supportive of ethylene plants in the U.S. versus ethylene plants in other parts of the world," he said. "You can have ethane go up; you can have margin expansion between ethane and natural gas, and it would still be cost-advantaged relative to other parts of the world. In other words, there's room here for everybody to win."
Enterprise reported distributable cash flow (DCF) of $1 billion for the second quarter, which provided 1.2 times coverage of the 40 cent/unit cash distribution and resulted in $200 million of retained DCF, the company said. Year-ago DCF was $988 million. Adjusted earnings before interest, taxes, depreciation and amortization were nearly $1.32 billion, compared with nearly $1.3 billion a year ago. Net income was $570 million compared with $557 million in the year-ago quarter.
"Enterprise reported record onshore liquid pipeline volumes and marine terminal volumes in the second quarter..." Teague said. "Volume growth was primarily driven by the expansion of our LPG marine terminal, the ramp up of contracted volumes on our Aegis and ATEX ethane pipelines, the acquisition of EFS Midstream, as well as higher volumes on the Mid-America, Seminole and TE Products pipeline systems.
"The increase in gross operating margin from our fee-based businesses largely offset lower earnings from our commodity- sensitive businesses, the impact of lower crude oil pipeline volumes and the divestiture of our offshore Gulf of Mexico business in July 2015."
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