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Energy Transfer Targeting 2019 FID for Lake Charles LNG

The recently consolidated Energy Transfer LP (ET) remains committed to the Lake Charles liquefied natural gas (LNG) export project in Louisiana, and management expects to reach a final investment decision (FID) by next year.

During a conference call last week to discuss the Dallas-based midstreamer’s 3Q2018 results, CEO Kelcy Warren sounded hopeful that the project can be fully contracted and reach FID sometime in 2019.

“We see Lake Charles moving forward,” Warren said. “We think it’s one of the better LNG opportunities to export from the United States. We just need customers, and we have had a partnership with” Royal Dutch Shell plc. “That partnership has at best stalled, I would say. Shell does not have the project high on their to-do list, I think. But we do.

“So we are working as hard as we can to find markets, to find partners in Lake Charles, and we’re very optimistic we’ll get there sometime in 2019, that we’ll have enough to FID.”

Warren raised the possibility that potential customers for the export project at the site of the company’s existing LNG import and regasification terminal in Lake Charles, LA, could come on board as partners.

ET, which completed a merger in October of the former Energy Transfer Equity LP (ETE) and Energy Transfer Partners LP (ETP), recorded higher volumes year/year (y/y) across all of its segments during the third quarter, including big increases in interstate and intrastate natural gas transportation.

Energy Transfer Operating LP, taking the place of the former ETP under the new corporate structure, transported 10.155 TBtu/d of natural gas on its interstate segment, up from 6.075 TBtu/d in the year-ago quarter.

The increase in interstate volumes was driven by an additional 2.225 TBtu/d transported on the Rover Pipeline, along with 772,000 MMBtu/d and 625,000 MMBtu/d on the Panhandle and Trunkline pipelines, respectively. The Tiger Pipeline increased volumes by 398,000 MMBtu/d y/y resulting from higher production from the Haynesville Shale.

The intrastate segment saw volumes climb to 12.146 TBtu/d, up from 8.951 TBtu/d a year-ago, with management attributing the gains to “favorable market pricing.”

ET, which operates an extensive intrastate system in Texas, has seen strong demand for its capacity amid the takeaway constraints that have been impacting the Permian Basin, management said.

“We're seeing the margins widen, the spreads, even from Waha up to our Panhandle lateral, we’ve seen $1 spreads recently,” COO Marshall McCrea said. The Transwestern Pipeline is a “different animal though, unlike our intrastates that are more market driven. We do have a tariff. So we can't charge more than the tariff, but we have seen our volumes grow.

“We've seen the demand. We have a tremendous amount of demand, really in both directions,” leaving the Permian Delaware sub-basin south to Waha “and also heading up north to our Panhandle lateral, and then also heading to California and Phoenix.

“So that's an asset like a lot of ours that's kind of lingered, and we've kind of struggled to create profits and now we're seeing that demand and the value of that capacity grow, really across all of our systems.”

McCrea said ET is “scrambling to help” the situation that has developed in the Permian, where production has exceeded pipeline takeaway and led to wide negative basis differentials at West Texas pricing points.

ET remains on track to complete an expansion of the North Texas Pipeline, a 36-inch diameter system jointly owned with Enterprise Products Partners LP to provide more capacity from West Texas into the Old Ocean pipeline in North Texas, by the end of this year, management said.

Meanwhile, ET last week said subsidiary Lone Star NGL LLC plans to construct a seventh natural gas liquids (NGL) fractionation facility at Mont Belvieu, TX. The 150,000 b/d Fractionator VII is fully subscribed and scheduled for operation in 1Q2020, management said. Lone Star’s Fractionator V entered service in July and has been operating at full capacity, while Fractionator VI is under construction and expected to enter service ahead of schedule during 1Q2019. Once the sixth and seventh fractionators enter service, Lone Star’s total fractionation capacity at Mont Belvieu would exceed 900,000 b/d.

Lone Star also plans to expand Lone Star Express Pipeline with an additional 352-mile, 24-inch diameter pipeline extending from the system near Wink, TX to its 30-inch diameter pipeline south of Fort Worth, TX. The new pipeline, slated to enter service by early in 4Q2020, would serve “significant transportation commitments” in the Permian.

Gathered volumes on Energy Transfer Operating’s midstream segment totaled 12.774 TBtu/d for the quarter, up from 11.090 TBtu/d in 3Q2017. NGLs produced increased y/y to 583,000 b/d from 453,000 b/d.  The company saw increases across the board for its NGL and refined products segment, including NGL transportation volumes increasing y/y to 1.086 million b/d, up from 836,000 b/d in the year-ago period.

The start-up of the fifth fractionator at Mont Belvieu helped drive up NGL fractionation volumes y/y to 567,000 b/d, up from 390,000 b/d in 3Q2017.

ET reported a quarterly net income attributable to partners of $371 million (32 cents/unit) from $252 million (22 cents/unit) in 3Q2017. Total revenues were $14.5 billion, up from just under $10 billion in the year-ago quarter.

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