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Enterprise Sees Opportunities Everywhere

Enterprise Products Partners LP (EPD) earned record profits in the first quarter as rig counts grew in liquids-rich shales and low natural gas prices spurred petrochemical demand. The company continues to see opportunities "to serve our customers, both producers and consumers," COO Jim Teague said during a conference call Tuesday.

Teague said EPD sees those opportunities in butane and ethane prices, in gas processing margins, in the price spread between natural gas and crude oil, in growing shale gas production and in expanding demand from the petrochemical industry. "It's opportunities like these that continue to provide us with linkage and expansion projects across our business lines. We believe these fundamentals will remain strong," Teague said.

The Houston midstream player earned $435 million (49 cents/share) in profits during the first three months of 2011, up from $392 million (33 cents/share) earned during the same period last year.

EPD moved 4.1 million b/d of liquid products in the first quarter, slightly higher than volumes in the first quarter of 2010, and a record 12.8 trillion Btu/d of natural gas, up 6% from the first quarter of 2010. The company fractionated a record 549,000 b/d in the first quarter, up 16% from the same period last year.

Expecting continued growth, particularly in the Haynesville and Eagle Ford shales, EPD made $718 million in capital investments in the first quarter and currently has $5 billion in infrastructure projects under construction.

The largest is the $1.6 billion Haynesville Extension of its Acadian Gas System, expected to come online in September. Although it will cross numerous interstate pipelines, Teague said EPD saw opportunity in extending a pipeline to the Mississippi River Industrial Corridor around Baton Rouge. With about 1.5 Bcf/d of "continuous" demand, meaning that "those manufacturing sites use as much at midnight as they do at noon," Teague said.

EPD also has 21 projects worth $2.5 billion under construction in the Eagle Ford Shale, most expected to come online in 2012. The remaining projects are in the Rocky Mountains, New Mexico, West Texas and Oklahoma.

The move to liquids in the face of low natural gas prices pumped up EPD's pipelines and processing business.

For natural gas processing and NGL marketing, the company reported gross operating margins of $278 million in the first quarter of 2011, an $18 million increase over last year because of higher NGL sales volumes and margins.

EPD reported a record $46 million gross operation margin in the first quarter of 2011 for its NGL fractionation business, up $19 million because of a 75,000 b/d expansion at the Mont Belvieu fractionation facility.

Teague said a fifth train at the Mont Belvieu NGL fractionation facility outside Houston should be operational by the end of the year and EPD is currently permitting a sixth train "should we decide to build it." Once online, the fifth train will give EPD more than 750,000 b/d of fractionation capacity in the United States.

An explosion at that plant in February caused one fatality (see Shale Daily, Feb. 18).

In the liquids-rich Eagle Ford, EPD is fully subscribed on its initial 600 MMcf/d gas processing plant and is negotiating with producers on the next phase of that plant, Teague said. In early May EPD announced plans to build an 80-mile extension to its crude oil pipeline in the Eagle Ford. The extension, anchored by a 10-year agreement with Chesapeake Energy Corp., would add 200,000 b/d of capacity to the 350,000 b/d line.

EPD believes the spread between natural gas and oil prices will continue to drive petrochemical demand for ethane and the company is forecasting 200,000 to 300,000 b/d of incremental demand growth by 2015, Teague said.

"That would have raised a few eyebrows just a few months ago, but in light of the announcements from Dow [Chemical Co.], Chevron Phillips [Chemical Co. LP], Westlake [Chemical Corp.] and announcements we expect from others incremental ethane demand could reach the high side of our forecast by that time," Teague said (see Shale Daily, April 25; April 7; March 29).

While EPD is forecasting that ethane production will reach 1.1 million b/d by 2015, "that does not include any production from the Marcellus. The question is quickly becoming: In order to meet the projected demands for ethane on the Gulf Coast, does the petrochemical industry need Marcellus ethane at Mont Belvieu?" Teague said.

Because of the limited ethane market in the northeast, several proposals in the works call for moving Marcellus ethane to either Canada or the Gulf Coast (see Shale Daily, March 28; March 24;Dec. 23, 2010).

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