The petrochemical industry is growing more comfortable with the idea that favorable natural gas liquids (NGL) prices are going to stick around and players are positioning themselves to take advantage of that, Enterprise Products Partners LP Chief Commercial Officer Jim Teague told financial analysts Monday.
"I think what you are beginning to see in the petrochemical industry is much more comfort that this is something that they can take advantage of through, if nothing else, expansions of existing facilities," Teague said during a first fiscal quarter earnings conference call. "I'll go back and tell you I remember in 1980 when this market had 35 billion pounds a year of ethylene production and word was you would never see another cracker built.
"We're pushing 60 billion pounds now; we hear the same thing. I'm not going to say you will never see [another cracker] built."
Recent months have seen a significant number of NGL infrastructure development announcements from Enterprise and others to address growing supply from liquids-rich plays, such as the Eagle Ford Shale (see Daily GPI, June 3; May 28; May 10; April 28). This has caused some to speculate that the ethane market will become oversupplied (see Daily GPI, June 14). Teague isn't among them, though.
"Light feedstocks, primarily ethane and propane, continue to be preferred by ethylene crackers over their heavier crude oil feedstocks," Teague said. "Approximately 82% of feedstocks consumed by U.S. crackers this quarter were NGLs...
"[W]hen you have [natural] gas selling at this relationship to crude oil, that is an incentive not only for petrochemicals to convert [crackers from naphtha to ethane], but frankly we've had meetings with petrochemical companies recently who are talking about debottlenecking and expansions."
The NGL boom lifted Enterprise's most recent quarterly results. Net income for the first fiscal quarter of 2010 was $378 million (50 cents/unit) versus $225 million (0.41 cents/unit) for the first quarter of 2009.
"Enterprise reported strong operating and financial results for the first quarter of 2010," said CEO Michael A. Creel. "During the first quarter of 2010, NGL, crude oil, refined products and petrochemical pipeline volumes averaged more than 4 million b/d, while NGL fractionation volumes were a near record 473,000 b/d, equity NGL production was a record 122,000 b/d and propylene fractionation volumes were a record 80,000 b/d."
The increase in equity NGL production was due to an 18,000 b/d increase in volumes from the partnership's Rocky Mountain plants, which more than offset decreases from the South Texas, San Juan and Permian plants, the company said. Fee-based gas processing volumes were 2.7 Bcf/d for the first quarter of 2010 compared to 3.1 Bcf/d for the first quarter of 2009, primarily reflecting a decrease in fee-based processing volumes at plants in South Texas and South Louisiana.
"Our natural gas pipeline systems reported record volumes of 12.1 trillion Btu/d," Creel said. "Driven by strong volumes and performance by the NGL, petrochemical services and offshore businesses, Enterprise posted an 11% increase in gross operating margin to $795 million and earned record distributable cash flow of $580 million in the first quarter of 2010.
"Growth in gross operating margin was supported by a modest improvement in United States and global economic activity; strong demand for NGLs and propylene by the petrochemical industry; natural gas and NGL production growth in the Rockies; and the rebound of crude oil, natural gas and NGL production from the Gulf of Mexico."
The partnership's Independence Hub platform and Trail pipeline reported aggregate gross operating margin of $47 million for the first quarter of 2010 compared to $56 million for the first quarter of 2009.
Natural gas volumes on the partnership's Independence Hub system decreased to 717 billion Btu/d for the first quarter of 2010 from 922 billion Btu/d for the first quarter of 2009 due to lower production volumes as the result of depletion and downtime associated with the recompletion of the Mondo well, which was completed in March 2010. Producers expect to recomplete one well and add a new well during the remainder of 2010, the partnership said. "We expect more new wells to be connected during 2011. Total offshore natural gas pipeline volumes were 1.4 trillion Btu/d for the first quarter of 2010 versus 1.5 trillion Btu/d for the first quarter of 2009," it said.
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