DCP Midstream LLC is buying Seaway Products Pipeline Co. from ConocoPhillips in order to create natural gas liquids (NGL) transportation capacity from the Midcontinent to higher-value markets on the Texas Gulf Coast. In doing so it will be capitalizing on a durable spread in ethane prices between the two markets, analysts said last Thursday.

“The Southern Hills conversion is a game-changer for Midcontinent NGL values and a strategic fee-based value chain extension for DCP,” said DCP Midstream CEO Tom O’Connor.

DCP Midstream said it will be rename the pipeline Southern Hills Pipeline and convert it from refined products service to an NGL pipeline running more than 700 miles between major NGL market hubs Conway, KS, and Mont Belvieu, TX. DCP Midstream will add a 130-mile extension to Conway and a 30-mile extension to Mont Belvieu, as well as pump capacity and associated gathering infrastructure, to the current 580-mile pipeline.

Southern Hills will have a target capacity of close to 150,000 b/d of Y-grade NGLs and be connected to several DCP Midstream processing plants and anticipated third-party NGL producers. The cost is estimated at $750-850 million; in-service could be as early as mid-2013.

Handling Midcontinent NGLs has been on the minds of others, with multiple projects announced this year.

Enterprise Products Partners LP plans to expand the Rocky Mountain segment of its Mid-America Pipeline (MAPL), adding 85,000 b/d of incremental NGL capacity, the partnership said in May. ONEOK Partners LP said it plans to spend $910 million to $1.2 billion between now and late 2013 on new infrastructure, including new fractionation at Mont Belvieu. And Energy Transfer Partners LP (ETP) and Regency Energy Partners LP said their Lone Star NGL LLC joint venture would construct a 100,000 b/d NGL fractionation facility at Mont Belvieu (see NGI, May 9).

Analysts at Tudor, Pickering Holt & Co. (TPH) said in a note last Thursday that the DCP Midstream plan “shakes up” the status quo for NGLs in the Midcontinent. They wrote that the Kansas-Gulf Coast NGL spread “has been one of the truly durable arbitrages in the business, with average ethane spreads at $4.89/bbl since 2006 and $9.09/bbl year to date 2011.”

The corridor from Kansas to the Gulf Coast has been the stomping ground of ONEOK, which has plans the expansion of its NGL pipeline to be in service by late 2013, TPH noted. It’s “no accident that DCP plans to be online by mid-2013,” the analysts said. “Waiting to see if DCP announcement changes ONEOK’s plans.”

Southern Hills would be operated as a common carrier pipeline and would offer new capacity for NGLs produced from growing Midcontinent, Rockies and Conway-bound supply. DCP Midstream said the new capacity will serve the “growing need” for Midcontinent transportation to the premium Mont Belvieu market and add value to DCP’s upstream producer customers.

“This critical piece of the midstream infrastructure puzzle will increase the value our producers realize for their growing Rockies and Midcontinent NGL production through enhanced connectivity to premium Gulf Coast markets,” O’Connor said. “And with the ability to provide our customers with integrated gathering, processing and NGL transportation services through a timely solution that leverages pipe already in place, DCP’s competitive position is significantly improved.”

A nonbinding open season is expected to be held later this year.

Denver-based DCP Midstream operates in 18 states across producing regions and is a joint venture of Spectra Energy and ConocoPhillips. It owns the general partner of DCP Midstream Partners LP.

Separately last week, DCP Midstream and West Texas LPG Pipeline LP (WTLPG) announced long-term agreements for NGL gathering services for the DCP Midstream Sandhills Pipeline LLC through two new interconnects with WTLPG.

“We see this as a very cost-effective, highly efficient and timely way to integrate the Sandhills Pipeline with existing and planned gas processing facilities,” said Bill Waldheim, president of DCP’s northern business unit. “Sandhills will provide extensive access to Gulf Coast NGL markets.”

DCP Midstream began an open season in November (see NGI, Nov. 22, 2010) and is in the process of securing right-of-way and environmental permits for the Sandhills Pipeline. The new 700-mile system would transport Y-grade NGLs from gas plants in the Permian Basin and South Texas to the various fractionator facilities along the Gulf Coast along with the Mont Belvieu, TX, NGL hub.

Targa Resources Partners LP said last month it had committed to be an anchor shipper on Sandhills (see NGI, May 16).

Sandhills would serve NGL transportation needs of gas processing plants and shippers in West Texas and South Texas, including DCP Midstream gas plants and the new 200 MMcf/d DCP Eagle gas plant designed to serve Eagle Ford Shale gas development. In addition, DCP is securing long-term commitments from other third-party shippers.

WTLPG has facilities that access liquids-rich natural gas from West Texas and New Mexico that would be delivered to the two planned receipt points on Sandhills Pipeline.

Additionally, DCP Midstream and Occidental Petroleum Corp. (Oxy) last week announced preliminary agreements for Oxy’s Occidental Chemical Corp. (OxyChem) to provide right-of-way for Sandhills and for DCP to provide a supply option for a proposed Oxy natural gas liquids (NGL) fractionator in Ingleside, TX. The agreement will provide Sandhills about with 14 miles of right-of-way and access to the Mont Belvieu complex.

The projects are expected to be completed in the first half of 2013.

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