Enterprise Products Partners LP infrastructure bounced back from Hurricane Katrina in 2005 and a fire at Mont Belvieu, TX, in 2011, and the partnership will weather the current “tsunami of natural gas liquids (NGL)” that is ravaging margins in the light end of the NGL barrel, Enterprise COO Jim Teague told financial analysts last Thursday.

“The old axiom that ‘price creates supply’ has certainly proved to be the case in NGLs, but price also creates demand as evidenced by ethylene plant conversions to use more NGLs and the announcement of new crackers and significant expansions by companies like Dow, Exxon[Mobil], Sasol, Formosa, Chevron Phillips [Chemical],” Teague said during an earnings conference call. “Virtually every ethylene producer is expanding for more NGLs.

“Price will create demand but not overnight. Consequently, ethane extraction economics for the next couple of years are likely to be anemic on average and volatile as ethane rejection and cracker outages swing supply-demand balances. I think what you’re going to have are periods of time when it looks like it’s a good deal to extract more ethane…We’re seeing some fairly strong draws of ethane in our storage…Crackers are running fairly strong right now. So you’re going to go through a period of time when you say, ‘Wow, this is getting better.’ You’re going to turn it back on and it’s going to get worse. That’s what I mean by anemic and volatile.”

While the fortunes of propane have improved somewhat thanks to a more normal winter in 2012-2013 than a year ago, the going for ethane is predicted by Teague and others to be rough for some time (see related story).

Analysts at Raymond James & Associates Inc. said last week those long ethane would have to wait until the 2017-2020 time frame for significant price recovery; that’s when a number of new-build projects are slated to come online. In the meantime, cracker conversions, expansions and de-bottlenecking will help somewhat. Also last week, analysts at Goldman Sachs wrote that ethane rejection by processing plants “has emerged as an important factor supporting U.S. natural gas supply in recent months. We estimate that ethane rejection is currently adding around 0.3 Bcf/d to U.S. natural gas supply and expect rejection to continue in 2013-2014 as demand from the petrochemical sector will struggle to keep up with continued strong production growth.”

However, Teague said margins are still good for components of the heavier end of the NGL barrel. “We have exceptionally strong demand for the C4+ components, driving those spreads beyond our expectations,” Teague said.

“As with other storms we’ve weathered, this tsunami will result in Enterprise capitalizing on new opportunities. For example, this storm enhances the value of our [propane] export expansion. The 40 million bbl we exported last year will grow to over 60 million bbl this year. What we have targeted to sell over our export dock, we have sold. But we have purposely left open a slot a month for spot opportunities or operational issues and have been enjoying even greater margins on our spot cargoes. That expansion will be online in mid-February.”

Increased exports of propane also should prop up ethane economics as exported propane is taken out of competition with ethane at crackers, Teague said. During the conference call he told analysts that Enterprise has even been approached by some parties interested in underwriting engineering studies on exporting ethane.

For 2012, Enterprise reported record results for net income ($2.4 billion), earnings per unit ($2.71), gross operating margin ($4.4 billion) and distributable cash flow ($4.1 billion, which included $1.2 billion from asset sales).

“In 2013, we expect continuing volume and gross operating margin growth from our fee-based natural gas processing activities, NGL pipelines and fractionators and crude oil pipelines and storage facilities as these growth projects begin operations,” said CEO Michael Creel. “We also expect our natural gas processing margins will be lower in 2013 than 2012 due to lower ethane prices, and that our equity NGL production will be lower as our natural gas processing business continues to transition to a more fee-based business. We expect the growth in our fee-based businesses will offset the potential decrease in gross operating margin from the commodity portion of our natural gas processing business and, moreover, will support our distribution growth in 2013.”

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