Midstream giant Enterprise Products Partners LP executives said Thursday demand for petrochemical products has stayed resilient through the coronavirus pandemic, and said oil prices could see a boost as early as next year.
“The global economy is in the early stages of reopening from a self-imposed sudden stop due to Covid-19,” said Enterprise’s Jim Teague, co-CEO of the general partner, during a third quarter earnings call. “Even though the pace of the pandemic and the economic recovery is still very uncertain, the economic recovery is leading to a remarkable rebound in the demand for energy and energy products from the lows of the second quarter of 2020.”
He noted that energy demand in Asia, with the exception of air travel, has returned to near-normal levels, while demand in the United States and Europe continues to lag.
“The petrochemical industry is reporting strong demand for our products, especially ethylene, driven in part by individual serving-type products as the world deals with the pandemic,” said Teague. Propylene demand also is strong, largely because of the need to manufacture personal protective equipment (PPE).
Co-CEO Randy Fowler said while demand for PPE helped demand for petrochemical products stay resilient during the summer, demand from manufacturers for more durable plastics that come from the polypropylene chain has begun to recover as well.
“So we would think demand recovery should continue,” Fowler said.
Regarding the ongoing wave of consolidation among Lower 48 exploration and production (E&P) firms, namely in the Permian Basin, Teague said, “I think consolidation in the upstream is probably over the long haul very good for the industry and frankly good for Enterprise,” adding that the company prefers dealing with major players.
The energy demand recovery “will also ultimately result in a price signal for crude oil,” Teague said. “Given the combination of the record retrenchment in drilling and completion activities by U.S. producers, refocused capital allocation and the effects of steep decline curves resulting in a decrease in shale production, we believe this price signal for higher crude oil prices could occur as early as the second half of next year.”
In the meantime, however, “we believe the midstream industry will be challenged in its producer-facing businesses,” Teague said. The challenges will be different in each producing basin.
During the quarter, “our commercial team responded to customer requests and changing industry dynamics to amend certain agreements that enabled us to increase volumetric commitments over the long-term by utilizing existing pipeline capacity and to cancel the Midland-to-ECHO 4 crude oil pipeline” out of the Permian Basin, said Teague. “This action resulted in an $800 million reduction to capital expenditures over the next two years.”
Calling the cancellation a “win-win” for both Enterprise and its customers, Teague said the company has reduced planned growth capital expenditures through 2021 by about $1.5 billion in response to changing industry conditions.
Chief Commercial Officer Brent Secrest said Enterprise is relatively well positioned to deal with the challenges of excess oil pipeline capacity out of the Permian, and “everybody is trying to be creative” in finding solutions.
The company’s total transported volumes of natural gas liquids (NGL), oil, refined products and petrochemicals totaled 6 million b/day in 3Q2020, down from 6.6 million b/day in the year-ago period.
Gross operating margin from the NGL pipelines and services segment was flat year/year at $1 billion for the quarter, while gross operating margin for oil pipelines and services dipped to $482 million from $496 million.
The natural gas pipelines and services unit saw gross operating margin fall to $208 million from $259 million, with total natural gas transportation volumes dropping to 13.1 trillion Btu/d from 14.5 trillion Btu/d a year ago.
The petrochemical and refined products services segment posted a 9% year/year increase in gross operating margin to $315 million, with total segment pipeline transportation volumes rising 13% to 844,000 barrels/day.
Enterprise reported net income of $1.08 billion (48 cents/share) for the third quarter, versus net income of $1.05 billion (46 cents) in the same period last year.
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