Favorable economics for natural gas liquids (NGL) are driving a flurry of projects proposed for the Appalachian Basin’s Marcellus Shale, but executives at major midstream player Enterprise Products Partners LP are asking, “Where’s the market?”
“We’re taking a little more holistic approach, really looking at it from a producer standpoint: Where do they get the best price for their NGLs because at the end of the day they’re the ones that are going to bear that [project] cost,” Enterprise CEO Michael Creel told financial analysts during an earnings conference call Tuesday.
“It’s not just a matter of extracting the NGLs and shipping them to a point. You’ve got to have a market that really needs it; otherwise the netback price to the producers is pretty underwhelming. We’re really looking for an industrywide solution that takes care of the producers.”
The Enterprise CEO would not go into details of the company’s producer-focused NGL solution idea, but Chief Commercial Officer Jim Teague alluded to something that would address all points along the value chain.
“What we’re looking at is how do you take this ethane and distribute it to crackers throughout the system,” he said. “And if you’re going to have ethane going to crackers, you’d better have storage; you better have a way to keep it flowing. We are talking to people about a project — we’re not going to ‘press release’ it — that gives them the reliability of flow assurance and gives them access to a broader range of customers.”
Numerous projects are targeting the Marcellus (see Daily GPI, April 27; April 21), and some of these would carry NGLs north rather than south to Enterprise’s Mont Belvieu, TX, complex. For its part, Enterprise is particularly focused on the Eagle Ford Shale of South Texas where growth has been robust.
“Total Eagle Ford production feeding our system today exceeds 150 MMcf/d. By comparison, this was relatively nonexistent at this time last year,” Teague said. “This is helping to offset declines we are experiencing in conventional production in South Texas.”
The Eagle Ford rig count has grown to more than 50 rigs at the end of the first quarter, up from 10 a year ago, he said. “We expect the rig count will continue to increase, driven by the richness of the gas in the Eagle Ford. We are continuing active negotiations with every producer in the Eagle Ford. In 2009 and this year combined we expect to spend more than $200 million to serve the gas gathering, processing and NGL needs of Eagle Ford producers and in order to fill our existing plants.”
The company is adding a fractionator at its Mont Belvieu complex, which should be online at the start of next year. “We expect it to be full on day one,” Teague said.
The petrochemical industry has undergone a structural change due to the shift in the pricing relationships of natural gas and related NGLs to crude oil derivatives such as naphtha, Teague said. He’s bullish on U.S. NGL producers’ ability to meet the market’s needs.
“U.S. ethylene producers are enjoying a competitive advantage over many of their international peers given the more profitable natural gas feedstocks,” Teague said. “International ethylene crackers have also reacted to the LPG [liquid propane gas] feedstock cost advantage by importing more LPG to feed their traditional naphtha crackers. Consequently, our export terminal on the Houston Ship Channel continues to be full, and propane exports are expected to remain robust at least through the middle of the year.
“We’re not the only ones that think the U.S. is competitive. Just this month, Shintech [Inc.], a large PVC [polyvinyl chloride] producer announced that it will go ahead with a project to expand its vinyls production capacity in Louisiana. That expansion is estimated to increase total vinyls capacity by about 90,000 metric tons by the end of 2011, representing an appetite for more than 900 million pounds of ethylene. If that ethylene were produced from ethane, that is equivalent to close to 30,000 b/d of incremental ethane.”
For the first quarter Enterprise posted net income of $378 million (50 cents/unit), versus $225 million (41 cents/unit) for the first quarter of 2009. The results were 8 cents/share better than the analyst consensus compiled by Thomson Reuters.
“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,” Creel said.
“Our natural gas pipeline systems reported record volumes of 12.1 trillion Btu/d. 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.”
Enterprise subsidiary DEP Holdings LLC is the general partner of and manages Duncan Energy Partners LP. Duncan first quarter net income was $21.2 million (37 cents/unit), compared to $19.9 million (34 cents/unit) for the first quarter of 2009.
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