During its detailed analyst day presentation earlier this month, Enterprise Products Partners (EPD) outlined a few key themes driving the energy industry
Enterprise Products Partners (EPD) is one of the largest midstream master limited partnerships and is a major component of the Alerian MLP ETF (AMLP), the Tortoise Energy Infrastructure Corp. closed-end fund (TYG), the ClearBridge Energy MLP closed-end fund (CEM), and the Kayne Anderson MLP Investment closed-end fund (KYN).
The U.S. is still in the “early innings” of the shale revolution, meaning that while the domestic oil and gas production landscape has been drastically altered over the past few years by developing unconventional resources through horizontal drilling and hydraulic fracturing, there’s still a long runway for this development. One major driver underpinning this is the presence of “stacked plays,” in which many layers of hydrocarbon-bearing formations (that is, rocks that produce oil and natural gas) can be found in one area, allowing for potentially much more production over the years to come.
Even at prices that are low from a historical context (~$4 per MMBtu), EPD expects that significant natural gas production will continue to come online, as many plays—such as the rich portions of the Utica, Eagle Ford, and Marcellus Shales—can generate significant returns at these prices.
Given the development of “rich” natural gas shales and other plays with significant condensate content, U.S. natural gas liquids production is expected to continue to grow rapidly. Given that much of natural gas liquids production is composed of ethane (an average NGL barrel is mostly ethane and propane—see Falling natural gas liquids prices hurt energy names like Linn), ethane is expected to remain structurally oversupplied in the U.S., which puts downward pressure on ethane prices. However, EPD sees significant potential for ethane exports to markets such as Europe. EPD also currently exports other natural gas liquids (propane and butane) through its LPG (liquefied petroleum gas) export facilities on the Gulf Coast. The company expects this segment of its business to remain strong.
U.S. crude production will continue to grow, driven by the Eagle Ford, Permian, and Bakken plays, as will production from Canadian heavy oil.
Enterprise views the development of global shale resources as hampered by multiple factors, including political and fiscal instability, property and legal rights, infrastructure, technology, and capital. Implicitly, this supports the continued development of U.S. resources, and as an outgrowth of that, the export market. This is further supported by growing liquid hydrocarbon demand in emerging markets overseas.
For more on what EPD said during its comprehensive analyst day presentation, please read on to the following parts of this series.