Enterprise Products Partners and U.S. exports
Enterprise Products Partners (EPD) stated in its latest presentation that it expects ethane and LPG (liquefied petroleum gas) supply to continue to grow. The main driver of this is growth in the development of U.S. hydrocarbon resources that have significant natural gas liquids content, including propane and butane (which are classified as LPGs) as well as ethane.
Strong LPG export market share and plans to expand capacity
EPD is already a major player in the LPG export market. In 2013, EPD exported 87 million barrels of propane out of total U.S. exports of 112 million barrels, or 78% of the total U.S. propane export market. EPD’s LPG export facility is operating at 7.50 million barrels per month. The company has plans to expand capacity by 1.5 million barrels per month in 1Q 2015 and subsequently by 7.0 million barrels per month by 2016. The latest expansion drive is supported by long-term export agreements. The majority of EPD’s export dock capacity is booked through for the next five years, and EPD has substantial capacity booked through 2024. Currently, EPD is the major LPG export player in the U.S., with the other major MLP competitor being Targa Resource Partners (NGLS). Energy Transfer Partners (ETP), Regency Energy (RGP), and Sunoco Logistics Partners (SXL) are also working on a project called “Mariner South” with a goal of building an LPG export and import facility on the Texas Gulf Coast with initial capacity of 6 million barrels per month and an expected in-service date of 1Q15. These companies are all major master limited partnerships (MLPs) and components of the Alerian MLP ETF (AMLP).
For more on LPG exports, please read Enterprise Products Partners will increase its LPG export capacity.
The possibility of ethane exports
While EPD already is a major player in LPG exports, which helps with the supply and demand dynamics of propane and butane, a significant part of natural gas liquids production is ethane (~45%, according to EPD). So ethane is structurally oversupplied in the U.S. market and could benefit from exports. Note that ethane is more difficult to export than propane and butane (the LPGs) due to its chemical properties.
During its presentation, EPD stated that it continues to receive interest from petrochemical companies outside of North America regarding potential long-term ethane export arrangements using marine facilities on the Gulf Coast. Management commented that many northwest European petrochemical companies currently use naphtha as a base for producing chemicals, but that U.S.-produced ethane is a much cheaper alternative. EPD feels that the current oversupply of ethane could find a natural home in markets abroad as a use for a petrochemical feedstock. Plus, ethane could also be used for power generation as an alternative to LNGs. Management also commented that it’s seeing growing interest for ethane as an alternative fuel to replace some more expensive fuel, noting, “There is a substantial incentive for the global consumer to develop infrastructure and consider ethane as a viable alternative to their traditional feedstocks in order to stay competitive.”
Management also expects markets for additional refined products, propylene, and ethane. Given EPD’s current marine transportation assets, pipelines, and export infrastructure, management believes EPD is well positioned to be a leading exporter of a wide range of products.
Enterprise Products Partners (EPD) also elaborated on other major areas of capital investment during its presentation. For more on these areas, please read on to the following parts of this series.