Phillips 66’s Midstream segment volumes are on track

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Phillips 66’s net profit is up in 9M14 

In 9M14, Phillips 66’s (PSX) net profit increased due to increased earnings from the transportation business and DCP Midstream (DPM). Other midstream operators include Kinder Morgan Inc. (KMI), Williams Companies (WMB), and Spectra Energy (SE). Some of these are components of Energy Sector Select Master Limited Partnership (or MLP) exchange-traded fund (or ETF) (XLE).

Midstream segment volume

Volume improvement

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As noted in the above chart, transportation volume increased during 9M14 compared to the same period in 2013. Transportation volumes also increased 9% in 2013 over 2012. In addition, throughput fees went up due to the implementation of market-based intersegment transfer prices for transportation and terminaling services during 2013. Higher volume coupled with higher fees resulted in higher net profit in 2014.

Natural gas liquids (or NGL) volume has been on an uptrend since 2013. NGL’s fractionated and extracted volume also went up by 6% and 9% in 2013 over 2012. Phillips 66 (PSX) fractionates or separates NGLs into individual components such as ethane, propane, and butane, and markets these as chemical feedstock, fuel, or blendstock. Higher NGL price is beneficial for the company.

NGL Price

Midstream’s earnings recovery in year-to-date 2014 was aided by higher NGL prices. However, in 2013 earnings were negatively affected by lower NGL prices.

NGL prices for DCP Midstream, the primary operator of Phillips 66’s midstream operation, declined from $34.2 per barrel in 2012 to $31.8 per barrel in 2013, or a decrease of ~7%.

For details on midstream segment’s assets, read Phillips 66: An overview.

Midstream segment has been Phillips 66’s (PSX) consistent performer since 2013. In the latest quarter, what has turned fortune is its Refining segment, as discussed in Part 4 of the series. In the following two articles, we will discuss the effect of crack spread and WTI-Brent spread on its margin and where margin is headed.

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