uploads///Chemical Volume

Phillips 66: Midstream takes a hit on natural gas liquids price

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Chemicals sees volume improvement

In this article, we’ll analyze Phillips 66’s (PSX) Midstream and Chemicals segments from a volume and price perspective.

Phillips 66’s (PSX) Chemicals segment, which consists of CPChem, witnessed lower traffic in 4Q14. Volume and capacity use sagged, but the company was still able to maintain a steady profit. Volume registered a 4% drop, while capacity use declined to 83% from 95% compared to the same quarter last year.

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What affected Chemicals earnings

Adjusted earnings for the segment in 4Q14 were $270 million, almost unchanged from 4Q13. PSX recorded higher planned maintenance costs related to CPChem’s Port Arthur ethylene plant outage. Fortunately, business interruption insurance recoveries offset the losses from the outage. CPChem’s Port Arthur plant resumed normal operations in November 2014.

As noted in the graph above, ethylene sales price and the cost of NGL (natural gas liquids) production each decreased in 4Q14 over the same quarter a year ago. Nevertheless, production costs fell more than the price—4% versus 44%. This affected Phillips 66’s margin positively, as the company produces ethylene.

For more on this topic, read Must-know: Phillips 66’s midstream business.

Midstream segment volume and performance

The Midstream segment has been PSX’s most consistent performer since 2013. In the latest quarter, it just about maintained the volume trend, decreasing just marginally from 3Q14 levels. Yet, NGL prices dropped significantly. From 4Q13 to 4Q14, weighted average NGL prices decreased ~31%. This negatively affected the Midstream segment’s profitability. For more on this topic, read Are midstream energy investments safe from falling oil prices?

Other midstream operators include Kinder Morgan (KMI), The Williams Companies (WMB), and Spectra Energy (SE). All of these are components of the Energy Select Sector SPDR ETF (XLE). KMI, WMB, and SE combined account for 9.2% of XLE.

Read the following section to learn about Phillips 66’s full-year performance in 2014.

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