Seeking Alpha
Research analyst, oil & gas, tech, mid-cap
Profile| Send Message|
( followers)  

Production of natural gas liquids, or NGL, in Marcellus shale and Utica shale areas is booming, and the producers are struggling with transportation problems because of lack of infrastructure. To address this concern, Enterprise Products Partners (EPD) has undertaken a pipeline project called the Appalachia-to-Texas pipeline, or ATEX, Express. The ATEX Express is a 1,230-mile pipeline, which originates in Washington County, Pennsylvania, and ends at the company's Mont Belvieu complex in Texas. Ethane, which is a valuable feedstock to petrochemical plants, will be delivered by the ATEX Express. The ATEX Express has connections with four fractionators in the Marcellus/Utica shale. The pipeline will have an initial capacity of 125,000 barrels per day, or bpd, which is expandable to 265,000 bpd. This project is also supported by 15-year term contracts for transportation agreements. Initially, 65,000 bpd of these contracted volumes is expected to be transported. This can be ramped up to 130,000 bpd by 2018.

ATEX's termination point at the Mont Belvieu complex in Texas has more than 100 million barrels of NGL and petroleum liquid storage capacity. The complex also has a fractionation capacity of more than 750,000 bpd and an extensive NGL distribution system. This project will provide operators in the Marcellus/Utica region with much-needed ethane takeaway capacity, which will allow them to develop their reserves. Through the ATEX Express, they will also gain access to the largest NGL market in the U.S. The petrochemical operators from Corpus Christi to the Mississippi River corridor in Louisiana will be supplied with NGL feedstock through the ATEX Express.

Enterprise Products began injecting ethane into the ATEX Express in the fourth quarter of 2013. This pipeline is expected to begin commercial service in the first quarter of 2014. It will address the need for transportation for the players in the Marcellus shale and the Utica region. Earlier, there was a problem of ethane rejection since the transportation infrastructure was not available. With ATEX becoming operational, the contracted volumes for transportation can be expected to ramp up in the long term. Factoring in the $0.15 per gallon transportation rate and Enterprise Products having 130,000 bpd contracted volume in 2018, the ATEX could generate revenue of approximately $614,250 per day or $224 million per year.

Capacity Expansion

Enterprise Products is also ramping up capacity at its Enterprise Crude Oil Houston, or ECHO, storage and distribution terminal in south Houston. The capacity expansion responds to the burgeoning crude-oil production in the U.S. and enables more-efficient delivery to refineries. The ECHO terminal has three crude storage tanks with a capacity of 250,000 barrels each, which translates into a net crude holding capacity of 750,000 barrels.

Enterprise Products has planned two expansion phases, the first of which will begin operations in the second quarter of 2014, followed by the second expansion phase that will be operational by the end of this year or the beginning of next year. The first expansion phase will add three tanks to the site for an additional capacity of 900,000 barrels. The second phase will add a further 11 tanks of 400,000 barrels each, augmenting capacity by 4.4 million barrels. The ECHO terminal will thus have 17 tanks for a net capacity of 6.05 million barrels on completion.

(click to enlarge)

The ECHO project will have connections to refineries with an aggregate capacity of 3.6 million bpd. This terminal will be a distribution terminal for southeast Texas refineries, which have about 20% of the U.S. refining capacity. It will address the delivery requirements of crude-oil output from the Eagle Ford shale and the Permian basin in Texas. The ECHO project is thus an eight-fold storage capacity expansion over the existing capacity. This project will increase revenue for the onshore-crude-oil-pipelines-and-services business segment of Enterprise Products. This segment contributed the most revenue to the company in the first nine months of 2013, accounting for over 44%. Thus, the capacity expansion at ECHO terminal is a clear move by the company to use this segment as a cash cow and reap the benefits from this segment in the future.

Conclusion

Enterprise Products is expected to benefit as a result of the ATEX Express coming online this year. Having secured long-term contracts for transportation, the company is positioned to benefit over the long term. The completion of the ECHO terminal at the end of this year or early next year will help Enterprise Products send the crude from the Eagle Ford and Permian basin to the refineries. Enterprise Products can also be considered for its distribution, with a dividend yield of 4.3%. The company has increased its per unit distribution for 38 consecutive quarters, which augurs well for income investors who seek a regularly growing income stream.

Source: Enterprise Products Partners: 2 Projects That Will Generate Long-Term Value