- The shale boom in the U.S. has triggered demand for capital expenditures in the midstream infrastructure.
- The construction of the pipeline will fill the rising gap between production and the lack of storage and transportation facilities of the Bakken Shale play.
- The Eagle Ford Shale also presents ample opportunities as there is still room for more midstream services.
- Successful conversion of the Transwestern pipeline bodes well for interstate and intrastate segments as the transportation cost of liquids are higher than that of gas.
Energy Transfer Partners (NYSE:ETP) is a master limited partnership that operates one of the largest and diversified portfolios of energy assets in the US. Currently, the partnership owns and operates approximately 35,000 miles of natural gas and natural gas liquids pipelines.
ETP announced its intention to build an oil pipeline from the Bakken Shale in North Dakota to the American Midwest and Gulf Coast refineries. The proposed project is among the few major infrastructure investments being built or modified to transport fast growing North American production to refiners.
The partnership is also working to develop another pipeline known as Trunkline. The pipeline is expected to ship up to 420,000 barrels of crude per day from Patoka to Nederland.
Why Is the Bakken Shale Important?
U.S. production from unconventional oil and gas production is driving demand for midstream infrastructure and more consolidation of midstream companies. According to Deloitte, growing midstream infrastructure needs could require more than $200 billion in additional investment by 2035.The US Energy Information Administration estimates 35% of the Bakken natural gas production was flared or otherwise not marketed because of the insufficiency in the infrastructure required to store or transport it.
The future of oil transportation by the rail industry is uncertain as the rising public and political point scoring can prove to be more than damaging. Therefore, to fill the gap between midstream infrastructure and oil and gas production, ETP has taken the right step.
Intrastate and Interstate Transportation and Storage Segment
The partnership owns approximately 7,800 miles of natural gas transportation pipelines with a transportation capacity of almost 14.0 Bcf/day. During 2013, the partnership transported around 9,455,878 MMBtu of natural gas per day which is less than that of the transported volume in 2012.The decline in transported volume was mainly due to the termination of certain long-term contracts. Despite declining volumes the revenues increased by $261 million to $2.45 billion. However, the EBITDA contribution of the segment declined by $137 million.
Similarly, the interstate transportation and storage segment it owns and operates has approximately 12,800 miles of interstate natural gas pipeline with a transportation capacity of nearly 11.3 Bcf/day. During 2013 the segment's revenues and EBITDA increased due to the consolidation of Southern Union's transportation and storage but the transported volumes declined due to customer outage in along the Transwestern pipeline.
Going forward, the partnership is planning to convert existing pipeline assets from natural gas transportation to crude oil transportation. The conversion to oil transportation will have a positive impact on the segment's EBITDA due to a favorable change in the fees charged by the partnership.
The partnership owns and operates approximately 6,700 miles of in-service natural gas and NGL gathering pipelines with a gathering capacity of 6.0 Bcf/day. The midstream assets include five natural gas processing plants, 15 natural gas treating facilities, and three natural gas conditioning facilities with an aggregate capacity of 4.2 Bcf/day.
During 2013, the revenues from the segment increased by $296 million to $2249 million. The increased revenues were attributed to increased volumes from legacy assets primarily due to increased production in the Eagle Ford Shale.
Going forward, the shale plays are expected to keep the midstream demand momentum going over the next 10-20 years. In Eagle Ford Shale, the partnership has a strong position and is massively adding to its processing capacity. The partnership has been able to grow its processing capacity from 120 Mbpd in 2010 to 1340 Mbpd in 2014.
NGL Transportation and Service Segment
The partnership owns approximately 2,000 miles of NGL pipelines with an aggregate transportation capacity of nearly 388,000 Bbls/d. The partnership also owns three NGL processing plants with an aggregate processing capacity of app 904 MMcf/d, 5 fractionation facilities and 274 miles of NGL pipelines.
The completion of the Gateway and Justice pipelines and additional NGL production due to the return of the Jackson & Kennedy gas processing plants have led to increased revenues in the segment.
Energy Transfer Partners is in a transition phase and moving in a direction that ensures long-term growth. The announcement of the pipeline in the Bakken shale shows that management is not only well aware of the industrial trends but is also enacting precise, measurable and concrete efforts to create value from these trends. Therefore, I recommend buying the stock.