- The volume-based business model of Enterprise Products Partners protects the company from volatile oil and gas prices.
- The company recently received approval to export processed condensate outside of the U.S. Citibank expects the export volume to be around 300,000 barrels per day during the current year.
- Enterprise also announced the completion of the Seaway oil pipeline. After successful commissioning, the pipeline is expected to double the capacity and reach 850,000 barrels per day.
- The Aegis and ATEX pipelines are expected to become operational within the next couple of years and will help to boost the earnings.
Enterprise Product Partners (NYSE:EPD) operates a network of pipeline assets that ties oil and gas fields to refineries. These assets include onshore and offshore pipelines, tankers for both inland and coastal waterways, and storage and processing facilities, particularly for natural gas and natural gas liquids. With these services Enterprise collects fees based on volumes in turn which provide protection against volatility in oil prices. So while the oil and gas industry is exposed to high volatility in oil prices, Enterprise Product Partners stands to benefit from rising volumes.
In addition to the pipeline services, exporting petroleum products is another potential driver of revenues. Enterprise already exports propane, recently started exporting ethane, and should begin exporting gasoline later in 2014. Enterprise Product Partners, along with Pioneer Natural Resources (NYSE:PXD), recently received approval to export processed condensate or a very light grade of crude oil. No other company has received approval to export this commodity.
According to the agreement, Pioneer will produce condensate and Enterprise will transport it to the export market. Citibank cited that approximately 300,000 barrels per day of condensate could be exported by the end of the current year. However, other analysts believe that the volumes could reach 700,000 barrels per day by the next year and as high as 1.7 million barrels per day by the end of 2018.
Increased Export Volumes
Going forward, Enterprise expects to increase the export volume of ethane and NGLs from 600,000 barrels per day to 750,000 barrels per day by the end of 2020. The increase is primarily due to increased demand for ethane as cheap feedstock for high-margin chemical businesses. To address this growth, Enterprise has initiated two new projects which are expected to come online during the next couple of years.
These projects include the Aegis pipeline and ATEX pipeline. The pipelines will be delivering for the NGL export and petrochemical markets. The ATEX pipeline is 1265 miles long and has an initial capacity of 125,000 bpd. The pipeline will join the Marcellus shale with the Gulf Coast export terminal and the petrochemical facilities. The Marcellus shale is expected to increase production twenty-eight fold from 2007-2035.
In addition, the pipeline is expected to increase its capacity to 265,000 bpd and has a 15-year contract in place. Similarly, the Aegis pipeline, which is 270 miles long, has a capacity of 425,000 barrels per day, out of which 200,000 barrels per day is already committed. The pipeline is designed to join the Texas shale fields with the Gulf Coast along with six petrochemical customers.
These pipelines are expected to become operational in the next couple of years. Upon successful completion, these pipelines will serve to lessen the gap between U.S. oil production and midstream assets and will deliver long-term value to Enterprise.
In a joint statement with Enbridge (NYSE:ENB), Enterprise Products Partners stated that the expansion of their Seaway oil pipeline is complete, but the commissioning is still underway. Upon successful commissioning of the project, the pipeline will connect Cushing, Oklahoma to the Jones Creek storage. With the 512 mile long expansion, the capacity of the Seaway system is expected to be doubled to 850,000 barrels per day.
The Seaway system also includes a terminal and distribution network originating in Texas City, which will serve the local refineries in the Houston ship channel. The pipeline is expected to meet the much-needed requirements of midstream infrastructure. Going forward, the pipeline expansion will now serve the needs of more customers and will significantly increase the operating cash flows of the partnership in the long run.
Enterprise is spending billions of dollars to build assets to transport and process energy that is being produced from America's shale boom. Given that the supply of NGLs is quickly overtaking the local demand, Enterprise is taking advantage of this situation by building export facilities to profit from exporting these commodities.
The company has purposefully allocated its capital expenditure by building assets in strategic locations. Moreover, the firm stands to benefit from the long-term prospects of exports. With the recent developments, I believe that the firm is well-positioned to substantially increase its operating cash flows, which will result in further strengthening of the bottom line and consequently the distribution.