As American energy production continues to grow, natural gas liquids, or NGLs, have begun to flood our energy hubs. Today we look at the developing NGL story through the recent deals of four big midstream players: Enterprise Products Partners (NYSE: EPD ) , Kinder Morgan Energy Partners (NYSE: KMP ) , Targa Resources Partners (NYSE: NGLS ) , and Plains All American Pipeline (NYSE: PAA ) .
In November, Enterprise Products Partners announced it had brought its eight NGL fractionator online at the Mont Belvieu NGL hub. In typical Enterprise fashion, it was completed ahead of schedule, and on budget. Good thing, too, as the partnership has officially begun to fill its ATEX Express pipeline, which carries NGLs from the Marcellus Shale down to the hub in Texas. Producers there have said on more than one occasion that production will climb once the line is in service.
Enterprise has the largest footprint at Mont Belvieu, and is the undisputed leader in the NGL world. It is the largest propane export handler in the U.S., and it has already ramped up capacity. Its export volumes should continue to grow over the next few years.
Kinder Morgan Energy Partners and Targa Resources Partners are following a similar path, as the pair announced a joint venture earlier this week to construct two fractionators at Mont Belvieu to support volumes coming in on the Utica Marcellus Texas NGL pipeline, itself a joint venture between Kinder Morgan and MarkWest Energy Partners.
Last week Plains All American announced its plans to build a new NGL fractionator and increase capacity at its existing condensate stabilizer to support production in the Eagle Ford shale. The fractionator will have a capacity of 15,000 barrels per day of Y-grade NGL, meaning NGLs that are capable of being stored as liquids at low pressure; propane and butane are examples.
At $120 million, it's a small project -- but it highlights an important aspect of Plains' NGL businesses that sets it apart from its peers: Rail infrastructure. The new fractionator will be located near the partnership's existing assets in Gardendale, TX, which includes a rail loading and unloading facility. Plains will enhance the facility to include storage appropriate for Y-grade NGLs, eventually bringing the terminal's capacity up to 120,000 barrels per day.
The facility compliments Plains' existing rail assets for NGL, which it acquired in large part from BP in 2011. That deal included long-term leases on 720 rail cars. The partnership's rail footprint now includes a total of 5,400 rail cars and 23 facilities to serve crude oil and NGL producers. As NGL production continues to grow in South Texas and Appalachia, expect Plains to profit.
The most important factor
Like natural gas, the price environment for natural gas liquids is depressed right now. That means that fee-based agreements are essential support for new NGL projects. It is more or less accepted that those are the only agreements that will be struck right now, but it merits watching anyway.
Over the past month, propane prices have begun to rise. The change comes largely on the back of exports and increased demand in the northeast, and we may see similar action in the butane market. The midstream infrastructure that the companies above are laying down is crucial to maintaining price levels. In the case of Enterprise, it will benefit directly from increasing exports that in turn drive up prices. The partnership has an NGL marketing business that is exposed to commodity prices.
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