1 Incredible Opportunity for Enterprise Products Partners

Enterprise Products Partners (NYSE: EPD  ) is spending billions of dollars to build assets to pipe and process energy being produced from America's shale boom. But one thing has become clear to the company as it has expanded its footprint. America simply won't use all of the energy we're producing, which is why the company is beginning to turn some of its attention to the incredible opportunities in the energy export marketplace.

Take a look at the following slide from a recent investor presentation.

Source: Enterprise Products Partners Investor Presentation (link opens a PDF) 

As that slide points out production of energy commodities in America are expected to head higher through the end of the decade. But the expected demand for natural gas liquids like ethane and LPG aren't expected to keep pace with growing supply. This presents an incredible opportunity for Enterprise Products Partners to lead the way in exporting this excess energy.

First mover with a massive advantage
Because of that the company has nearly singlehandedly made America the world's top exporter of propane. It's a market that currently has little competition as Targa Resources Partners (NYSE: NGLS  ) has the only other operating LPG export facility on the Gulf Coast that's linked into America's NGL hub at Mount Belvieu.

That being said, competition is expected to grow along with the supply of LPG. For example, Targa Resources Partners is currently expanding its facility from four million barrels per month to six million barrels per month. Meanwhile, Phillips 66 (NYSE: PSX  ) announced plans earlier this year to build a LPG export facility in the Gulf. Once complete Phillips 66's export terminal will have initial capacity to export 4.4 million barrels of LPG per month. Still, the combined capacity of those two facilities will be well under the 16 million barrels a month of export capacity that Enterprise Products Partners plans to have operational by the end of next year.

But Enterprise Products Partners can see that competitors are moving into its market making it harder for it to continue to grow capacity to export LPG. That's why the company recently announced that it was going to tackle the other growing NGL that's expected to outpace supply: Ethane.

First mover in a new market
Earlier this month Enterprise Products Partners announced that it would build an ethane export facility on the Houston Ship Channel. The facility would have the capability to load fully refrigerated ethane at about 10,000 barrels an hour. The project is supported by long-term contracts and should begin operations by the third quarter of 2016.

As the following slide notes, Enterprise Products Partners sees new markets opening up in both Europe and Asia for U.S. ethane because it's so inexpensive relative to the oil-based naphtha currently being used as a feedstock for petrochemicals.

Source: Enterprise Products Partners 

As that slide notes Asia could also be an important future destination for U.S. ethane as it offers a massive price discount to what's currently available.

What's remarkable at this point is that Enterprise Products Partners has this market pretty much to itself as few peers are even considering such a project. In fact, at Phillips 66's analyst day earlier this year CEO Greg Garland said that he didn't see any real potential for ethane export facilities in the U.S. He noted that these are expensive to build and if someone actually built one it would only be completed for a strategic purpose and not for economic gain, which is why Phillips 66 wouldn't even consider building one.

While we don't know the current economics of Enterprise Products Partners' ethane export project, it's certainly not building it just for strategic purposes. As noted before the company already has the long-term contracts in place that support the economics of the project. Suffice it to say, Enterprise Products Partners will be profiting from this facility and any future expansions as its peers are pretty much staying away from ethane exports. That's giving Enterprise Products Partners a big first mover advantage as it can lock up customers on both sides of the sea without any competition. 

Investor takeaway
Enterprise Products Partners knows that the supply of NGLs is quickly outpacing American demand. It's taking advantage of that knowledge and building export facilities to profit from exporting these commodities. It's an incredible opportunity that the company isn't going to let slip away.

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  • Report this Comment On July 03, 2014, at 8:47 PM, bunngolf wrote:

    Being an early mover in ethane should be a plus for EPD. No disrespect to Greg Garland and crew at PSX, but I don't believe EPD is going to do the terminal build out for their health. The brain trust at EPD has shown time and again they are sharp evaluators of energy projects.

    Some are scratching their heads about them wanting to subscribe and built out a pipeline from the Bakken to Cushing. I believe they will oversubscribe and become instantly profitable, now that they can export condensates.

    EPD is a great American energy company, and still probably way too cheap in the 70s. Growth, Yield and no GP to contend with.

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