Refiners can make a pretty penny exporting refined crude products, but first they need to get their hands on cheap U.S. crude. Enbridge (NYSE: ENB ) and Enterprise Products Partners (NYSE: EPD ) just completed construction of their 450 thousand barrel per day (mbpd) expansion of the Seaway Pipeline System from Cushing to the Texan Gulf Coast. This project is emblematic of U.S. energy growth, pointing to midstream and downstream investment opportunities.
The pipeline game
Crude by rail is a hot topic, but pipelines are still the workhorse of the midstream industry. Enbridge is hard at work trying to transport crude from isolated producing areas. It recently received approval for its 525 mbpd North Gateway pipeline from Alberta to Kitimat, B.C. Together with the $2.7 billion Flanagan South, Seaway will have increased capacity to transport Canadian oil all the way down to the Gulf Coast.
Valero Energy (NYSE: VLO ) is a good refined exports play. Thanks to its 1,605 mbpd Gulf Coast throughput, it has great access to refined product markets abroad. Its U.S. focus gives Valero an advantage over globally diversified majors with refineries in Europe or Asia. The boom in U.S. natural gas gives Valero access to a discounted feedstock. The company estimates that thanks to U.S. shale gas, it saves $3.5 billion in pre-tax annual costs per year relative to Asian liquefied natural gas prices.
With America's net product exports more than 2,000 mbpd and fat Gulf Coast diesel margins of $15 per barrel relative to Brent, Valero is one of the biggest winners of the shale boom.
The refiner Marathon Petroleum (NYSE: MPC ) is working to replicate Valero's export success, but it will take time. Marathon has a bigger focus on the Eastern half of the U.S. In 2013 it did spend more than $110 million to increase synergies between its refinery in Galveston, Texas and other assets. By improving light ends recovery and other operations, the company is working to expand profitable exports. From 2010 to 2013, Marathon was able to increase product exports from 50 mbpd to more than 200 mbpd.
In the past two years, Valero has grown its dividend by 66.7%, and Marathon grew its dividend by 68%. This dividend growth is a testament to organic investing in a growing industry.
The other pipeline play
Enterprise Products Partners is the other half of the Seaway project. The MLP's midstream assets spread out from the Gulf Coast like a spider's web. It is also trying to increase its refined products exports, especially ethane and liquefied propane gas (LPG). Between the fourth quarter of 2012 and the first quarter of 2014, Enterprise Products Partners managed to expand bookings of its LPG dock by at least six years.
Expansion projects and favorable industry trends have helped to boost Enterprise Products Partners' distributable cash flow by 66.2% from 2010 to 2013. Such a high growth rate is no fluke. The U.S. needs more export capacity, and Enterprise Products Partners' existing assets give the company a big leg up over potential entrants.
The Foolish bottom line
It is clear that shale plays benefit many more companies than the quintessential exploration and production. The completion of mechanical work on the Seaway Pipeline points to growth of the midstream and downstream industries. There is no one way to play this story, but Enterprise Products Partners' vast refined products network or Valero's large Gulf Coast refinery assets are great places to find dependable growth.
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