Enterprise Products Partners (NYSE:EPD) is the country's biggest publicly traded midstream master limited partnership by market cap. The partnership has an incredibly diverse asset base that targets some of the most important shale plays in the United States, including the Marcellus Shale, the Permian Basin, and the Eagle Ford Shale. All told, the company operates more than 50,000 miles of pipeline, the majority of which carry natural gas and natural gas liquids, or NGL, though the partnership's crude oil pipeline business is becoming increasingly important.
Being on top doesn't make it any easier to stay there, and the midstream market is becoming increasingly competitive. However, I think Enterprise is one of the best midstream investment options out there, and I created a premium report on Enterprise to help guide investors on whether the company merits consideration for their portfolio.
Following is an excerpt from the report, laying out the company's opportunity. We hope you enjoy it.
In 2010, Enterprise merged with Enterprise GP holdings, effectively ending incentive distribution rights to its general partner. This simplified structure results in a lower cost of capital and an increase in financial flexibility for the partnership. It was perfect timing, and the new and improved Enterprise Products Partners is positioned perfectly to take advantage of three key trends in the energy world.
Trend No. 1
The U.S. energy map is changing, and in order for oil and gas producers to get the most bang for their buck, they've got to get production from unconventional regions to the highest paying markets in the country. That's where Enterprise comes in. The partnership has an expansive asset footprint along the U.S. Gulf Coast and its capacity for processing natural gas and fractionating natural gas liquids is hard for competitors to match, let alone beat. However, much of this production is suddenly coming from the northeast corner of the country, and not the Gulf Coast as it has in the past. As a result, Enterprise is moving full steam ahead on its planned ethane pipeline, the ATEX Express, which will run from the Marcellus Shale to the Gulf Coast.
The ATEX Express will have access to every ethylene plant in the U.S., and some producers like Chesapeake Energy who have already secured capacity on the line acknowledge that their production won't increase until this project comes online. Though it isn't scheduled to be completed until the first quarter of 2014, Enterprise has already secured contracts for the majority of the line's 190,000 barrel per day capacity.
This new line plays right into the hands of a related U.S. energy trend: increasing energy exports. The country recently became a net exporter of petroleum products, and the global demand for petrochemicals is poised to increase as well. In fact, petrochemical companies like Dow Chemical are building or reopening ethylene crackers on the Gulf Coast for the first time in years, hoping to ramp up domestic production and increase exports. The ATEX Express is just one example of how Enterprise can deliver the goods.
Trend No. 2
Second, NGLs are Enterprise's bread and butter. The depressed price of methane has driven many E&Ps to switch production focus from dry gas to wet gas, and no one was more ready for it than Enterprise. NGL pipelines and related services make up 58% of the partnership's business mix. Be it pipelines, storage, fractionation, or import/export terminals, Enterprise can fulfill a wide array of needs for NGL producers.
For a better understanding of Enterprise's range, let's take a quick look at two recent announcements.
Earlier this year, Enterprise announced it had secured the requisite commitments to support its Aegis ethane pipeline system. The 270-mile line will originate at the partnership's Mont Belvieu NGL storage complex and terminate in Louisiana, connecting to several petrochemical facilities along the way. The partnership estimates the demand for price-advantaged (read: cheap) ethane along the Gulf Coast is more than 1 million barrels per day and climbing.
Enterprise has also announced that it has significantly increased its ability to export NGLs by expanding its partnership with Oiltanking Partners at one of its Houston Ship Channel marine terminals. The long-term agreement allows Enterprise to load more refrigerated propane, butane, and isobutene -- collectively known as LPGs -- for delivery abroad. For example, the loading capacity for propane increased from 4 million barrels per month to 7.5 million barrels per month. The partnership's top destinations for propane worldwide include South America, Mexico, and Europe.
Trend No. 3
Finally, Enterprise is big enough to create business for itself. The demand for cheap ethane, combined with a switch to methane for home heating, has significantly reduced the use of propane in developing ethylene. As a result, there has been a decline in the associated production of propylene, a key component of plastic. Seizing this opportunity, the partnership announced that it is building one of the world's largest propane dehydrogenation (PDH) facilities. It will be located on the Gulf Coast, and exports will go through an Enterprise terminal while domestic supply will be shipped to nearby chemical customers via Enterprise-owned pipelines. Interest in this project ran so high that the partnership is currently evaluating the potential of constructing a second PDH facility.
All told, Enterprise has more than $7.5 billion in infrastructure coming online to meet needs just like this one.
Looking for more guidance?
That was just a sample of our new premium report on Enterprise. If you're weighing whether the company is a buy or sell, the report is an essential resource for investors seeking more information on the company. Not only that, but the report comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. To get started, simply click here now.
The Motley Fool recommends Enterprise Products Partners L.P. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.