Enterprise: The Gorilla in LPG

05/13/2014 7:00 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

Fracked shale is producing windfalls all over North America; here, we look at the last and most lucrative link in the hydrocarbon value chain: processing the liquids extracted from natural gas into liquefied petroleum gas (LPG) for export, notes Igor Greenwald, editor of MLP Profits.

In addition to technology and capital, this is a business that requires vertical integration and continent-spanning pipes, as well as highly specialized port facilities and a global roster of customers.

Today, the natural gas liquids (NGLs) are increasingly funneled to the Gulf Coast, which has the ports, the pipes, and the plants.

Almost as important is the Gulf Coast’s geography, suitable for supplying LPG to Central and South America, Europe and, increasingly in the years ahead, Asia via a Panama Canal that will soon be widened with this trade in mind.

The party’s only getting started according to Enterprise Products Partners (EPD), the leading US NGL fractionator and LPG exporter, which is expecting years of persistent domestic oversupply based on booming production from shale.

Propane currently makes up the bulk of LPG exports, and Enterprise accounted for more than three-quarters of US propane exports last year. And ethane is likely to carve out a much bigger European export market in the coming years.

Enterprise estimates that a typical European petrochemical cracker, with an annual production capacity of 1.5 billion pounds, would save $600 million a year by converting to use ethane as a feedstock instead of naphtha derived from crude oil.

Enterprise is the unchallenged 800-pound gorilla in US LPG exports. Its NGLs flow from the partnership’s 24 gas processing plants, down some of its 19,400 miles of NGL pipelines to Mont Belvieu, Texas, where the undifferentiated NGLs are purified into propane and butane for LPG export.

From Mont Belvieu, LPG is sent by pipeline to the Enterprise export terminal on the Houston Ship Channel, expanded a year ago to load up to 7.5 million barrels a month of LPG, from the prior four million.

A year from now, the loading capacity is expected to increase to nine million barrels, and subsequently to 16 million barrels per month. Current capacity is almost fully booked until 2017. As the dominant LPG exporter, Enterprise remains our top-ranked Best Buy and a Conservative Portfolio mainstay.

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