IMO The MWE/EMG Utica JV Terms Are Really Important...
I'm so impressed with the quality of this board. Thanks to the really great posters.
I find myself wondering about the market for NGLs. With the advent of so much wet gas in the Marcellus and others, just what is the potential market for so much additional supply of NGLs? Is that market in danger of becoming oversupplied? We can all see what is happening to NG prices as a result of the major new discoveries that have been made. Could this happen to NGLs also? If so, wouldn't that have a rather serious impact on the cash flow of MWE and other MLPs in that business?
NGLs include everything from natural gasoline, butanes, propanes and ethane. If the market for those products was restricted to making them only from NLGs the market could and probably would be oversupplied. The reason that oversupply is NOT a problem is to make those products in most areas oil is used as a feedstock. The naptha and other oil fracs are considerably more expensive than NGLs. Because of this producers are moving to lower cost feedstock. Currently NGLs have about a 50% cost advantage in the US. That is why ethane, for example, costs double in Europe as they do not have an adequate supply of NGLs.
Think of it as simply changing from using racing gasoline at $6.00/gallon to regular to run your car. You get the same preformance in you Ford Fiesta but save lots of $$.
When MWE announces the JV terms it will certainly be interesting. I also await an accounting of the assets and goodwill be put onto the books. That will tell us the real return EMG received. Could it be less than some suggested?
Yes phugh there is going to come a time down the road where ngls will oversaturate the market. Its the normal cycle in the extractive industries whether it is oil or natural gas or ngls.
So the question is not, is it going to happen, but rather when and how does one prepare for it.
To prepare for it (which could be several years away based on supply/demand forecasts for energy) does not mean you should not invest now in a company with a solid growth outlook, strong business practices and solid management that can endure a downturn; it just means be watchful and analytical for the eventual over supply in how you structure your investments longer term, what can you endure during a downturn, etc.
Once again Mr Semple is thinking about 2 years or more ahead of you. Thats about how long ago Mr Semple announced the Mariner East project and then followed it up with the Mariner West projects, both in connection with Sunoco. These two projects were designed strictly to expand take-away capacity for the NGLS that the producers were producing and then venting into the air. MWE's part of these projects were to build 2 short pipelines to connect from MWE's Houston plant aroumd Pittsburgh. MWE would get very little of the shipping fees because they only had about 45 miles of pipe for each Mariner project. BUT-AND HERE IS THE BIG BUT. If one or both of these projects went through it would make MWE's Houston Processing plant the key destination for all the NGLS liquids to be processed in all of MWE's processing plants from Kentucky-through West Virginia-and to and through Pennsylvania.
And don't forget-take a look at a US map and see where OHIO and the Utica Shales are. They come east smack in the middle of the MWE Liberty spine that MWE is constructing right now in West Virginia and --In case you forgot-Just bought out the 49% EMG partner they had in the area. MWE Liberty will be wholly owned by MWE. And the people are falling all over themselves selling Millions of units at these prices. There will be a lot of sorry people a few years down the road when they finally understand what Mr Semple is building in his little sandbox the past few years. This is a work in progress and requires--- Patience b&w