Rising production benefits midstream MLPs in the Permian Basin (Part 4 of 8)
EPD’s Permian Basin assets
Enterprise Products Partners LP (EPD) is a midstream oil and gas operator. In the Permian Basin, it has 674 miles of crude oil gathering and pipeline transmission. It has storage capacity of 2.1 million barrels, including 1.4 million barrels at Midland. In the Permian plain, the company currently has 466 rigs working. The company’s internal forecast shows that production in the Permian Basin can grow up to 2.7 million barrels per day by 2020—growth of around 59% from the current level.
In the Permian Basin in West Texas, EPD owns the Basin Pipeline, which transports crude oil from the Permian Basin and southern New Mexico to the Cushing hub. EPD has net ownership interest of ~0.8 million barrels of crude oil storage in the Basin Pipeline.
EPD’s oil storage and terminaling capacity complements pipeline assets in the Permian
EPD Enterprise Crude Houston (or ECHO) owns a storage terminal in Houston, Texas, as an expansion of its South Texas Crude Oil Pipeline System and Seaway Pipeline. Historically, refineries in southeast Texas imported crude oil before the oil shale boom. Following the growth of crude oil production in North America—especially from resource plays of the Eagle Ford, Permian, Mid-Continent, and Bakken into the Gulf Coast market—there has been a storage capacity bottleneck and inadequate handling of distribution system for varying grades of crude oil flowing into the pipelines.
EPD’s plans to increase capacity in Permian
EPD has stepped up to meet the opportunities of the lack in midstream infrastructure and made plans to significantly increase its crude oil storage and distribution capacity in the southeast Texas refinery market. It has commenced construction to add approximately 4.4 million barrels of new crude oil storage capacity at its ECHO terminal. This will increase ECHO’s capacity to approximately 6.5 million barrels. Also, to connect the ECHO storage facility with several major refineries in the Southeast Texas market, EPD plans to construct 55 miles of associated pipelines. The entire project is expected to come online in 2Q15.
EPD management’s views
Jim Teague, the director and COO of EPD, said in the company’s conference call for its 1Q14 earnings, “We are also going to growing on another 900,000 barrels of new storage into service at ECHO, over the next 18 months – 12 months to 18 months we will continue to add capacity at ECHO, as we had to being adding more than $6 million barrels a day, and frankly I think that needs to be larger. That is in conjunction with ECHO. We also continue to buildout our crude oil delivery systems in the Houston Ship Channel and Texas City which is a key to our ECHO success.”
Midstream Permian companies
The midstream energy companies that engage in the transportation and logistics of crude oil and natural gas have been very active for the past five years as a result of increasing production in the Permian Basin. The master limited partnerships in the midstream space that have benefited the most from the shale boom include Enterprise Products Partners LP (EPD), Sunoco Logistics Partners LP (SXL), Magellan Midstream Partners (MMP), and Energy Transfer Partners (ETP). These are components of the Alerian MLP ETF (AMLP).
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