Energy transfer partners looking at growth projects – energy transfer partners, l.p. (nyse etp) seeking alpha t gasthuys


As is the case with many midstream companies in North America, the continent’s growing production of both oil and natural gas has inspired Energy Transfer Partners ( ETP) to embark on several new projects meant to stimulate its growth over the coming years as well as better meet the growing needs of its customers in the energy production business. While I briefly discussed a few of these projects in my last article on the company, I also felt that a more in-depth look would help current and potential investors make a better decision about the company’s position in their portfolios. This article will endeavor to do just that. Overview

Energy Transfer Partners has been actively working to build its asset base significantly over the past few years and still has eleven projects that were completed in either 2016 or 2017 that have still not reached their maximum level of performance. These projects will continue to grow the company’s revenues over the next year or two as they continue to climb to peak output. However, these are not the projects that we are concerning ourselves with in today’s discussion. Instead, we will focus our discussion on some of the company’s projects that are coming online between now and the end of 2020.

As shown here, there are eleven such projects that are expected to be completed by the end of the decade. We can naturally expect each project in turn to grow the company’s revenue and cash flow as it comes online. This growing cash flow could also allow the company to raise the distributions that it makes to its shareholders. Mariner East 2

The first growth project that we will discuss here is the Mariner East 2 pipeline. This is a pipeline that is meant to complement the Marine East 1 pipeline that entered service in 2014 (carrying propane) and the first quarter of 2016 (providing ethane service).

As shown in the above map, the existing Mariner East 1 pipeline services customers in the natural gas-rich areas of the Marcellus and Utica Shales in Western Pennsylvania, West Virginia, and Eastern Ohio. The Mariner East 2 pipeline will naturally service the same area, although it will expand it somewhat to include the Scio Fractionator. The primary goal of the Mariner East 2 project is to increase the pipeline system’s total capacity to 345,000 barrels of natural gas liquids per day, up from its current level of 70,000 barrels per day. This project would thus dramatically increase the capacity of the pipeline system and serves as a direct response to the booming production in the region. In addition, since natural gas pipelines are compensated by the volume of the gas that they carry, the completion of the pipeline would increase the revenue that the company generates in the region.

The Mariner East 2 pipeline was originally expected to be completed and commence operations in the third quarter of 2017 but it has had something of a troubled development history. To start with, the company secured some of the right-of-ways to land that the pipeline crosses using eminent domain proceedings, which riled up some families. In fact, one family in Huntingdon County, Pennsylvania sat in trees for an extended period of time as a protest against the construction of the pipeline. Ultimately, some of the legal proceedings against the company may wind up being heard by the State Supreme Court.

In addition, the Pennsylvania Department of Environmental Protection identified hundreds of deficiencies in the company’s water-crossing and earth-moving permits. The agency has also issued more than thirty violations against the company for polluting wetlands, waterways, and destroying a dozen private water wells.

These issues all caused the pipeline project to fall significantly behind schedule. However, many of these delays have been rectified and the project remains under construction and it is expected to begin operation in the latter half of this year. Revolution System

The second growth project that we will discuss in this article is the company’s Revolution Project, which is also being constructed in Pennsylvania to meet the needs of shale gas producers. The project consists of a new 100-mile gathering pipeline system in Butler County, PA and a cryogenic gas processing plant to be constructed in Western Pennsylvania. In addition, another pipeline will be constructed to unite this plant to the existing Mariner East pipeline system as well as another plant hooking it up to the Rover pipeline. These latter two connections are both output pipelines that are meant to move the gas to the market after the plant processes it.

The general purpose of this facility is to gather up the natural gas from the various natural gas fields around Butler County, PA and purify and ultimately remove the natural gas liquids (propane, butane, and ethane) from the gas so that these products can be brought to the market. This is beneficial for customers due to the fact that natural gas liquids are priced higher than standard natural gas due to the fact that they are priced based on oil prices and not gas prices. Thus, producing and selling natural gas liquids is overall more profitable for exploration & production companies. This fact alone could make this service appealing to producers in the project’s service area and thus could easily prove additive to Energy Transfer Partners’ revenues and cash flow when it comes online during the second half of this year.

The final growth project that we will discuss today is the Permian Express 3 pipeline. The Permian Basin is a sedimentary basin located in West Texas and Southeast New Mexico that has been making a lot of headlines in oil-related news and company documents over the past few years. There are good reasons for this, most notably that it is a highly resource-rich area that produced more than 14.9 billion barrels of oil from the time of its discovery up until 1993. It remains the largest center of oil production in the United States to this day and recent innovations in horizontal drilling and hydraulic fracturing have exploded the basin’s production into areas such as the nearby Cline Shale.

It therefore makes sense that midstream activities such as pipelines would be vital to the success of the region, particularly as production picks up. Energy Transfer Partners began work on the multi-stage Permian Express project to meet this need.

The goal of this project is to connect the producing areas of the Permian Basin with the refinery and shipping terminal in Nederland, TX in order to facilitate the ease of export abroad. This is beneficial for those companies operating in the Permian as it reduces their costs to get their product to refineries and ultimately to the market.

Energy Transfer Partners brought the first phase of the project online in the fourth quarter of 2017. However, as already mentioned this is a multi-phase project. The company is now trying to develop the later stages of the project which will expand the pipeline to service the Delaware Basin (part of the Permian) as well as increasing the system’s capacity from its current level of 100,000 barrels per day to upwards of 300,000 barrels per day. I mentioned earlier in this article that midstream pipeline companies are compensated based on the volume of oil or natural gas that they transport. Thus, we can expect an increase in cash flow commensurate with the increase in volume when this phase is complete later this year.