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The Daley Note: January 18, 2023

ONEOK (OKE) plans to build a sixth fractionator at Mont Belvieu (MB-6), adding 125 Mb/d of much-needed frac capacity to the NGL market and potentially setting off another wave of expansions from peers. 

MB-6 will cost $550 million to build and will enter service in 1Q25, according to a Jan. 9 company release. OKE jointly announced the fractionator along with a $930 million insurance settlement for the Medford, OK fractionator, which exploded last July.  

MB-6 will serve as the replacement for the Medford frac, effectively substituting a 210 Mb/d frac in the Midcontinent with a smaller train on the Texas Gulf Coast. MB-6 will likely be funded by the settlement proceeds. Thus, the remaining $380 million from the settlement likely reflects the business interruption costs and lost revenues from the Medford explosion. 

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Although the Medford fractionator had a capacity of 210 Mb/d, OKE disclosed that it had been producing an ethane and propane mix (E/P) rather than purity ethane and propane. The company estimates the 125 Mb/d MB-6 is the equivalent to replacing 185 Mb/d (88%) of the Medford frac capacity. 

The decision to build the fractionator in Mont Belvieu instead of Medford/Conway reflects the growing demand for NGLs on the Gulf Coast and for exports, but can also provide a boost to OKE’s pipeline EBITDA. More Y-grade needs to go to Mont Belvieu now to be fractionated, and volumes will need to take OKE’s Arbuckle II pipeline to get there. OKE can also continue to serve the Midwest market by shipping purity products back to Conway via its Sterling pipes, further uplifting EBITDA. 

3Q22 FERC data shows Y-grade volumes on Arbuckle increased by 125 Mb/d Q-o-Q to 422 Mb/d, already reflecting the lack of fractionator space available at Conway. Volumes on the pipe will remain high as capacity is currently only being added in the Mont Belvieu market. We estimate Arbuckle has a capacity of 500 Mb/d and has ~440 Mb/d of minimum volume commitments (MVCs). If OKE can max out the pipe, it could generate an additional $65 million in annual EBITDA.  

The new fractionator announcement is also welcome news as frac capacity at both Conway and Mont Belvieu is constrained. In our NGL Network Model, we expect frac utilization to remain above 95% through 2025 even with the MB-6 announcement. We estimate an additional ~450 Mb/d of fractionation capacity will still be needed by 2025. — Ajay Bakshani, CFA Tickers: OKE. 

The NGL Network Model & Purity Product Forecast 

East Daley’s NGL Network Model and NGL Purity Product Forecast help users dig deeper than EIA data to connect the dots between NGL supply and demand. We monitor basin and sub-basin NGL production using monthly NGL data from EIA and East Daley’s own basin-level supply forecasts of Y-grade and NGL purity products, ethane rejection, and frac utilization each month. Follow key NGL data trends, including NGL production by basin, ethane recovery by basin, supply forecasts by NGL purity product, and regional NGL exports  Contact East Daley for more information on the NGL Network Model and NGL Purity Product Forecast. 

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