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Need a Permian Update? Targa Could Spill the Tea

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We’re optimistic about Targa Resources (TRGP) and expect the company to post healthy earnings growth in 1Q24 and the year ahead. In the big picture, Targa, one of the top midstream companies in the Permian Basin, could shed light on a few trends in gas and NGL markets next week.

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In the TRGP Financial Blueprint, East Daley Analytics models 2024 results above the midpoint of the company’s annual EBITDA guidance. We’ll be listening to TRGP’s earnings call on May 2 for a few points:

  • New Plant, Full Plant: Permian natural gas prices have been extremely volatile this spring, trading below zero most days since March. Supply growth from new infrastructure is one cause. Targa’s new 275 MMcf/d Greenwood plant went into service in 4Q23 in the Midland Basin. Plant volumes for the Midland G&P system have been updated through January 2024 in Energy Data Studio, and those plant volumes increased by 273 MMcf/d M-o-M in January (see figure from EDS). In the Delaware, the Lucid G&P system reported growth in processed volumes of 59 MMcf/d Q-o-Q.

  • Heather is Hard to Weather: The nasty mid-January winter storm knocked Permian gas supply offline. The event was good for Waha prices as natural gas delivery dipped well below pipe egress capacity, but it was bad for ethane recovery (see figure). The Energy Information Administration (EIA) reported US ethane supply from processing plants declined by 9% from December ’23 to January ’24. As a result, we have lowered our NGL supply outlook in the Purity Product Forecast. At the asset level, this translates into a 6% decline Q-o-Q in 1Q24 volumes for Targa’s Grand Prix NGL pipeline in the TRGP Financial Blueprint.

  • Propane Stays Home in January: Winter Storm Heather created more heating demand in January, raising domestic propane prices and temporarily closing the arbitrage window from the Far East to Mont Belvieu. As a result, EDA expects spot LPG shipped internationally to decline 1% Q-o-Q; we model TRGP’s Galena dock will see volumes fall even more, by 4%, because TRGP historically moves more spot volume relative to Energy Transfer (ET) and Enterprise Products (EPD).

  • Other Data Points: The sample for Targa’s South Texas Eagle Ford G&P system is down 68 MMcf/d (-20%) from 4Q23 through February ’24; the Eagle Ford system could have seen lingering impacts from winter weather. On the other hand, TRGP’s Bakken residue sample is up more than 20% through the first half of April vs 1Q24. Targa’s Train 9 fractionator and its partial interest in Gulf Coast Fractionators are expected to start this quarter; both expansions are badly needed in a tight NGL market. – Rob Wilson, CFA Tickers: EPD, ET, TRGP.


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