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NGL Investors Dust Off the Oldies

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The Daley Note: March 8, 2023

EnLink Midstream (ENLC) plans to restart the 145 Mb/d Gulf Coast Fractionators (GCF) facility in Mont Belvieu by 2Q24, adding much-needed fractionation capacity to the NGL market.

Jointly owned by ENLC (38.75%), Targa Resources (TRGP, 38.75%) and Phillips 66 (PSX, 22.5%), GCF is one of the oldest fractionators on the Texas Gulf Coast. The group previously shut down the plant in 4Q20 due to low demand, high operating costs, and delayed maintenance work.

ENLC noted in its Investor Day deck that it plans to spend $25MM on the restart, indicating the total cost is nearly $65MM. On its 4Q22 earnings call, TRGP said it expects GCF to be fully restarted in 1Q24.

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In 2023 Dirty Little Secrets, East Daley predicted midstream companies will struggle to keep pace with NGL supply growth. NGLs are produced from wells along with natural gas and extracted as Y-grade during gas processing. As natural gas production grows, particularly from the Permian Basin, so will Y-grade volumes requiring transport and fractionation into purity products. The loss of ONEOK’s (OKE) Medford plant in Oklahoma has further limited frac availability.

Due to the tightness in the frac market and maintenance on other units, both ENLC and TRGP stated they are currently offloading frac volumes to third parties. ENLC expects those third-party commitments to roll off in time and eventually flow to GCF, while TRGP expects continued growth from its Permian G&P system will fill up its share of the fractionator.

With the restart of GCF, East Daley now estimates in our NGL Network Supply Model that 815 Mb/d of fractionation capacity will be added by 1H25, increasing total Texas Gulf Coast frac capacity to 5.0 MMb/d. This year alone, NGL-focused midstreamers like OKE, Enterprise (EPD) and Energy Transfer (ET) are adding 425 Mb/d of frac capacity.

In our NGL Network Supply Model, we expect frac utilization to decline to 95%, but the market will still be tight, especially as more fractionators will require maintenance after running at historically high levels recently (see figure).

There is still room for incremental frac capacity due to rapid NGL production growth from the Permian Basin. We expect total Permian NGL production to reach 3 MMb/d by YE25. To manage this growth, East Daley expects another 200-400 Mb/d of capacity will need to be added to move frac utilization back to historical levels of 80~90%. TRGP management said it continues to evaluate Train 10 (likely 120 Mb/d), and the main question is ‘when’ to bring it online, as GCF will give the company capacity in the near term.

While midstreamers continue to address frac tightness, there is still some meat on the bone for this latest stage of the frac boom. — Ajay Bakshani, CFA Tickers: ENLC, EPD, ET, OKE, PSX, TRGP.


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Gain a New NGL Perspective Through the NGL Network Supply Model

East Daley Analytics' NGL Network Model and Purity Product Dataset tie our NGL supply forecasts to downstream markets, providing asset-specific insights such as pipeline and fractionation volumes and rates. We use our patented method to monitor midstream flows from processing plants to fractionation centers, identifying infrastructure bottlenecks before the market recognizes them. Using a bottoms-up approach to supply, we go deeper than the PADD or sub-PADD level to truly understand what is happening on the ground in NGLs. Contact us for more information on the NGL Network Model and Purity Product Dataset.

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