Leading NGL competitors are taking an aggressive tack to protect market share, proposing to build significantly more pipeline capacity out of the Permian Basin than supply growth can support, according to analysis by East Daley Analytics.
As plant dedications roll off between 2025 and 2030 in the Permian, the competition for NGL barrels will grow fierce. In fact, the fight has already started, reflected in competing pipeline projects to move Y-grade from the Permian to Gulf Coast fractionators and export terminals.
Several new greenfield projects are under development, including the 400 Mb/d Daytona pipeline by Targa Resources (TRGP) and the 600 Mb/d Bahia pipeline by Enterprise Products (EPD). Enterprise is also converting its Seminole crude pipeline to NGL service in 4Q23. ONEOK (OKE) is expanding its West Texas NGL system to 190 Mb/d by 1H25, and smaller NGL systems EPIC and BANGL are also both expanding by 75 Mb/d in 1H25.
As these projects are completed, EDA expects NGL pipeline capacity to loosen considerably. We forecast Y-grade capacity out of the Permian Basin to reach about 4.6 MMb/d in 2025 (+1.2 MMb/d growth), while we expect NGL production to total ~3.5 MMb/d. According to the NGL Network Model, utilization on Permian pipes to the Gulf Coast declines from just under 90% currently to the low-70% range by 2025 (see chart).
East Daley will explore the battle for NGL barrels in the 2024 Dirty Little Secrets presentation Wednesday (December 13). The pipeline overbuild is rational in our view, as the leading midstream competitors seek to protect lucrative profits along the NGL value chain.
We calculate the integrated NGL giants Energy Transfer (ET), EPD and TRGP earn almost $5.50 on a per-barrel-equivalent basis at their Permian gas processing plants. These companies then more than double their NGL earnings by sending volumes through their own pipelines (~$3/bbl), fractionation plants (almost $2/bbl) and LPG export terminals on the Gulf Coast (~$1.75/bbl).
Defending these healthy NGL margins requires going on offense, even if capital spending precedes higher pipeline utilization. As excess capacity piles up, we expect market rates for transmission and fractionation (T&F) to fall below legacy tariffs in 2025. Even so, it remains a smart strategy to preemptively secure NGL barrels. – Robert Wilson, CFA and Christina Adjiman Tickers: EPD, ET, TRGP.
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