Enterprise Demands More Growth

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In Enterprise Product Partners’ (NYSE: EPD) latest quarterly earnings conference call COO A. James Teague said several things of note that are beginning to signal a slight shift in their growth outlook.  He said that,

 “The industry continues to present opportunities in both the supply and the demand side of the equation. It's an exciting time to be part of this industry and exciting to be working for Enterprise. I believe, in the future, we are going to see a lot of opportunities on the demand side of the equation.”

Further along in the call he said,

“I've said that the next wave of opportunities for Enterprise could be on the demand side of the equation. Our PDH project is an excellent example of this and an excellent fit with our existing operational and commercial capabilities. But more importantly, it demonstrates how Enterprise's position continues to provide the link between plentiful and growing NGL supplies and growing opportunities in Petrochemicals. In summary, as fundamentals change, we continue to find ways to increase our contribution along the value chain…”

Finally, he noted that,

“We're quite confident in our capabilities. But as (CEO) Mike (Creel) pointed out, there's plenty to be done and new opportunities are on the horizon. Our strong customer focus, our employees and our reputation will allow us to capture even more opportunities.”

So being the curious sort the question I want answered is what will they build next?

They certainly have been busy this year having completed $1.7 billion worth of organic growth capital projects which have now commenced operations with another $1.3 billion worth of projects to come online through end of the year.  Looking to 2013 they expect to complete $2.4 billion worth of projects and looking out even further they have $7.9 billion worth of growth projects that will be completed though the first half of 2015.  Other than the Propane Dehydrogenation Plant that's in the works their business is on the supply side of things so it’s interesting to think about how they’d fit on the demand side.   

One thing we do know, it won’t be an ethylene cracker.  When asked if this type of project was what they might be building on the demand side it was quickly dismissed by COO James Teague when he said, “I mean, I don't want to speak for Enterprise. Speaking for me, I hope not. We got a bunch of customers that I think could be a little bit irritated at us. So, no.”

Nor will they be looking to do an ethane export terminal like we saw with the Range (NYSE: RRC) MarkWest (NYSE: MWE) Sunoco (NYSE: SXL) project in the Marcellus.  In that project Range will be supplying ethane to be piped through the Mariner East which is jointly owned by Sunoco and MarkWest.  From there it will be exported to Europe where Range has secured a 15 year deal.

It would have seemed logical that Enterprise would consider an ethane export project in the Gulf Coast since they’re already a big exporter of propane.  However, when asked by an analyst in the conference call if they’d consider doing an ethane export terminal on the Gulf Coast the first response was that they’d of course consider doing anything if they could make money doing so.  However, in more realistic terms CEO Mike Creel stated,

“I think one of the things that we think about in the Gulf Coast is that, of course, ethane supplies there -- petrochemicals are going to build new assets where the supply is. Why spend the extra money to export someplace else? And that's what we're seeing the petrochemicals do. If you look at kind of the numbers that we've been hearing about for theoretical ethane export, it's kind of twice the cost for somebody to move it by pipe, by our pipe, down to the Gulf Coast. So we think we've got a better solution. But as Jim said, if somebody is willing to pay the price to have us construct an export facility and enter into a long-term contract to provide the right returns, that's something we'll consider.”

It would appear that they’ll stay away from the demand side of ethane.  So where might they go on the demand side? 

On the call there was an interesting question that tried to pull out some more details from Enterprise.  The analyst from Raymond James asked, “This goes back to your comment about the next wave of opportunities here on the demand side. When do you start thinking about the potential for butane dehydrogenation, if you're due to capitalize on either the butadiene or butylene demand, or maybe even more isomerization capacity to arbitrage the normal to isobutane spread, recognizing that as seasonal?”

COO James Teague responded by saying, “We did our PDH plant because we got customers that recognized that they wanted an on-purpose supply in their portfolio. I think we were public that we were promoting the same thing in terms of on-purpose butadiene. Those customers have not crossed the threshold of recognizing that they want on-purpose butadiene. However, butadiene is a coproduct out of crackers. To some -- at some point, in my mind, they're going to recognize that need.”

So it sounds like that’s a project they’d be interested in doing if they could get some customers on board.  One project that didn’t get any mention on the call that I thought might be interesting is a gas-to-liquids project.  These massive, multi-billion dollar facilities would be quite the undertaking for a company like Enterprise and likely would be something they’d need to partner with if they’d even consider that side of demand. 

Currently Sasol (NYSE: SSL) is considering an $8 to $10 billion first of its kind GTL project Louisiana.  The project could produce two million tons of products each year.   It’s an interesting look at how one company is looking to use our abundant natural gas and convert it into a product in demand, in this case diesel. 

While it’s unlikely that Enterprise would consider such a project, we know more about what they’re not planning to build then what they are at this point.  What we do know is that they’ll only invest capital on projects they know will generate exceptional returns.  That’s exactly what they’re doing.


latimerburned owns shares of Enterprise Products Partners L.P. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Enterprise Products Partners L.P., Range Resources, and Sasol. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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