EI companies are key players in the natural gas value chain through their involvement in gathering and processing, as well as transporting usable natural gas and NGLs to end markets. As a reminder, raw natural gas must be gathered by pipeline and moved to a processing facility, where it is processed to remove impurities and separate NGLs. NGLs must be further processed at a fractionation plant. Increased production of natural gas and NGLs means greater volumes for EI companies to transport and process. Several companies have announced new gas processing and fractionation projects recently:
Andeavor Logistics (ANDX) is building a new NGL fractionation and takeaway hub in the Bakken.
MPLX (MPLX) plans to add 8 new processing plants and 100 Mbpd of new fractionation capacity in the Marcellus, Utica and Permian basins.
Hess Midstream (HESM) is partnering with Targa Resources (TRGP) to build a new gas processing plant in North Dakota.
Enterprise Products Partners (EPD) is expanding its Orla natural gas processing plant and also expanding its butane isomerization facility at Mont Belvieu.
ONEOK (OKE) plans to spend $2.3 billion on a new NGL pipeline (Abuckle II), a new fractionator, and a new gas processing plant.
In the MLP space specifically, companies with leverage to the growth in natural gas production include those MLPs that are classified by the Energy MLP Classification Standard (EMCSSM) as Gathering & Processing |Natural Gas MLPs and Pipeline Transportation | Natural Gas MLPs. For context, 29.1% of the AMZI Index constituents by weight are classified as Gathering & Processing |Natural Gas MLPs, while 29.3% of the constituents by weight are classified as Pipeline Transportation | Natural Gas MLPs.
EI companies will help meet demand in the US and abroad.
In the coming years, global demand for natural gas is expected to increase. The chart below shows energy consumption in the US by fuel, with natural gas (and renewables) noticeably gaining through 2050. More broadly, the International Energy Agency expects global natural gas consumption to increase by 45% to 2040, led by industrial demand. EI companies will play an important role in satisfying growing demand in the US and abroad. For the first time in sixty years, the US was a net exporter of natural gas in 2017, but it likely won’t be the last time.
EI companies not only process natural gas and NGLs into usable form, but they also provide the pipeline and storage infrastructure to move hydrocarbons to demand centers, including borders or coasts for exports. As shown below, pipeline exports to Mexico have increased significantly in recent years and were up to 4.4 Bcf/d in December 2017. Recent startups of pipelines to Mexico include OKE’s joint-venture Roadrunner Pipeline with the first phase online in early 2016 and Energy Transfer’s (ETP) joint-venture Trans-Pecos and Comanche Trail Pipelines coming into service last year. Additional capacity is anticipated, including the expected startup of Enbridge’s (ENB) Valley Crossing Pipeline in October 2018 and the phase three expansion of Roadrunner in 2019.
Increasingly, natural gas will be exported as liquefied natural gas (LNG) to global markets, as liquefaction capacity in the US grows from 3.6 Bcf/ to 9.6 Bcf/d by year-end 2019. Several projects are in various stages of development but two terminals are exporting today. Cheniere’s (LNG, CQH, CQP) Sabine Pass terminal has been in operation since 2016, and Dominion Energy’s (D) Cove Point terminal shipped its first cargo last month. Within the MLP space, ETP and Energy Transfer Equity (ETE) are developing an LNG export project in Lake Charles, Louisiana.
EI companies also participate in the export of NGLs. ETP recently announced a new joint venture for an ethane export facility on the Gulf Coast that will supply ethane crackers in China. ETP already facilitates ethane exports to Canada through its Mariner West system and can supply NGLs to both domestic and international markets from its Marcus Hook complex in Pennsylvania. EPD owns marine terminals on the Houston Ship Channel that export propane, butane, and ethane. TRGP is also capable of exporting propane and butane through its facilities near Houston.
Bottom line
While rangebound prices have perhaps made natural gas an afterthought for energy infrastructure investors, the combination of growing supply and growing demand is fundamentally positive for those companies involved in natural gas gathering, processing and transportation. And the natural gas growth story isn’t limited to the US, as EI companies will increasingly help meet natural gas and NGL demand growth overseas by supporting exports. Natural gas probably won’t be stealing the spotlight from crude anytime soon, but investors in EI companies should be encouraged by the solid fundamentals for US natural gas from an infrastructure perspective.
