Enterprise is one of the leading midstream partnerships with a diverse slate of operations located across the U.S. Organized as a privately held products marketer in 1968, it was a pioneer MLP when it went public in 1998. Its executive vice president took time to visit with Midstream Business to discuss how Enterprise employs its assets to serve customers at both ends of the midstream as it provides attractive returns to its unitholders.

MIDSTREAM: On a personal note, what brought you to the midstream?

FOWLER: I began my career in 1978 with Deloitte, Haskins & Sells. The last 34 years have been in various segments of the energy industry—a land-based drilling contractor, exploration and production and midstream energy. I joined Enterprise shortly after its IPO in 1998.

MIDSTREAM: The U.S. has emerged as a petroleum products exporter—how has that changed your business? How would additional exports add value to Enterprise’s bottom line?

FOWLER: Enterprise is a fee-based, midstream service provider. Our objective is to provide our producing customers flow assurance and access to markets and provide our consuming customers supply diversification and reliability. With increased domestic production has come a greater demand for export capabilities to handle the surplus.

Enterprise has responded with numerous export-oriented expansion projects, including our operations at Beaumont and Morgan’s Point, Texas; and we’re expanding our LPG export terminal at Oiltanking (Partners LP)’s facility on the Houston Ship Channel. As a result, the company has provided our customers with both better access to U.S. supplies and global markets.


Enterprise Products’ Meeker, Colo., gas plant serves producers in the Piceance Basin.

We have established Enterprise as a leading provider of export terminal services—services that would not have been possible without the support of our extensive network of integrated assets, pipelines, storage, fractionation and processing. These growth projects are supported by long-term, fee-based contracts.

A unique aspect of Enterprise throughout its history, even as a private company, was that a substantial portion of our business was serving consuming customers: the petrochemical and refining industries. When we acquired (Royal Dutch) Shell (Plc)’s midstream business in 1999, we got some excellent leaders and employees. In fact, Mike Creel, our CEO; Jim Teague, our COO; and Bill Ordemann, our group senior vice president for the crude oil, natural gas, unregulated liquids and offshore businesses, joined Enterprise as a result of the Shell transaction. The Shell transaction significantly strengthened our businesses that serve upstream, producing customers. In addition, Jim Teague was a recent retiree from Dow Chemical (Co). We have several other employees that either came out of the petrochemical or the refining industry. So Enterprise has a good perspective in serving the needs of both our upstream and downstream customers.

MIDSTREAM: Enterprise was one of two companies to get U.S. Commerce Department confirmation on exporting condensate. What is your outlook for condensate and its export potential?

FOWLER: Condensate production is expected to continue increasing from domestic basins, the Eagle Ford and others. We consider details of our processed condensate business commercially sensitive. Our seeking the ruling from the Department of Commerce was another of our efforts to provide producers with access to new markets to increase the value of their production.

MIDSTREAM: How does the potential expansion of the ethane export facility that Enterprise is building at the Houston Ship Channel complement your other projects?

FOWLER: The Morgan’s Point facility is integrated with the rest of our midstream network along the Gulf Coast. Ethane for the terminal is supplied from our large fractionation and storage complex at Mont Belvieu, which is the terminus for ethane and mixed NGL pipelines including the ATEX Pipeline, the Mid-America, Seminole, Texas Express and South Texas pipelines.

The key for these facilities is flow assurance, reliability and diversification of supplies—all go hand-in-hand with availability. When you think about Mont Belvieu, it’s a really special place with a high-density salt dome. You can put purity products in, and they come out as purity products. They don’t leach impurities.

With that large volume of storage, we have a large supply resource to pull on. Mont Belvieu is supplied by ATEX bringing ethane from the Marcellus and Utica. Or if you think about mixed NGLs, the NGLs are supplied from South Texas, and from West Texas, the Midcontinent and Rockies on our Mid-America and Seminole pipelines and Front Range Pipeline and Texas Express Pipeline.

So again, Enterprise provides supply diversity and the value of integration.

MIDSTREAM: Repurposing the worldwide petrochemical business to run U.S.-produced ethane and propane rather than naphtha will require significant capital investments. How large a share of foreign petrochemical producers do you expect to make the switch?

FOWLER: Repurposing the worldwide petrochemical business is a bit of an overstatement, but we have seen certain petrochemical customers in Europe and Asia wanting to diversify their feedstock slate to include ethane and propane to displace more costly crude oil derivatives.

This is a developing market, so it’s difficult to say with any precision. However, demand in Europe, Latin America and Asia—complemented by the Panama Canal expansion—are expected to lead the way. I think it is important to note that not all of the NGLs are going to be used for petrochemical feedstocks. There may be applications for power generation.

If you go back to 2005, U.S. ethylene crackers that relied on ethane feedstocks were at a cost disadvantage compared to crackers in Europe and Asia using propane and naphtha. Now, U.S. crackers consuming ethane have gone from worst to first. Probably the only crackers that have lower feedstock costs are the ethane crackers in the Middle East.

So, some of the crackers in Europe and Asia are looking to diversify from more costly feedstocks of crude oil derivatives to ethane. But it’s easier for the crackers here domestically. It was easier because the ethane supply is much closer. It requires more evaluation and study by the European and Asia petrochemical customers because they have the additional cost to underwrite the refrigeration facility and the vessels to transport the ethane, in addition to modifying their facilities.

We have heard some discussion of ethane being used in combination with imported LNG as a fuel for power generation.

MIDSTREAM: As opposed to other well-known MLPs that have a separate general partner (GP) that takes a fee for running the partnership, an incentive distribution right (IDR), Enterprise has forgone “growth-sapping IDRs,” as described by analysts at Oppenheimer & Co. Why?

FOWLER: In 2002, we did an evaluation of what the long-term effects of the 50% general partner IDR burden would be on the underlying MLP. Our analysis at the time showed that over the long term, 10 to 20 years, the 50% carried interest payment to the general partner resulted in a significant financial burden to the MLP. It increased the cost of capital for the MLP, which made new investments less accretive in terms of distributable cash flow per LP unit.

Over the long-term, the 50% IDRs would reduce the cash distribution growth for the LPs and/or significantly increase the capital intensity of the MLP to achieve a specified growth rate. In 2002, our GP eliminated its 50% incentive distribution right.

In 2010, we merged our GP holding company into Enterprise and completely eliminated our GP IDRs. This has lowered our cost of capital and simplified our ownership structure. We believe this is a more durable model for the long term. Having no GP IDRs enhances our financial flexibility and increases the cash accretion for our limited partners from new investments.

We believe, for the long run, it’s a more durable business model. Some of the cash that would have otherwise been distributed to our GP can be retained and redeployed to invest in new projects, which provides more accretion to our unit holders.

For our investors, it’s easier to follow one security—EPD—rather than multiple affiliated securities. And I have to say that not only do the equity investors like it much better but also debt investors.

MIDSTREAM: What is Enterprise’s philosophy about adding projects into its backlog? At what point does a project qualify, in your view, as “backlog?”

FOWLER: We currently have $6 billion of projects under construction. These projects are supported by long-term customer contracts and have been approved by our board of directors. In addition to these projects, we have capital projects that are under development. These projects are in varying stages of development and customer negotiations.

In total, the investments associated with these projects are a multiple of the $6 billion of projects that we currently have under construction. We will add these projects to our construction backlog when we have executed contracts with customers and our board has approved the project.


Work wrapped up in the third quarter on the 512-mile loop of Enterprise Products’ Seaway Pipeline linking the Cushing, Okla., crude hub with the firm’s Jones Creek terminal outside Freeport, Texas. The work boosted Seaway’s capacity to 850,000 barrels per day.

MIDSTREAM: The company said during its second-quarter conference call that Enterprise is considering several additional projects that aren’t ready for disclosure with a comment that “The best is yet to come.” Could you elaborate generally on that?

FOWLER: One that we have announced is our proposed Bakken-to-Cushing crude oil pipeline. We announced an open season for this project in early September. It would be a 1,200-mile pipeline that would serve the prolific Bakken, plus the emerging Denver-Julesburg and Powder River basins of the Rockies.

We’re seeing opportunities, really, across all of our business segments. Probably the largest single project would be the Bakken-to-Cushing project. There are too many to enumerate here.

MIDSTREAM: In what midstream sectors do you see the best opportunities?

FOWLER: Supply-side opportunities are in NGLs and crude oil. Demand-side opportunities are in NGLs, crude oil and condensate, natural gas and refined products and petrochemicals.

MIDSTREAM: You have a very diversified business mix. Where are the bright spots?

FOWLER: The bright spots have really been across all of our businesses. Some examples of current and recently completed projects include the ATEX and Seaway pipelines.

Enterprise employees are among the most creative and hard-working in the industry. With their dedication—combined with a premier network of assets and a solid financial position—we are well-positioned for continued growth and innovation.

Overall, it is a dynamic time to be in the energy business. Producers have done a great service for this country; the technology that they’ve developed that has reduced our dependence on imported energy. What the producers have done in developing these non-conventional and shale plays is truly remarkable.

MIDSTREAM: Broadly, how will the midstream be different in five and 10 years?

FOWLER: It appears the unconventional shale plays have decades of drilling activity. According to the most recent report issued by the INGAA Foundation, more than $640 billion, or about $30 billion per year, in total capital expenditures are required over the next 22 years for natural gas, crude oil and NGL midstream infrastructure in the U.S. and Canada.

End-user demand for NGLs and natural gas will grow as new petrochemical facilities along the U.S. Gulf Coast, and internationally, come online—as well as LNG liquefaction facilities and gas-fired power generation and new manufacturing facilities along the Gulf Coast. There will be increased international demand for U.S. NGLs and natural gas to displace more costly crude oil derivatives and to provide supply diversification.

Again, I point to this: With what the producers are doing, we think there are decades of drilling activity in these unconventional shale plays. And at the same time, the producers seem to keep finding new plays as well, whether it’s in the U.S. or in Canada.

Enterprise is a volume-driven business. We perform best during good economic conditions because that usually means there is strong demand for energy.

When you consider income-oriented investments, MLPs provide a good, attractive total return, with a substantial amount of that total return in the form of cash distributions. Demographically, approximately10,000 baby boomers a day are retiring. There is a need for income. So this industry—the midstream MLPs—are attracting more capital.

At some point, we’ll see interest rates rise, I don’t know by how much or how soon. The distribution growth that we can provide our partners—supported by volume growth and returns on investments in energy infrastructure—is a good mitigant to the impact of potentially higher interest rates in all securities.

Paul Hart can be reached at pdhart@hartenergy.com or 713-260-6427.