The more things change, the more they stay the same. In last year’s Midstream Business midstream NGL rankings, we noted that consolidation was a major story heading forward and that has certainly been the case this year.

Kinder Morgan Energy Partners LP acquired Copano Energy LLC; Crosstex Energy merged with Devon Energy’s midstream assets to form general partner EnLink Midstream LLC and MLP EnLink Midstream Partners LP; Enbridge Energy Partners LP created Midcoast Energy Partners LP; The Williams Cos. Inc. acquired Access Midstream Partners LP; and Energy Transfer Partners LP (ETP) continued to reap the benefits of its myriad midstream holdings.

However, the dominant players at the top of our rankings remain the same as they have for seven straight years. DCP Midstream Partners LP and Enterprise Products Partners LP again hold the top two spots in our gas processors and NGL producer rankings.

The criteria for our rankings remain the same, with results based on all volumes processed and produced at companies’ processing plants and fractionators for the prior calendar year. Our results are tabulated the following year to allow for final accounting of figures by companies.

DCP remains dominant

DCP Midstream is the only company to top both the processor and producer rankings—and did so for the second straight year. The company reported a 6% increase to 425,597 barrels per day (bbl/d) on its already impressive NGL production total from 2012 of 401,914 bbl/d.

Perhaps the most striking aspect of our rankings is that not only does DCP Midstream’s NGL production figure represent the largest sum for this year—it is also the largest sum Hart Energy has recorded in any of its previous rankings dating back to the 1990s.

Notes: Midcoast Energy Partners’ 2012 figures are Enbridge Inc. figures; EnLink Midstream Partners represent Crosstex Energy and Devon's midstream assets totals for 2013 and 2012; Energy Transfer figures include Energy Transfer Parters, Regency Energy Partners and Southern Union totals. Company data, submissions compiled by Frank Nieto.

Similarly, DCP Midstream’s gas processing figure of 6.14 billion cubic feet per day (Bcf/d) is the largest total we’ve reported for a pure midstream company.

Both of DCP Midstream’s results are a direct result of the company’s organic growth strategy, which has seen it build on its current footholds to create super-systems that allow it to achieve critical mass by connecting assets and operations in several of the most important plays in the country such as the Permian Basin, the Denver-Julesburg (D-J) Basin, Midcontinent, the South Central Oklahoma Oil Province (SCOOP) and Eagle Ford Shale.

Since 2010, DCP Midstream has seen its NGL production increase 20% as it builds on a disciplined growth strategy that has the company’s assets gathering or processing about 12% of all U.S. gas.

“We believe this is a business where size and scale really matter and with our leadership position, we have it in spades,” Wouter van Kempen, chairman, president and CEO of DCP Midstream, said during the recent National Association of Publicly Traded Partnerships’ MLP Investor Conference.

He noted that during the past five years, DCP Midstream has transformed from a top gathering and processing company into a fully integrated midstream company. “We are continuing to integrate our processing assets to build systems that give us a competitive advantage and greater reliability,” he added.

Eagle Ford growth

The Eagle Ford has grown at such a rapid rate that DCP Midstream’s system in the play reported it was operating at 85% of its 1.2 Bcf/d of processing capacity as of August. The D-J Basin is another area that the company is excited about entering in 2015; DCP Midstream expanded its O’Connor processing plant in the play to 160 million cubic feet per day (MMcf/d) in March.

The facility is now operating between 85% and 90% of capacity, and the company is on track to bring its 200 MMcf/d Lucerne 2 processing plant online in mid-2015.

“The D-J Basin is an exceptional growth area and now with regulatory uncertainty resolved, we will continue to see volume growth and infrastructure needs as E&P companies deploy large amounts of capital in the drilling programs in this prolific area,” Bill Waldheim, president, DCP Midstream Partners, said during a recent earnings call.

The company is one of the largest processors in the Permian and has multiple processing plants in the works for the play with plans to connect them to its Sand Hills Pipeline to create a larger system in the region.

Notes: Midcoast Energy Partners’ 2012 figures are Enbridge Energy Partners figures; EnLink Midstream Partners represent Crosstex Energy and Devon’s midstream assets totals for 2013; Kinder Morgan Midstream includes Copano figures; and Energy Transfer consists of Energy Transfer Partners, Regency Energy Partners and Southern Union volumes. Company data, submissions compiled by Frank Nieto.

Integrated model success

Enterprise Products Partners’ 379,000 bbl/d of NGL produced in 2013 was a record for the company and was the third-largest total in our ranking’s history. The company experienced a 10% drop in processing volume compared to 2012, but its 5.45 Bcf/d was still 1 Bcf/d greater than third-place Williams.

Part of the reason for the increase in NGL production and a similar drop in processing volumes was Enterprise’s integrated approach that is heavily tied into both the supply and demand functions of the industry.

“At Enterprise we are constantly focused on building and improving the systems around which we build our businesses, which is very different from managing a portfolio of assets,” Jim Teague, COO of Enterprise Products Partners, said during a recent conference call to discuss earnings.

“People who come here from other companies have told me that it takes them a while to grasp the Enterprise integrated value chain model. They soon realize it is more than a model. It’s our culture. At Enterprise we understand our role on each side of the supply-demand equation: the value of bringing supplies and markets together,” he continued.

Using this equation, Enterprise has shifted its focus toward projects to provide producers with outlets to new markets via a combination of existing assets and greenfield projects.

While Enterprise’s most high-profile projects over the past year have focused on export opportunities, the company remains committed to the domestic markets. In fact, these exports should help to improve domestic demand for NGL by finding an outlet for excess products.

Doubling up

At Hart Energy’s 2013 Marcellus-Utica Midstream conference in Pittsburgh, ETP’s president of midstream, Rick Cargile, said that the company would be the top NGL producer in the U.S. by 2015 with 450,000 bbl/d. Based on its 2013 results, this prediction has a very strong chance of coming true as it more than doubled its production from 94,600 bbl/d in 2012 to 206,900 bbl/d last year.

A great deal of this growth can be attributed to the company’s evolution in the Eagle Ford. In 2010, ETP had the fifth-largest processing capacity in the play. In the four years since, ETP has grown its processing capacity by 175% and is now the second-largest processor in the play behind Enterprise Products Partners.

Much of the overall progress is due to the financial benefits and flexibility that the Energy Transfer family of companies, which include ETP, Regency Energy Partners LP and Southern Union Co., have found through a shared general partner in Energy Transfer Equity LP. The Energy Transfer family has an enterprise value of about $100 billion with an increased focus on liquids-rich projects throughout the most prolific shale plays in the country.

This flexibility has provided Energy Transfer with the ability to grow through organic projects as well as acquisitions. Since 2010, the Energy Transfer family has spent more than $32 billion on organic projects with another $15+ billion in development in addition to its high-profile mergers and acquisitions deals that have included interests in Southern Union, Sunoco Logistics Partners LP and Regency.

Future growth is expected to occur through new processing and fractionation projects among other opportunities.

As we did with Energy Transfer last year, Midstream Business worked with several companies that merged or combined assets near the end of 2013 or in 2014 to combine these figures for their complete 2013 totals. While these companies may not have been merged for all of 2013, it helps to provide a clear outlook for where these companies are headed for 2014.

Consolidating companies

Another company that is benefitting from combined assets is Dallas-based EnLink Midstream Partners, which was created earlier this year through the merger of Crosstex Energy and Devon Energy’s midstream assets. The combination of these two entities helped to place it as the sixth-largest processor in the country despite a 10% decrease in volumes. There was also a dip in NGL production for the combined company, but this should change in the coming years thanks to the investment-grade credit rating that EnLink has secured and the goal of $1 billion to $2 billion per year in capital investments until 2017 due to having a low cost of credit.

The company already has assets in many of the country’s top shale plays, including the Barnett, Permian, Cana Woodford, Arkoma Woodford, Eagle Ford, Haynesville and the Marcellus-Utica. EnLink plans on focusing on the Cana Woodford, Utica and Permian for future growth.

Barry Davis, EnLink’s president and CEO, highlighted expansion projects such as the building of a 120 MMcf/d processing plant in the Permian and expansion of its gathering system for $200 million as the sort of projects the company will pursue to double its size by 2017.

“There is a lot of activity around our core areas of operation, which is where you should expect to see EnLink continue to grow,” he said during a recent earnings call.

The Kinder-Copano deal

Arguably the largest midstream deal this year was Kinder Morgan’s acquisition of Copano Energy in May, which helped make Kinder Morgan the largest midstream company in the U.S. This was evidenced by Kinder Morgan, traditionally a pipeline-focused company, appearing in Midstream Business’ rankings for the first time.

The company was ranked as the eighth-largest NGL producer with 78,234 bbl/d, a 20% increase over Copano Energy’s 2012 total of 65,446 bbl/d. This was the same ranking the company held last year, but future growth can be expected as the company is currently reporting that 34% of its revenue is now generated from gathering and processing operations.

Although the company failed to place in our top 10 gas processing companies, it was just outside of this ranking and can be expected to crack the list in the future as it works to leverage the former Copano gathering and processing assets and expertise.

New name, still a major player

One new name in our rankings that isn’t a result of a merger is Midcoast Energy Partners, which was split off from Enbridge Energy Partners as a new MLP consisting of the company’s natural gas and NGL Midstream Business. This move was undertaken to improve the midstream group’s cost of capital while also improving the focus of operations by splitting crude and gas/liquids from each other.

Midcoast Energy is already a large player in the midstream, ranking fourth among the largest gas processors and sixth among NGL producers. While organic growth will remain an avenue for continued upward mobility, Greg Harper, the company’s principal executive officer, said that Midcoast is aggressively pursuing accretive acquisition opportunities going forward.

“We are focused on executing on our $1 billion organic growth program through 2017. We are working diligently in the near-term to attract and secure new business to our existing gathering and processing footprint, while looking for opportunities to strategically step out from our existing asset base to diversify into new basins and enhance market access,” he said during the company’s second-quarter 2014 earnings call.

For the first time, all entrants in the top processors category had daily figures above 1 Bcf/d. The smallest daily NGL production was more than 75,000 bbl/d. Given the costs involved to achieve these figures via large-scale infrastructure, it is likely that the biggest changes will be movements among the top companies rather than new entrants and companies falling out of the rankings.

Hart Energy has made every reasonable effort to ensure the veracity of this information. Neither Hart Energy, Midstream Monitor, Midstream Business nor any other party involved in the presentation of this material will be held liable for any errors or omissions.

Frank Nieto can be reached at or 703-891-4807.

NGL Markets To Gain Strength

After a swoon period during which production outpaced demand, NGL prices are expected to increase as new infrastructure is brought online to balance the market, according to a new report from Stratas Advisors.

By Frank Nieto

It is safe to say that NGL production and gas processing levels will increase over the next five years. However, much of this price recovery will be concentrated in the back end of this period, Greg Haas, director, Stratas Advisors, a Hart Energy company, told Midstream Business.

“We anticipate a flat or downward trend in prices until the middle part of our five-year forecast period. There’s just so much supply and only so much demand. There were hopes that 2014 would be a pretty strong year for gas-price recovery, but with the cool summer and ample injection already coming into the system for natural gas and with coal prices and fuel switching on the power utility side, we’re actually forecasting somewhat flat or down natural gas prices as well,” he said.

Stratas Advisors’ review considers the entire balance of North American unconventional liquids in a forthcoming report covering demand from 2015 to 2019.

“We started with historical data from companies as well as from the EIA [U.S. Energy Information Administration] since 1999. We were able to correlate our forecasting for the next five years based on all of that history as well as our internal upstream estimates. We also have our team of downstream forecasters that help forecast demand for things like refined products, chemicals and other feedstock that come out of the NGL marketplace,” Haas said.

This information was culled together to create a “5 x 6 x 7” balance, which entails the seven NGL streams consisting of the five purity streams, Y-grade mix, and natural gasoline, in six regions (five PADDs as well as the rest of North America) over a five-year time period.

New demand sources

Haas noted that North American condensate prices track along with West Texas Intermediate (WTI) crude because heavy NGL are largely consumed in the refined fuel system. Conversely, the lightest NGL follow natural gas prices since these smaller hydrocarbons are often utilized for petrochemicals or in place of natural gas fuels. “But toward the 2017 to 2018 time frame, we’re starting to see new demand come into the market and that’s driving increased absorption of these excess NGLs. We think that’ll sop up some of those volumes and then support pricing, possibly leading to a broad price recovery,” he said.

The NGL that is expected to experience the greatest improvement will be ethane in the 2017 to 2018 timeframe as LNG demand grows with at least one new Gulf Coast LNG export terminal in operation and several new pipelines into Mexico.

“All of this will tighten up U.S. natural gas market, especially along the Gulf Coast. Therefore, then, we will have potentially higher annualized prices for natural gas in the later years of our forecast period. Ethane and natural gas are quite well tied together so as the price of gas goes up, so goes ethane. On top of that, we’re seeing some stronger demand coming out from the new ethylene projects that are likely to be completed and go into service, both for consumption in the U.S., but also for export to other nations,” Haas said.

“The U.S. is building great interlinkages with Mexican electric utilities. It’s sort of a sleeper issue in the sense that pipeline exports to Mexico could very well exceed what is all being talked about on front page news with regard to these LNG export opportunities. Between these two, we see very strong demand growth for exports,” he said.

The bulk of these export markets are new for the U.S. midstream industry, with LPG exports taking off in the past year and the opening of the Vantage Pipeline that established ethane exports into Canada. LPG exports leveled off for part of this past year as the industry has been rebalancing after a huge draw on supplies during the 2013 to 2014 winter. However, Haas anticipates LPG exports to grow in the coming years with possible downward movements related to short-term domestically driven weather demand.

Currently only two export-oriented ethane marine terminals are scheduled to be in-service during the study’s time frame: Sunoco Logistics’ Mariner East terminal and Enterprise Products Partners’ facility along the Houston Ship Channel. However, he said that if enough large-capacity vessels are built on time and in sufficient volume, then other companies may follow suit in building new terminals.

Should condensate exports ramp up, it is possible that the correlation between heavy NGL prices and WTI crude prices will change.

“The condensate market is an outlier, which we don’t have enough information to fully give a good read given the state of regulatory quietude and an opaque export approval process that remains private at present,” Haas said.

While there is the possibility of unfractionated Y-grade NGL being exported from the U.S. to Canada and Mexico, Stratas Advisors anticipates the majority of exports out of the U.S. will be in purity form during the forecast period through 2018.

Stratas expects the export market to grow even larger in the coming years as a result of the U.S. Commerce Department’s decision to allow stabilized lease condensate to be exported. “America’s net exporter status is only going to continue to grow, especially through the 2018 time frame,” Haas said.

Though there will still be a price correlation among light NGL and natural gas, and heavy NGL and WTI crude, the sheer size of supplies coming into the marketplace from shale plays means that these links are now decoupling. This is likely to continue in the coming years.

Processing plants are likely to experience an increase in operating rates, according to Hart Energy’s Stratas Advisors’ five-year forecast as new demand centers are added. This will have additional benefits to facilities such as EnLink Midstream Partners’ Bridgeport, Texas, processing plant. Source: Hart Energy

“We’re probably going to continue to see decoupling throughout the hydrocarbon chain. What historically moved one hydrocarbon is going to be a different reaction as supplies continue to ramp up in the varying hydrocarbon strains,” Haas added.

Return to Alaska?

The shale gale put a halt to development of several pipeline projects in Alaska since gas was cheaper in the Lower 48 states, but the technology that unlocked these shale plays may give life to the development of Alaska.

“There are a number of independents going back to Alaska armed with the new technology of horizontal drilling and directional drilling and potentially even hydraulic fracturing up there and maybe other stimulation techniques like acidation or others, but we will see how successful they are,” Haas said.

If these companies succeed in their liquids-rich production, then operations would require processing, fractionation and export capacity with marine loading. There are currently idled gas processing assets that can be restarted in the region to provide this capacity.

“In the heyday of Alaska, there were a number of processing plants built that have since been mothballed, so some of these could potentially be restarted at a very attractive cost. We think that natural gas processing and the potential sale to Asia could occur quite readily. The upstream end of that equation needs to prove itself a little further,” Haas said.

New liquids focus

While infrastructure needs can best be described as an “all of the above” strategy, there is likely to be a larger focus on facilities and projects related to liquids production, especially in PADDs 1 and 2 between the Marcellus/Utica and Bakken shales. “It’s a big job to balance all of this new supply profitably without any hiccups. We have a great opportunity in this country with new supply, and we have very incentivized demand centers, both onshore and offshore, that want access to that supply, but it’s a very big job for a critical industry in the middle to put that into practice and get those barrels moving to the market,” Haas said.

The Bakken is also likely to see increased focus for midstream projects because of North Dakota’s requirement that flared gas be converted into beneficial gas, which could mean power generation, powering pipelines, pumps and compressors or additional truck fleets as well as gathering, processing and fractionation.

In addition, the Gulf Coast will continue to grow as a major hub for production out of the Appalachian Basin, the Bakken and Conway. “These three supply axes are all aiming at the Gulf Coast and its high-value regional demand centers as well as the offshore export facilities,” Haas said.

The biggest headwinds facing the midstream in the forecast’s time frame are related to possible labor and equipment shortages as well as weak NGL and gas prices.