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Energy Transfer 'under the gun' to add Gulf Coast NGL processing, company says

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Energy Transfer 'under the gun' to add Gulf Coast NGL processing, company says

Energy Transfer LP is under pressure from customers to expand its Gulf Coast NGL processing capacity regardless of whether that exacerbates a potential overbuild, according to company President Mackie McCrea.

The midstream company announced Aug. 7 that it will build an eighth fractionation facility in Mont Belvieu, Texas, scheduled to begin service in the second quarter of 2021, bringing Energy Transfer's total capacity at the hub to more than 1 million barrels per day. That could help transform the expected market tightness for the rest of 2019 into a glut given existing plans to add 1.4 million bbl/d of capacity on the Gulf Coast through early 2021.

"We certainly try to pay attention to our competitors and look at what they're doing and overbuild situations, but our real focus is on our agreements," McCrea said during an Aug. 8 earnings conference call. "We're under the gun to build [fractionators]. Once we have [the eighth Mt. Belvieu fractionator built] all of our fractionators will be at about a 90% demand charge for all of that capacity."

The project is part of Energy Transfer's focus on maximizing the capacity it already has, McCrea continued, noting that while the pipeline heavyweight is still pursuing large projects, the emphasis is on "gaining as much value as we can from those existing assets." Plans to expand the Dakota Access pipeline from more than 500,000 bbl/d to 1.1 million bbl/d is also in line with that strategy, as is a potential crude export project at the company's Nederland, Texas, hydrocarbons terminal that would facilitate loading some of the world's biggest oil tankers.

McCrea is "optimistic" that the Very Large Crude Carrier, or VLCC, terminal will get the green light for construction and that Energy Transfer expects to begin the federal permitting process soon. The facility would be the 10th announced project for fully loading VLCCs on the Gulf Coast to accommodate rising international demand for U.S. crude, but the company expects to have a leg up when it comes to storage and supplies.

"If you look at Nederland and you look at the amount of [pipeline] barrels that come in regardless of where the outlets are … it's an incredible terminal with I think the largest above-ground oil storage in the country, and ... offer[s] a significant advantage just from a supply source," McCrea said, citing connectivity to volumes from Canada, West Texas and Cushing, Okla.

Energy Transfer raised its 2019 outlook for adjusted EBITDA to about $10.8 billion to $11.0 billion and cut its capital expenditure guidance to about $4.6 billion to $4.8 billion, news that was welcomed by sector analysts at Tudor Pickering Holt & Co.

"Positive trajectory of CapEx budget likely more relevant than magnitude as consistent pushback on [Energy Transfer] has centered on elevated spend profile and risk that 2020 comes in ahead of expectations," the analysts wrote in an Aug. 8 note to clients.

Energy Transfer CFO Thomas Long said during the call that the midstream operator, which owns and operates one of the largest portfolios of energy assets in the U.S., estimates a $3 billion to $4 billion range for 2020 spending.

Energy Transfer on Aug. 7 posted second-quarter adjusted EBITDA of $2.82 billion, an increase from $2.26 billion in the prior-year period. The S&P Global Market Intelligence consensus adjusted EBITDA estimate was $2.69 billion.

Energy Transfer's distributable cash flow in the quarter was $1.60 billion, up from $1.30 billion in the year-earlier period.