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Not fearing overbuild, Enterprise CEO touts diverse energy export capacity

Enterprise Products Partners LP is counting on U.S. energy exports to anchor its growth plans and does not expect competition in the Gulf Coast to water down the world's interest in what the partnership has to offer.

"Anybody can build [a terminal]," Enterprise CEO Jim Teague said March 13 on the sidelines of CERAWeek by IHS Markit.

But Teague knows Enterprise is not just "anybody."

"I see people making announcements, but you've got to ask yourself, 'Who's got the supply aggregation?'" he said. "From an LPG perspective we've got Mont Belvieu. No one can duplicate that."

SNL Image

The Enterprise Hydrocarbon Terminal on the Houston Ship Channel.
Source: Enterprise Products Partners LP

One of the biggest North American midstream energy companies, Enterprise currently exports around 2 million barrels per day of liquids, according to Teague. Enterprise is expanding the loading capacity at its Enterprise Hydrocarbon Terminal by 175,000 bbl/d — bringing the terminal's total liquefied petroleum gas export capacity to 720,000 bbl/d — and planning to construct an offshore oil export facility that will be able to fully load some of the world's largest crude carriers.

The company already has 18 docks handling natural gas liquids, polymer-grade propylene, crude oil and refined products, along with an ethylene export terminal under construction.

Teague stressed the need for exporters to understand China's demand for a broad spectrum of U.S. fuels.

"I went to China and I thought I was going to hustle business. What I found was I was being hustled," he said during a panel discussion. "Everybody there wants our ethane because they're wanting to build petrochemical plants. … It's not just crude, it's not just LNG. It's all of the above."

Trade tensions with China have diverted U.S. NGL supplies to other demand centers in Asia, but the master limited partnership is not worried that the simmering conflict will jeopardize its export-oriented growth strategy.

In recent years, the U.S. has transformed itself into a net exporter of oil and gas as production from shale plays has ballooned. With other companies racing to capitalize on Gulf Coast crude exports opportunities, Teague emphasized the role he expects offshore terminals to play as the Ports of Houston and Corpus Christi become unable to handle the growing volumes NGL and oil supplies on their own.

Teague also sees Enterprise's ownership across the whole midstream value chain as a key advantage.

"If somebody owns a pipeline and it goes to a storage location and then it goes to the terminal, but one person owns the pipe, another person owns the storage and another person owns the terminal, who's going to get the biggest piece of the pie?" he said on the sidelines. "There's no alignment."

When it comes to processing NGLs, Teague said he is not particularly concerned about a potential fractionation capacity overbuild on the U.S. Gulf Coast.

"You know the worst fractionator that's built? The last one. So I don't want to build the last one," Teague said on the sidelines. But the market catches up, even when industry heads down the path of overbuilding, he said. "Those things, they happen and then you grow into them."

Enterprise is developing an additional two NGL fractionators in the vicinity of the Mont Belvieu, Texas, hub that will be able to process 150,000 bbl/d apiece when they begin commercial service in the second quarter of 2020. Companies like Energy Transfer LP and ONEOK Inc. are also developing Mont Belvieu fractionators with similar timelines. Energy Transfer CEO Kelcy Warren said in February that he worries about a near-future processing capacity glut.

As for the North American midstream sector's struggling stock prices, Teague called them a "self-inflicted wound."

"So many of these guys cut their distributions. I wouldn't buy their stock either," he said. "We never cut our distribution. The way we get better value is we just keep performing."

While several midstream firms ditched the problematic MLP structure in 2018, Enterprise is holding on to its retooled partnership model ahead of 2020 federal elections that could widen MLPs' tax advantage over C corporations.

For the fourth quarter of 2018, Enterprise again reported double-digit-percentage increases in both adjusted EBITDA and distributable cash flow.