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Enterprise aims for third Midland-to-ECHO oil expansion by Q3 2020

Highlights

Fourth expansion would allow for Seminole NGL conversion

CEO downplays outlook for slowing Permian oil output

Spike in VLCC rates disrupted Houston crude exports

Washington — Enterprise Products Partners aims to add 450,000 b/d of capacity to its Midland-to-ECHO crude oil pipeline system by the third quarter of 2020, with a subsequent 450,000 b/d expansion allowing the company to convert the Seminole pipeline back to NGL service.

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The fourth expansion of the system could ramp up to 540,000 b/d if demand supports it, CEO Jim Teague said during a third-quarter earnings call.

Teague said Enterprise would likely convert the Midland-to-ECHO 2 pipeline, formerly called the Seminole pipeline, back into NGL service, although he did not share timing expectations.

"Look at the math in our crude oil system: Enterprise can transport at optimum cost 1.3 million b/d," Teague said. "If the market needs more capacity, Enterprise can ramp that capacity to 1.8 million b/d with zero capital."

Enterprise moved an average of 2.3 million b/d of crude through its pipelines in Q3, up 21% from a year earlier.

Its crude exports from marine terminals on the Houston Ship Channel and at Beaumont, Texas, jumped to 987,000 b/d in Q3, up 56% from a year earlier.

VLCC RATE SPIKE

A spike in VLCC freight rates after the US sanctioned two affiliates of China's Cosco Shipping disrupted Houston's crude exports and took a couple of weeks to sort out, an executive said.

"In Houston, what we saw is people basically backed off," said Brent Secrest, senior vice president for commercial. "They backed off from exporting and the market was trying to fill itself out, and things had to reset, but that takes time."

Secrest said the incident highlighted Houston's better crude export potential, given storage capacity and access to refiners, allowing Midland producers to keep sending barrels. He said drillers tied to other export markets, presumably Corpus Christi, were forced to sell at a discount in Midland or Houston.

The company gave no updates on its proposed Sea Port Oil Terminal to fully load VLCCs with crude exports offshore Houston.

Teague said he is not concerned by falling rig counts and projections of slowing Permian production growth.

"I don't see someone like Exxon or Chevron slowing down, I don't know about EOG," he said. "We see what you're talking about, but the people we have that are really the anchors to our system are the really large guys."

-- Meghan Gordon, meghan.gordon@spglobal.com

-- Edited by Jonathan Fox, newsdesk@spglobal.com