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Kinder Morgan bulks up Houston Ship Channel refined product, NGL facilities

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Kinder Morgan bulks up Houston Ship Channel refined product, NGL facilities

New York — Kinder Morgan will invest over $170 million to enhance refined product and natural gas liquids blending capabilities at its two key US Gulf Coast export facilities, supported in part by long-term contracts with a major refiner and midstream company, the company said Wednesday.

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The projects will "increase efficiency, add product liquidity, and enhance blending capabilities at its Pasadena and Galena Park terminals, part of its best-in-class refined products storage hub on the Houston Ship Channel," the company statement said.

About 80% of all US refined product exports leave via USGC ports. And USGC refiners depend on refined product exports to derive the most economic benefit from processing local light, sweet crude from the Permian and Eagle Ford.

USGC refining margins for WTI Magellan East Houston are averaging $9.06/b so far this week, compared with the $7.84/b refining margins for Northwest European refiners, according to S&P Global Platts Analytics margins, while average USGC refining margins for Eagle Ford are $9.90/b, exceeding the $8.39/b margin for Northwest European refiners running the very light, sweet Texas crude.

Currently, Kinder Morgan's Houston Ship Channel facilities consist of 10 ship docks, 38 barge spots, 20 inbound pipelines connecting to refineries and chemical plants, 15 outbound pipelines, 14 lines crossing the Houston Ship Channel providing connection between the two terminal sites, and about 43 million barrels of storage.

SUPPORTED BY REFINER CONTRACT

Kinder Morgan's Pasadena, Texas, facility gets the lion share of announced project spending.

The company will invest $125 million in the terminal and nearby Jefferson Street Truck Rack to increase flow rates on inbound pipeline connections to the facility and outbound dock lines, "significantly reducing vessel load times and expanding effective dock capacity," the statement said.

As part of the project, Kinder Morgan will modify 10 existing tanks for butane blending and vapor combustion capabilities, with the possibility to increase that to 25 tanks.

Kinder Morgan will also increase current MTBE storage and blending capability as well as add a dedicated inbound connection to the terminal for NGL natural gasoline, or C5, "enhancing customers' blendstock optionality and liquidity," the statement said.

The improvements are supported by a long-term contract for 2 million barrels of refined petroleum product storage with a major refiner, which Kinder Morgan did not identify.

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Refineries near Kinder Morgan's Pasadena terminal include Valero's 205,000 b/d Houston plant, LyondellBasell's 263,776 b/d Houston plant, and Chevron's recently purchased 112,229 b/d Pasadena refinery, directly adjacent to Kinder Morgan's terminal.

Integrated major Chevron has a large exploration footprint in the Permian Basin. Chevron's second-quarter Permian liquids output was 421,000 b/d of oil equivalent, which is a mix of crude oil, NGLs and natural gas. The company said during its second-quarter 2019 results call that it is on track to reach its output goal of 900,000 b/d of oil equivalent by 2023.

A Chevron spokesman did not immediately reply to a request for comment regarding its relationship with the project.

BUTANE-ON-DEMAND BLENDING SYSTEM

Across the Houston Ship Channel, Kinder Morgan will spend $45 million to enhance its Galena Park facility, adding a "butane-on-demand-blending system" for 25 tanks at the facility as well as building a 30,000 barrel butane sphere to meet the demand for increased exports.

USGC butane exports averaged 199,000 b/d in May 2019 compared with the 158,000 b/d average annual export volume in 2018, Energy Information Administration data showed.

As part of the project, Kinder Morgan will build an inbound C4 or butane pipeline connection to extend blending capabilities to the 25 tanks as well as two ship docks and six cross-channel pipelines.

The project is supported by a long-term agreement with an "investment grade" midstream company and is expected to be completed in 2020's fourth quarter.

Kinder Morgan has a 100,000 b/d fractionation facility in Galena Park, which just processes crude and condensates from the Permian and Eagle Ford oil fields.

Liquids production from the two Texas fields surpasses local processing capacity, enhancing project economics.

Butane and natural gasoline production from the US Gulf Coast region is 464,000 b/d and 294,000 b/d, respectively, according to S&P Platts Global Analytics, while local processing capacity is 602,000 b/d and 383,000 b/d.

-- Janet McGurty, janet.mcgurty@spglobal.com

-- Edited by Bill Montgomery, newsdesk@spglobal.com