Enterprise Products Partners L.P.
) plans to build its second propane dehydrogenation (PDH)
facility, in view of the expected decline in propylene supplies
in the U.S.
ENTERPRISE PROD (EPD): Free Stock Analysis
PLAINS ALL AMER (PAA): Free Stock Analysis
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The partnership's first PDH unit is expected to come on-stream in
the third quarter of 2015, bringing approximately 1.65 billion
pounds per year (750,000 metric tons per year or 25,000 barrels
per day/bpd) of new polymer grade propylene (PGP) capacity to the
U.S. market. It has also entered into a long-term agreement to
effectively sell output from this facility.
Enterprise did not provide details related to the capacity of the
second facility or a construction timeframe. The first PDH plant
will be connected with the partnership's existing propylene
fractionation plants, its PGP storage facilities, 102-mile
distribution pipeline system and export terminal.
Many companies are considering the construction of PDH plants, as
the new techniques of shale gas makes both propylene supplies
tight and propane prices cheap. Producers have changed from
naphtha to lighter natural gas liquid (NGL) feedstocks like
ethane and propane, with the arrival of shale gas development.
These lighter feeds produce lesser quantity of propylene.
Enterprise intends to utilize the growing supplies of propane as
feedstock for its PDH unit to offer another source of
competitively priced PGP. Enterprise stated that it has strong
demand for the remaining capacity in its PDH unit. This is mainly
attributable to a 38% cut in propylene supplies since 2006 for
additional ethane cracking as well as for the continuous surge in
domestic propane supplies from the U.S. shale plays.
We continue to view Enterprise Products Partners as a core
holding in a master limited partnership (MLP) portfolio, given
its string of organic growth projects, potential acquisitions,
strong balance sheet and solid liquidity position. The
partnership is one of the largest fully integrated midstream
service providers with a positive long-term outlook given its
significant geographic and business diversity.
However, we remain on the sidelines considering the lower NGL
pricing environment. Enterprise also remains vulnerable to macro
conditions and unstable oil and gas prices, which could in turn
hurt its margins in NGL, natural gas and other businesses.
Enterprise Products Partners, which recently entered into a 50/50
joint venture with
Plains All American Pipeline, L.P.
) for a crude oil pipeline in South Texas, holds a Zacks #3 Rank
(short-term Hold rating). Longer term, we maintain our Neutral