Enterprise Launches $245-Million Pipeline To Link Louisiana, Mississippi NGL Producers to Texas
Enterprise Products Partners LP (Houston, TX) has signed a letter of intent to acquire the 263-mile Lou-Tex pipeline from Concha Chemical Pipeline Co., a affiliate of Shell Oil Co. (Houston), for an undisclosed amount of cash. The 10-in.-dia pipeline, which currently carries propylene, runs from Sorrento, LA, to Mont Belvieu, TX, where Enterprise owns and operates a major facility. It expects to complete the deal by the end of the third quarter of 1999.The deal is the first step in Enterprise's ambitious plan to develop a $245 million, 160,000 bbl/d NGL pipeline system. It will link growing NGL supplies in Louisiana and Mississippi with the principal Gulf Coast NGL markets in Mont Belvieu, southern Louisiana, and southeastern states served by Dixie Pipeline.
"Due to the lack of transportation infrastructure, NGLs produced in Louisiana and Mississippi have limited access to the United States' largest NGL market at Mont Belvieu and therefore have traded at a discount," says Enterprise president/CEO O.S. "Dub" Andras.
"This imbalance of supply and demand is expected to be exacerbated by increases in Louisiana and Mississippi NGL production associated with deepwater Gulf of Mexico natural gas. We believe this pipeline will provide significant value to both producers and consumers of NGLs by providing a large volume, cost efficient transportation solution."
Lou-Tex currently transports chemical grade propylene, but Enterprise plans to convert a portion of it into batch service. That will allow it to transport refinery and chemical grade propylene, mixed NGLs, and such NGL products as ethane, propane, normal butane, isobutane, and natural gasoline.
While converting to batch service, Enterprise also plans to increase Lou-Tex capacity to approximately 75,000 bbl/d. It expects to complete the upgrade by mid-year 2000.
The conversion, along with Enterprise's existing Louisiana pipeline assets, will give Southern Louisiana NGL and propylene customers access to a highly integrated NGL transportation and storage system. Mont Belvieu itself sits atop salt domes that provide secure NGL storage, making it the hub of the nation's NGL industry. From Mont Belvieu, Enterprise can serve the nation's largest refinery and petrochemical markets, as well as export material from its access on the Houston Ship Channel.
"Enterprise will continue to transport propylene in Lou-Tex for Shell Chemical through a long term exchange agreement," says Shell lower olefins Americas GM David C. Aldous. "The sale of this pipeline to Enterprise and subsequent batch operation of the line will facilitate greater capacity utilization of this asset."
He reaffirms that Shell Chemicals remains committed to the chemical-grade propylene market, and that the change in pipeline ownership will not affect the company's customers.
The deal highlights Enterprise's growing involvement with Shell. It follows an April 20, 1999, announcement that Enterprise will combine forces with Tejas Energy, LLC, another Shell affiliate. Under the agreement, Tejas would contribute a most of its NGL assets in exchange for an equity interest in Enterprise and other consideration.
The deal would create a fully integrated Gulf Coast NGL processing, fractionation, storage and transportation business. Enterprise would also gain the right to process Shell's current and future Gulf of Mexico natural gas production and market the recovered NGLs.
The transaction will include all of Tejas' NGL assets in Louisiana and Mississippi. This includes Tejas' interests in 11 natural gas processing plants (including one under construction) with combined gross capacity of 11 billion cfd; four NGL fractionation plants with combined gross capacity of 240,000 bbl/d; NGL storage facilities with 29 million bbl/d; and more than 1800 miles of NGL pipelines, including an interest in the Dixie Pipeline.
Enterprise also says it has agreed on general terms to purchase Kinder Morgan Energy Partners LP's 25% indirect ownership in a 210,000 bbl/d Mont Belvieu, TX, natural gas liquids (NGL) fractionation plant. Enterprise will pay $41 million in cash and assume about $4 million in debt. It expects to close the deal within 30-60 days.
The transaction boosts Enterprise's share of the unit, which is located in the company's processing complex, to 62.5%, from 37.5%. "NGL fractionation is one of our core, fee-based businesses," says Andras. He says the transaction will be accretive to limited partnership unitholders.
Enterprise provides integrated processing, transportation, and storage services to NGL producers and consumers. In 1998, 84% of its operating profits came from fee-based services for tolling customers, with merchant activities accounting for most of the rest.
Enterprise has average daily capacity for 210,000 bbl/d NGL fractionation; 116,000 bbl/d normal butane isomerization (70% of commercial US production capacity); and 30,000 bbl/d propylene fractionation (its largest merchant business).
It also owns a 33.3% share in a 14,800 bbl/d MTBE plant located within its Mont Belvieu complex. Sun Company, Inc., a joint owner in the facility, is required to purchase all MTBE output through May 2005.
The company leases and operates one of only two commercial NGL import/export facilities on the Gulf. A pipeline connects it to the Mont Belvieu complex. Enterprise also owns 35 million barrels of storage capacity and a 750-mile pipeline network.
For more information: O.S. Andras, President, Enterprise Products Partners LP, 2727 N. Loop West, Houston, TX 77008. Phone: 713-880-6500. Fax: 713-880-6668.
By Alan S. Brown