Crude Oil Price Drop: Texas NGL Pipeline Outlook Not So Bleak After All

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Researched by Industrial Info Resources (Sugar Land, Texas)--The crude oil price drop has led to a massive slowdown in drilling programs across the U.S. Along with light, sweet crude oil, two of the most prolific U.S. shale plays, the Eagle Ford and the Bakken, also produce natural gas liquids (NGLs).

With the drop in crude prices, drilling and production have slowed down, affecting both crude oil and the NGLs. Moving downstream, if new production slows, demand for transportation will slow proportionately. With that chain of events, it is not unreasonable to think that NGL pipeline projects could be in trouble. However, thanks to some federal regulatory policies involving "ramping up" throughput levels, some projects may yet come to light, with only modified schedules to show for the price drop.

Federal regulations allow shippers to defer installing portions of their compression/pumping capacity to compensate for fluctuating market conditions. For example, Energy Transfer Partners (NYSE:ETP) (Houston) has announced plans for a new Texas pipeline from Midland to Mont Belvieu. This pipeline would have 375,000 barrels per day (BBL/d) of takeaway capacity from the Permian Basin, with further capacity along its east leg from the Eagle Ford. A 500-mile pipeline with that kind of flowrate would require multiple pumping sites to maintain pressure in the line. However, due to the shortage of demand, plans are to install only an origination station and ship at less-than-full capacity until demand picks up again.

While the pumping needs for NGL pipelines are lower than those of crude oil pipelines, due to the former's much-lower viscosity, delaying the installation of further intermediate pump facilities allows Energy Transfer Partners to reduce its initial investment while beginning to earn revenue on its pipe.

Similar projects in the region, such as the proposed Midland-to-Rancho Sealy crude oil pipeline in Texas by Enterprise Products Partners LP (NYSE:EPD) (Houston), may follow suit, reducing initial capacity and ramping up to the full, permitted amount, in order to maintain their schedules and establish market presence that can be easily capitalized on when demand increases.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.