August 26, 2014
MarkWest to Expand its Keystone Processing Plant

MarkWest Energy Partners LP announced Tuesday that it plans to expand its Keystone complex in Butler County, Pa., to support growing rich-gas production from the Marcellus Shale and Upper Devonian formations.

The expansion will be supported by new agreements with Rex Energy Corporation and EdgeMarc Energy. As part of these agreements, MarkWest will construct Bluestone III and IV, both of which are 200-million-cubic-feet-per-day (mmcf/d) plants that are expected to begin operations during the fourth quarter of 2015 and the second quarter of 2016, respectively. In addition, the partnership will construct 40,000 b/d of additional de-ethanization capacity and over 20,000 b/d of additional propane and heavier NGL fractionation capacity.

The Keystone complex currently consists of the Bluestone processing and fractionation complex and the Sarsen processing facility, which combined currently provide 210 mmcf/d of processing capacity and 26,500 b/d of fractionation capacity. The Keystone complex is anchored by Rex Energy and in May 2014, MarkWest began operations of the 120-mmcf/d Bluestone II plant and 10,000 b/d each of ethane and propane plus fractionation capacity to continue supporting Rex Energy's growing rich-gas production. In addition to the new Bluestone processing and fractionation plants, the partnership completed a 32- mile purity ethane pipeline connecting the Bluestone facility to Sunoco's Mariner West pipeline project.

In conjunction with additional processing and fractionation infrastructure, MarkWest continues to develop its rich-gas gathering system throughout Butler County and surrounding areas in order to support the growth of its producer customers' production.

August 7, 2014
Edmonton NGL Takeaway Capacity Could Be Tested This Winter

When the Cochin Pipeline reversed earlier this year, the Edmonton, Alberta market lost a conduit to carry out 30,000 b/d of propane. Lacking another pipeline alternative, local NGL firms have reluctantly shifted their shipments to rail, but as the winter of 2014-2015 approaches there are signs of a looming bottleneck at the railhead.

When asked what are his major concerns as the U.S. Midwest prepares for the
coming winter, the answer was a surprising "my concern is loading out of Edmonton," answered one NGL trader. Other industry sources said they are concerned about the ability to move NGLs out of Edmonton by rail.

It appears that the interface between the NGL industry and the railroads is not set for smooth operations. In addition to the Cochin loss, NGL production is also growing in Alberta, and the industry and railroads will need to adjust to their increased dependence on each other. If North America sees a repeat of the brutal 2013-2014 winter, the logistics system could be strained to the point of breaking.

In Alberta, NGL producers are seeing exploding production and a rush to build new processing plants and loading racks.

Pembina is building a new 55,000 b/d fractionator in Redwater, Alberta and a new rail terminal in Edmonton. It is spending about $525 million in 2014 and 2015 on the Redwater West rail yard, according to company investor presentations.

Plains is spending more than $500 million to build out the Fort Saskatchewan hub facilities it bought in 2012 from BP. The firm plans to develop the facilities into a major hub for ethane, propane, butane, natural gasoline and crude oil. Announced expansion projects include: building more brine ponds to make use of existing underground storage caverns and building more caverns.to handle ethane; boosting the fractionation capacity 20,000 b/d to 85,000 b/d; and building new truck and rail loading racks. The truck rack is expected to be ready by the first half of 2016, a company investor presentation said. The completion date of the rail rack was not specified.

Plains is spending $215 million on rail terminal projects across its North America network. In Canada it has a total of 250 rail loading spots for all products. Sources tell OPIS Plains is building a new propane rail rack in Edmonton, but that is several years away from completion.

One way Pembina and Plains can avoid product backups is by shipping raw NGL mix on the Enbridge pipeline to Sarnia, Ontario, where it can then be fractionated. The downside to this strategy is that it ultimately deprives the U.S. Mid-Continent of purity product sourced from Edmonton.

Keyera on the other hand, doesn't have that safety valve, sources tell OPIS. It needs to handle its own growing supply of product. In January, it announced plans to add 35,000 b/d of C3+ fractionation capacity at its Fort Saskatchewan plant by the first quarter of 2016. This is in addition to the 30,000 b/d de-ethanizer currently under construction and the existing 30,000 b/d fractionator already at the site. The de-ethanizer is expected to be running later this year. The firm is also expanding its underground storage wells, planning to drill a 15th well later this year. In February, Keyera announced plans to build a $95 million 32-spot propane rail loading terminal in Josephburg. The terminal is expected to be running by the second half of 2015. Keyera's existing rail terminal can handle 40 cars.

Keyera was not able to respond to a call for comment.

Ensuring that the rail loading racks are ready to handle the new production is the NGL industry's responsibility. And based on the timelines announced by these firms, little is expected to be ready by this winter. That said, can the railroads do their part?

The Edmonton market has always used rail service to move out NGLs, but that was a secondary transport option. Now it is a primary conduit for purity product.

On the surface, replacing the Cochin's 30,000 b/d of take away capacity with
rail service doesn't appear to be difficult. That's the equivalent of 42 30,000 gallon tank cars per day.

But, shipping out product by rail is not as easy as opening a pipeline valve and
turning on the pump. Rail shipments face more layers of logistics.

The railroads need to deliver empty cars, correctly position each one at a loading rack and then pick each up in timely fashion. After that, the railroad needs to haul the cars to a classification yard where they are sorted and added to outbound trains. If, on that journey, the car needs to be transferred to another railroad, that adds more time and complexity to the process. Once the car has been delivered and emptied, the process reverses itself. On top of all of this is the fact that railroads deliver many different types of freight -- propane is a part of their larger mix of business.

The reality is that a rail rack with 40 spots commonly loads a half to three quarters of that volume per day, one source explained.

If the railroad is late switching cars, a backlog forms that is hard to work through. The Canadian railroads took months this spring to work through a backlog of grain shipments that developed during the winter. In Canada, railroad operations slow during the winter when bitter cold weather means trains need to switch cars more carefully and it can be difficult to maintain air brake pressure. When other parts of the railroad are behind, like the grain business, that affects the entire system. The result is it can be tricky to meet a 42-car turn each day.

Railroads say they are trying to improve their service and also trying to incentivize shippers to move product early so there's less of a crunch in the middle of the winter.

The CN Railway, for instance, has a tariff that favors propane shipments made
from March to November. Between December and February, the rates are higher. A call to CN Railway for comment was not returned by presstime.

One railroad source told OPIS that if all the loading racks are ready to fill cars, then they have a better chance to keep the traffic flowing.

But, the railroads also have to deal with the delivery side of the equation. If a consumer isn't ready to receive the cars, that again slows the process.

What if there's a mild winter? Railroad operations could be a bit easier, but with growing NGL production, their takeaway capacity will still be needed.

Regardless of what the winter brings, the issue is the ability for the railroads and NGL industry can work together in Alberta. "They are saying the right things," one trader said. "The proof will be in the pudding."

August 5, 2014
Houston to Get Small-Scale Gas-to-Liquid Demonstration Plant at end-2014

Biofuels Power Corporation said that it has signed a letter of intent with ThyssenKrupp Industrial Solutions (Africa) and Liberty GTL, Inc. to build a
small-scale gas-to-liquid demonstration facility in Houston, Texas (GTL Pilot
Plant).

The parties have established a non-binding target date to complete installation
and commissioning of the GTL Pilot Plant on or before Dec. 31, 2014. The purpose of the GTL Pilot Plant is to commercially demonstrate converting stranded natural gas resources to synthetic crude oil.

BFLS will operate the GTL Pilot Plant for the 2-year demonstration. ThyssenKrupp will provide technical services and contribute a previously operating auto-thermal reformer pilot plant of proven design (ATR), which will be used to generate synthesis gas feedstock for the production of synthetic crude oil.

Liberty will provide intellectual property and operating know-how regarding
crude oil synthesis along with the relevant catalyst supply.

The Liberty technical team is also credited for designing the FT (Fischer Tropsch) Reactor which will convert the synthetic gas to synthetic crude oil.

The GTL Pilot Plant will be assembled at the Houston Clean Energy Park, which is an industrial estate owned by BFLS.

The abundant supply and low cost of natural gas produced from unconventional
shale resources enhances the opportunity to profitably convert natural gas to
higher value liquid fuels.

The focus of the GTL Pilot Plant will be to optimize design and operability of
small-scale gas-to-liquid facilities capable of converting 5 - 10 million cubic feet per day of natural gas into approximately 500 b/d of synthetic crude oil.

Building on Liberty's previous engineering studies completed by ThyssenKrupp in 2013, BFLS and Liberty are in the process of completing engineering on a 500 b/d reference plant design with the goal of deploying multiple units in North America in the future.

This process is scheduled to be completed in the coming weeks.

BFLS believes that gas to liquids projects of this size may be attractive to operating companies confronted with curtailing production or, in the extreme
case, ceasing production due to capital cost barriers related to expansion of
natural gas gathering, processing and transmission infrastructure.

These "stranded gas wells" would be released for production if the planned GTL units could process the natural gas immediately after completion of the well.

July 31, 2014
NGL Pipelines, New Fracs Push Enterprise Q2 Higher

Enterprise Products Partners reported Q2 net income growth of 17% as strong gains in the company's NGL pipelines and services business offset an essentially flat quarter for its other business segments.

The midstream firm reported Q2 2014 net income of $647 million, compared to year-earlier income of $553 million. The gains were led by the NGL Pipelines & Services segment, which saw gross margin increase year-on-year 25% to $681 million.

Enterprise's natural gas processing and related NGL marketing business saw Q2 gross operating margin remain near flat year-on-year at $266 million. Gains in gross operating margin for the company's natural gas processing business were offset by decreases in Enterprise's NGL marketing business, which saw lower margins and the effects of the 10-day outage at its Houston LPG export terminal. Gross operating margin from natural gas processing plants increased primarily due to higher fee-based processing volumes and equity NGL production.

Gross operating margin from the partnership's NGL pipelines and storage business increased $73 million, or 39%, to $261 million in Q2. The Mid-America and Seminole NGL pipeline saw gains thanks to higher revenues from deficiency fees and an increase in tariffs, which was partially offset by higher operating expenses. Combined volumes were mostly flat at 983,000 b/d. The South Texas NGL pipeline saw volume increase 78,000 b/d thanks to increasing production from the Eagle Ford Shale. The ATEX ethane pipeline transported approximately 44,000 b/d of ethane during the Q2 of 2014.

Enterprise's NGL fractionation business saw gross operating margin rise 66% year-on-year to $154 million, thanks to a 179,000-b/d increase in volume as Fractionators VII and VIII began commercial operations during the second half of 2013. Fractionation volumes for the Q2 of 2014 increased 25% to a record 845,000 b/d compared to the same quarter in 2013.

The Petrochemical & Refined Products Services segment saw gross margin remain flat at $162 million year-on-year. Margins in the propylene business saw gains as volumes remained flat year-to-year at 71,000 b/d. But margins in the octane enhancement and high-purity isobutylene businesses were down for the quarter. Other segments of this business were mostly flat for the quarter.

The Onshore Natural Gas Pipeline & Services saw a $5 million gain in gross operating margin to $203 million. Total volume transported slipped from 13.3 trillion Btu per day to 12.6 trillion Btu per day. The Texas Intrastate gas systems and the company's natural gas marketing services saw gains thanks to higher fees and sales margins. But gross margin at Enterprise's Haynesville, Jonah and Piceance Basin gathering systems fell due to lower volumes and reduced drilling activity.

Enterprise's Onshore Crude Oil Pipelines & Services unit saw gross operating margin fall $13 million to $184 million in Q2. Total volume transported increased 200,000 b/d to 1.3 million, thanks to gains in the South Texas, West Texas and Eagle Ford pipeline systems. But margins at the crude oil marketing unit took a hit due to substantial decrease in regional price spreads for crude oil.


July 16, 2014

Enterprise Finds Second Buyer for U.S. Condensate Export, Reaching Limit

Enterprise Products Partners has secured another term condensate export supply contract with a second Japanese commodity trading house, following the first deal with Mitsui in early July, industry sources in the U.S. told OPIS on
Wednesday.

Enterprise will supply to Mitsubishi one 400,000-bbl condensate cargo a month
on a long-term deal, starting in September.

Sources said that Enterprise is very close to hitting its monthly condensate export capacity after the second supply deal due to logistics bottlenecks on the Gulf Coast.

"It is not a question of condensate production or supply. The supplies are there, but there are logistics bottlenecks," a source said. Eagle Ford light condensate production is pegged at close to 1 million b/d, and it is expected to continue to grow significantly over the next few years.

The latest export deal is in line with earlier market expectations of U.S. processed condensate export limit at around 20,000-30,000 b/d or about 600,000 bbl per month for the near term. Both Mitsui and Mitsubishi deals are for about 15,000 b/d each. U.S. condensate could be fed to North Asian refineries or condensate splitters.

The cap on exports is attributed to ongoing work to link up the logistics chain for future exports and the need to supply the domestic market. For exports, a player would need to buy, segregate, store and ship condensate via pipeline to marine terminals on the Gulf Coast.

Enterprise does not have much condensate production, but it is an active condensate buyer in the Gulf Coast market.

Two main condensate suppliers to Enterprise at the well heads are BHP and Pioneer, but both condensate producers are not part of the export deals.

On Monday, OPIS reported that the first U.S. condensate cargo is expected to
be loaded at the end of this week, with a Long Range 1 ship booked for the
trans-Pacific voyage to North Asia.

BW Zambesi, an LR 1 dirty tanker, has been booked by Westport Petroleum for
$1.8 million for the month-long voyage via Panama Canal. The dirty product tanker arrived in Galveston, Texas, late last week, and it is currently at the dry docks for tank cleaning in order to accommodate the condensate cargo.

This 60,000-ton or 420,000-bbl capacity tanker is expected to trade in the clean tanker market after this voyage. The tank cleaning is expected to take about five to seven days at the dry docks.

U.S. oil and shipping market players are watching this first condensate export cargo closely, with an eye on future export opportunities.

OPIS notes that Enterprise may have sold the first processed condensate cargo
out of the U.S. Gulf Coast last week, but the flood gates for more exports will remain shut for the near term.

So far, only Enterprise is able to do that. Enterprise is expected to be the main condensate exporter in the U.S. in the near term as it is the only company that has received an approval from the Commerce Department for processed condensate exports and has the logistics infrastructure in place for export. Enterprise has a large pipeline and terminal system for natural gas liquids, crude and oil products on the Gulf Coast.

Trading sources do not expect master limited partnerships to benefit from the
first trickle of condensate export from the U.S. in the near term. In the longer term, the potential export could be a profitable play when the necessary storage and export facilities are in place.

The U.S. Gulf Coast is already facing a strong demand for marine terminals and
docks due to the growing need for oil products exports, and domestic crude deliveries to East Coast refineries and Canada.

While export is an additional outlet for the growing West Texas production, the primary market for U.S. processed condensate should be the domestic refining,
crude blending and petrochemical markets in terms of economics and logistics.


July 14, 2014
Charterer Books Ship for First U.S. Condensate Export Cargo

The first condensate export cargo is expected to be loaded at the end of this week, with a Long Range 1 ship booked for the trans-Pacific voyage to North
Asia, trading and shipping sources told OPIS on Monday.

BW Zambesi, an LR 1 dirty tanker, has been booked by Westport Petroleum for $1.8 million for the month-long voyage via Panama Canal. The dirty product tanker
arrived in Galveston, Texas, late last week, and it is currently at the dry docks for tank cleaning in order to accommodate the condensate cargo.

This 60,000-ton or 420,000-bbl capacity tanker is expected to trade in the clean
tanker market after this voyage. The tank cleaning is expected to take about five to seven days at the dry docks.

U.S. oil and shipping market players are watching this first condensate export cargo closely, with an eye on future export opportunities.

OPIS reported in early July that Enterprise sold 400,000-600,000 bbl of processed condensate to Mitsui, a major commodity trading house in Japan, and this July cargo is part of a three-month term supply contract. In the U.S., Mitsui is involved in the Marcellus shale gas and Eagle Ford shale oil and gas development and production projects.

Westport, the ship charterer for BW Zambesi, was formed in 1985 and exists as
a wholly owned subsidiary of Mitsui & Co. (USA) and Mitsui & Co. Ltd.

In its only U.S. office at Franklin, Tenn., Westport was focused on fuel oil and bunkering after shutting down its clean products trading office in Pasadena, Calif., in July 2012.

Meanwhile, OPIS notes that Enterprise may have sold the first processed condensate cargo out of the U.S. Gulf Coast last week, but the flood gates for
more exports will remain shut for the near term.

Some trading sources expect the U.S. processed condensate export to be
limited to around 20,000-30,000 b/d or about 600,000 bbl per month for the near term due to ongoing work to link up the logistics chain for future exports and the need to supply the domestic market. For exports, a player would need to buy, segregate, store and ship condensate via pipeline to marine terminals on the Gulf Coast.

So far, only Enterprise is able to do that. Enterprise is expected to be the main condensate exporter in the U.S. in the near term as it is the only company that has received an approval from the Commerce Department for processed condensate exports and has the logistics infrastructure in place for export. Enterprise has a large pipeline and terminal system for natural gas liquids, crude and oil products on the Gulf Coast.

Trading sources do not expect master limited partnerships to benefit from the
first trickle of condensate export from the U.S. in the near term. In the longer term, the potential export could be a profitable play when the necessary storage and export facilities are in place.

The U.S. Gulf Coast is already facing a strong demand for marine terminals and
docks due to the growing need for oil products exports, and domestic crude deliveries to East Coast refineries and Canada.

While export is an additional outlet for the growing West Texas production, the
primary market for U.S. processed condensate should be the domestic refining,
crude blending and petrochemical markets in terms of economics and logistics.

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