Enterprise Products Partners offered more details on its Texas Gulf Coast ethane export terminal during a first-quarter earnings call Thursday.
Enterprise, which has hinted at an ethane terminal project for over six months, announced April 22 that it would be constructing a 240,000 b/d ethane export facility on the Texas Gulf Coast.
"Frankly, producers need markets," Chief Operating Officer Jim Teague said. "In our [ethane] forecast we talk about potential supply. That potential supply says that it [ethane] has a market and that it has a margin. In a nutshell, we believe that there is plenty of ethane. We don't think that this [facility] is going to change things dramatically."
Ethane, which was trading at 29.50 cents/gal Thursday, has traded near the natural gas value for more than 16 months as oversupply pushed prices to the gas price floor.
Enterprise noted that depressed ethane prices are providing little incentive for capital expenditures on gas-processing plants, but said the export facility will help facilitate additional growth in NGL production.
The most recent Energy Information Administration data showed that ethane production was at 1.019 million b/d in February, which was 70,000 b/d higher than February 2013. However, ethane production is down from an all-time high of 1.035 million b/d set in February 2012.
"If I look at an arb sheet from this morning, there isn't a single gas-processing plant that I see across the country that ethane isn't underwater as much as 13 cents/gal on a market-based transportation and fractionation basis," Teague said.
A 300 MMcf/d gas-processing plant has $175 million in total capital costs and the ethane extraction component of that cost is $65 million-70 million, Teague said.
"Am I going to spend $65 million-70 million to extract a product that I am losing money on, or am I going to just do c3 plus [extraction] where those processing margins are better than what the total margins used to be?"
The capital expenditure for moving and cracking US ethane into Northwest Europe has been another big question mark for many analysts, but Enterprise said returns on a European cracker conversion are very favorable at current price levels.
"On our generic cracker model it says your cash cost to produce ethylene from ethane is 13 cents/lb, your cash cost from naphtha is 48 cents/lb, so you have 35 cents/lb difference," Teague said. "Assume you only realize 10 cents/lb on that difference after freight cost and other cost. That is $150 million per year on a 1.5 billion lb/year cracker. If you want a 20% return you could spend $750 million [on capital expenditures]."
Enterprise said it plans to fill the entire 240,000 b/d capacity of the plant, but the project can easily move forward with the current contracts that are in place.
"We've got enough contracts that if we don't sign another barrel up we've got a nice project and [returns] are not low single-digit returns," Teague said.
The contracts for the project are for 10-plus years and Enterprise said it has a lot of additional interest.
"We are talking to a lot of folks. I fully expect we will sign more contracts," he said. "The Panama Canal doesn't hurt and we are talking to people all over."
The contract price for the ethane will be based off Mont Belvieu ethane, the US NGL trading center.
"We aren't going to do naphtha-related contracts," Teague said.
Enterprise also said the trading dynamics will be different from other NGLs since the ships and facility are being built for a specific purpose.
"This is like a pipeline. This isn't going to be like an LPG market where you have a spot [FOB] market," Teague said. "You're not going to see a spot trade anytime soon, if ever, on ethane."
