MIDSTREAM NEWS
ENTERPRISE TO SELL OFFSHORE GOM BUSINESS TO GENESIS
Enterprise Products Partners LP has agreed to sell its offshore Gulf of Mexico pipelines and services business, which primarily consists of its Offshore Pipelines & Services business segment, to Genesis Energy LP for $1.5 billion. Enterprise's offshore assets include ownership interest in nine crude oil pipeline systems, nine natural gas pipeline systems, and ownership interest in six offshore hub platforms. Citigroup Global Markets Inc. acted as financial advisor to Genesis.
DCP'S LUCERNE 2 NOW SERVES DJ BASIN
DCP Midstream Partners LP has placed in service its new, 200 MMcf/d Lucerne 2 natural gas processing plant, increasing the partnership's processing capacity in the DJ Basin to approximately 400 MMcf/d. The plant is the largest of a nine-plant system in the basin, owned and operated by the DCP enterprise. With approximately 800 MMcf/d of total processing capacity, the enterprise has increased gathering and processing capacity in the basin by 80% over the last 24 months. The plant connects to the Front Range Pipeline for NGL takeaway to Mont Belvieu, TX. The partnership holds a one-third ownership interest in the pipeline.
DW: WILL REFINING MARGINS REMAIN?
In its June 29 DW Monday report, Douglas-Westwood commented on the current state of refining margins.
Between 2009 and 2014, refining margins rarely exceeded $5/bbl in Europe and $8/bbl in Asia, whilst the USA was the only safe-haven, averaging $15/bbl. In 2015, however, the game changed as the global oversupply triggered a crude price collapse, resulting in healthier refining margins - year-to-date averages in Europe are $9, $12 in Asia and the in USA $20.
This plot is not new and many would expect that in markets geared heavily towards light/sweet oil the premium for processing lower quality crude - the 'complexity advantage' - should tighten in a low oil price environment. However, this is not happening. Since early 2015, a barrel of Russia's Urals trades at a discount to Brent of $1.5, oscillating in a -$1/-$2 range. Nigeria's Bonny Light, arguably one of the highest quality crudes, traded last week at a 10-year low premium to Brent of $0.23, vs. +$2 in early 2014.
Many factors are at work here. Firstly, the downstream supply chain is rather rigid, as refineries are designed and located for ease of supply and so process specific crude grades, making switching uneconomical. But the primary driver of reduced premiums is now the level of oversupply of crude. Spectacular growth in US light oil production has squeezed output of light/sweet West African, and heavy/sour South American crude grades. Meanwhile, the Middle East maintains production and becomes the reference for Asian buyers, leaving European refineries with a steady Russian output supplied through pipelines.
Recent history teaches the virtues of composure. Following the US fracking revolution, Gulf Coast refineries freshly upgraded to process anticipated heavy/sour foreign crude have not seen returns on their investments, while those who passed on costly upgrades are now well positioned to process booming domestic light/sweet production. However, refiners shouldn't be banking on sustained high margins. As the market works through an enduring supply glut, and grapples with the prospect of renewed Iranian output, the complexity advantage is likely to prove as volatile as crude prices.
SHELL TO SELL EQUITY INTEREST IN ELBA LNG JV TO KINDER MORGAN
Kinder Morgan Inc. and Shell have reached an agreement for Kinder Morgan to purchase 100% of Shell's equity interest in Elba Liquefaction Co. LLC (ELC), the owner of the Elba Liquefaction Project, which is proposed to be constructed and operated at the existing Elba Island LNG Terminal near Savannah, Georgia.
Kinder Morgan currently owns 51% of the ELC joint venture. Shell owns the remaining 49% and subscribes to 100% of the liquefaction capacity. Kinder Morgan's expected incremental investment resulting from the transaction is $630 million, bringing its total incremental investment in all the liquefaction and terminal facilities at Elba Island to $2.1 billion.
Permitting continues for the proposed Elba Liquefaction Project, which consists of 10 small-scale liquefaction units to be purchased from Shell. They will be integrated with the existing Elba Island facility.
The next step in the regulatory approval process is for the FERC to issue a draft environmental assessment. Subject to regulatory approvals, construction could begin in 4Q 2015, with initial production expected to occur in late 2017.
TESORO LOGISTICS LP, QEP MIDSTREAM PARTNERS COMPLETE MERGER
Tesoro Logistics LP (TLLP) and QEP Midstream Partners LP (QEPM) have closed on the merger agreement, making TLLP had previously purchased the general partner of QEPM as well as an approximately 56% limited partner interest in and all of the incentive distribution rights of QEPM on December 2, 2014. Under the terms of the merger agreement, unitholders of QEPM (other than QEPM's general partner and its affiliates) are entitled to receive 0.3088 TLLP common units for each QEPM common unit. Cash will be paid to QEPM common unitholders in lieu of any fractional units they otherwise would have been entitled to receive.
CPG TO INVEST $2.7B IN MOUNTAINEER AND GULF XPRESS PROJECTS
Columbia Pipeline Group Inc. will invest $2.7 billion in new infrastructure projects to support the continued development of gas supplies in the Marcellus and Utica shale regions.
The Mountaineer XPress (MXP) and Gulf XPress (GXP) projects will provide 2.7 bcf/d of firm transportation from Marcellus and Utica production areas to markets served by the Columbia Gas Transmission and Columbia Gulf Transmission systems. These projects are supported by long-term firm transportation contracts with Marcellus and Utica producers and shippers.
MXP, which will include a new 165-mile pipeline, as well as the expansion of Columbia Transmission's existing WB Line, will create 2.7 bcf/d of firm transportation capacity from existing and new points of receipt along or near Columbia Transmission's system.
GXP will include the installation of compression to existing and new stations along Columbia Gulf's system, as well as provide limited pipeline looping, system modifications, and related facilities. GXP will provide approximately 860,000 dth/d of firm transportation capacity from Leach, KY, to the Columbia Gulf Mainline Pool and other delivery points as far south as Rayne, LA.
LEGACY RESERVES TO PAY $440M FOR EAST TEXAS GATHERING, PROCESSING ASSETS
Legacy Reserves LP has entered into separate agreements with affiliates of Anadarko Petroleum and Western Gas Partners LP to purchase natural gas properties and gathering and processing assets in East Texas for a combined $440 million. Legacy anticipates funding the transactions with borrowings under its revolver. The assets include estimated proved reserves of approximately 420 bcfe of which 100% are natural gas, 95% are classified as proved developed producing, and 95% are operated. Third quarter 2015 production is estimated at approximately 70 MMcfe/d, yielding a proved reserves-to-production ratio of 16.4 years. The assets include 567 miles of high-pressure pipeline and low-pressure gathering lines and a 502 MMcfe/d processing plant with access to five major gas markets.
BEAR HEAD LNG RECEIVES US DOE APPROVAL EXPORT TO FTA COUNTRIES
The US Department of Energy has granted Bear Head LNG Corp. and Bear Head LNG (USA) LLC authorization to export up to 440 bcf per year of US natural gas to Canada, and up to 8 million tonnes per annum (mtpa) of LNG from Canada to Free Trade Agreement (FTA) countries. Bear Head LNG anticipates a decision soon on its application for DOE authorization to export LNG to non‐FTA countries. In May, Bear Head LNG Corp. obtained the last of the 10 initial federal, provincial, and local regulatory approvals needed to construct the facility located on the Strait of Canso in Nova Scotia. Bear Head LNG Corp. has applied to Canada's National Energy Board (NEB) for authority to import natural gas from the US and export up to 8 mtpa of LNG in 2019 from Canada, with expanded authority to 12 mtpa in 2024.