MIDSTREAM NEWS

Morningstar Inc., a provider of independent investment research, has expanded its commodity research into the oil markets and has appointed Sandy Fielden as director of research, commodities and energy.

Morningstar added energy, oil, gas, and commodities data and analytics to its lineup of global investment research and data offerings in 2009 with the acquisition of Logical Information Machines (LIM), rebranded in 2011 as Morningstar Commodity Data Inc. Fielden's appointment enables Morningstar to provide clients with in-depth analysis of the oil markets, and complements its research offerings in power and gas.

Fielden has more than 30 years of experience in the oil and gas industry, and his research at Morningstar will focus primarily on the oil market. He comes to the company from RBN Energy, where he was director of energy analytics. Before joining RBN in 2012, Fielden was vice president of data services for Allegro and served for more than six years as vice president of energy products and services for LIM. He was also a product manager for Saladin Security Ltd.

Fielden holds a bachelor's degree in international history and politics from University of Leeds and a master's degree in business administration with a concentration in international business from University of Bradford.

Middle East refiners drown global markets

During the next five years, more expansion of refining capacity in the Middle East will continue to realign global petroleum product markets. According to ESAI Energy's recently released Five-Year Global Fuels Outlook, increases in gasoline, diesel, jet fuel and fuel oil production in the region will alter trade patterns and keep global refining margins from mounting a significant recovery.

Yearly increases in Middle East refined product output are not new. In the period 2011-2015, combined output of the five main products (naphtha, gasoline, jet fuel, diesel and fuel oil) rose by an annual average 210,000 b/d. In 2016, we expect a 550,000 b/d increase, which is also noteworthy as it exceeds demand growth of just 180,000 b/d for those products. The transition of the Middle East refining region into a net exporter of petroleum products has been bearish for global refined product market fundamentals in recent years. It has been a major contributor to the fall in product market "dominoes" that ESAI Energy has used to describe a succession of bearish turns in product price spreads to crude oil from LPG to diesel to gasoline.

The recent correction in gasoline spreads-assisted by increases in export volumes from India and China-is part of this phenomenon. "Oil majors have come under scrutiny for pushing refining units to offset profit losses from low energy prices," said Sarah Emerson, managing principal of ESAI Energy. "However, it may not be the major oil companies who are most influencing the market. In fact, careful analysis reveals that refining margins have fallen not so much because of steps taken by the oil majors, but rather by growing refinery output in the Middle East, India, China all of which have added to their own product supplies and in the process either need to import less from the global market or can now export more to the global market

Through 2021, large refinery and condensate splitter projects should be completed in Iran, Iraq, Kuwait, Saudi Arabia and the UAE, while Oman and Qatar will also add capacity. In the period 2017-2021, ESAI Energy expects refining capacity expansions will lead Middle East production of the five main products to increase by about 355,000 b/d annually against average regional demand growth of just 195,000 b/d per year. The erasure of regional gasoline and fuel oil deficits will join jet fuel and diesel, the surpluses of which will expand precipitously, as the chart illustrates.

As a result, product exporters in Asia, Europe and North America will need to compete in new markets or against new players in traditional ones. That competition will continue to pressure refining margins and threaten operations at the least competitive refineries.

Energy Security Analysis Inc. (ESAI), founded in 1984, is a global energy consulting company that provides market research and strategic advisory services. ESAI Energy LLC provides outlooks ranging from 1-week to 25-years and a proprietary framework for interpreting and prioritizing empirical market data and industry information.

Marathon Petroleum to join Bakken pipeline JV

Marathon Petroleum Corp. has agreed to participate in the formation of a joint venture to invest in the Dakota Access Pipeline and the Energy Transfer Crude Oil Pipeline projects, collectively referred to as the Bakken Pipeline system.

MPC agreed to form a joint venture with Enbridge Energy Partners LP Inc., through wholly owned subsidiaries, to acquire a partial equity interest in the Bakken Pipeline system from a subsidiary of Energy Transfer Partners LP and Sunoco Logistics Partners LP, which owns a 75% indirect interest in the Bakken Pipeline system. MPC would own a 25% equity interest in the new joint venture with Enbridge. At closing, MPC will own an approximate 9.2% indirect interest in the pipeline system in exchange for its investment of $500 million. Under the terms of an open season, MPC also expects its subsidiary to become a committed shipper on the Bakken Pipeline system.

The Bakken Pipeline system is currently expected to deliver in excess of 470,000 barrels per day of crude oil from the Bakken/Three Forks production area in North Dakota to the Midwest through Patoka, Illinois, and to the Gulf Coast. The Bakken Pipeline system is expected to be ready for service by the end of 2016.

Also, subject to the closing of the transaction with Energy Transfer and Sunoco, Enbridge and an MPC affiliate have agreed to cancel MPC's transportation services agreement related to the Sandpiper project and liquidate MPC's indirect ownership interest in North Dakota Pipeline Company.

In an August 3rd note, Cowen and Company analysts said the deal itself is neutral to MPC, but that they "view the active management of the logistics portfolio positively."

The company "de-risks its pipeline backlog through this transaction, eliminating $200MM incremental spend while gaining exposure to a fully-funded project backed by shippers. At the same time, the company reduces its dropdown backlog by $60MM. While an 8x drop multiple implies a $340MM net value loss for MPC, a lower risk project backlog should translate into a lower MPLX yield that could bridge the gap. Regardless, we see consolidation of Bakken related infrastructure as warranted given current market conditions, as a horizon for production growth from the play continues to be pushed out," the analysts continued.

EnLink Midstream forms JV with NGP

A subsidiary of EnLink Midstream Partners LP (the partnership), and EnLink Midstream LLC (the general partner) and an affiliate of NGP Natural Resources XI LP have formed a strategic joint venture (JV) to operate and expand the partnership's natural gas, natural gas liquids, and crude oil midstream assets in the Delaware Basin.

The new expansion, named Lobo II, will include the installation of a cryogenic natural gas processing facility with capacity up to 120 MMcf/d and associated natural gas and liquids gathering pipeline infrastructure in Loving County, TX, and Eddy and Lea counties, NM. The partnership will serve as the JV's managing member and will handle day-to-day construction and operation of the assets, which are supported by long-term, fee-based commitments from major producers.

The expansion builds off the partnership's existing Lobo System, which the partnership contributed to the newly formed JV. Upon completion of Lobo II, the facility will have a total processing capacity of approximately 155 MMcf/d in the Delaware Basin.

The JV is initially owned 50.1% by the partnership and 49.9% by NGP. The partnership contributed approximately $230 million of existing Delaware Basin assets to the JV and committed an additional approximately $285 million in capital to fund potential future development projects and potential acquisitions. NGP committed an aggregate of approximately $400 million, including an initial contribution of approximately $115 million, which the JV distributed to the partnership at formation to reimburse the partnership for capital spent to date on existing assets and ongoing projects. As part of this agreement, NGP granted the partnership graded call rights beginning in 2021 to acquire increasing portions of NGP's interest in the JV at a price based upon a predetermined valuation methodology.

DW: FLNG spend may hit $41B with wave of landmark projects

Despite challenging market conditions, global capital expenditure (Capex) on FLNG facilities is forecast to increase significantly over the 2016-2022 period. The protracted oil price downturn has impacted the sanctioning of capital intensive liquefaction units over the last 24 months. However, the need to move towards cleaner sources of energy and diversify gas supply has stimulated the floating regasification market - over 14 countries are expected to commission their first floating import unit over the forecast period.

These are some of the findings from Douglas Westwood's (DW) latest World FLNG Market Forecast with global FLNG Capex expected to total $41.6 billion during 2016-2022, compared with $11.4 billion 2011-2015 - an increase of 264%. Report author, Mark Adeosun, commented, "Liquefaction vessels will account for approximately 59% of forecast expenditure, with the remaining 41% allocated to import and regasification terminals. Near-term growth in expenditure will be predominantly driven by a number of flagship liquefaction projects sanctioned prior to the oil price downturn.

"Global expenditure is expected to peak in 2017 as the first wave of sanctioned projects come onstream. Reduced project sanctioning will likely impact the market towards the end of the decade - with expenditure forecast to decline significantly in 2019 - before stagnating over the 2019-2021 period. Long term prospects are positive; a marginal uptick in spending is expected in 2022 driven by the sanctioning of a second wave of capital intensive liquefaction projects. Over the forecast period, Africa and Asia will be key areas for liquefaction and regasification units - with both regions accounting for 54% of total global expenditure. Spend in Australasia is set to decline post 2018 after the installation of the Prelude FLNG.

"Despite near-term concerns, the long-term viability of FLNG technology is clear. In the decades ahead, natural gas will continue to play an increasingly important role in meeting global energy demand. Furthermore, the rising cost of onshore development terminals and the shorter lead times of floating units make the technology a viable option in the current market environment."

Venture Global closes equity investment

Venture Global LNG Inc. has closed its fifth round of equity investment, again through a private Reg. D transaction.The offering raised additional capital of $15 million, bringing the total capital raised to date to over $280 million. Proceeds will fund Venture Global's LNG development activities for its proposed export facilities in Louisiana. Venture Global continues its development plans for the 10 MTPA Venture Global Calcasieu Pass facility on an approximately 1,000-acre site located at the intersection of the Calcasieu Ship Channel and the Gulf of Mexico, and the 20 MTPA Venture Global Plaquemines LNG facility in Plaquemines Parish, Louisiana on an approximately 630-acre site at river mile marker 55 on the Mississippi River, located 30 miles south of New Orleans, Louisiana.

Goodnight Midstream receives $80M investment

Tailwater Capital LLC has made an initial equity commitment of $80 million to Goodnight Midstream (formerly 1804 Operating) to further develop water gathering and disposal facilities in North Dakota, and to fund Goodnight's expansion into Texas, and other regions. Headquartered in Dallas, Goodnight Midstream built its first water infrastructure in 2011. Goodnight now owns more than 150 miles of saltwater gathering pipelines connected to a network of 16 saltwater disposal facilities in North Dakota. Concurrent with the investment, 1804 Operating officially changed its name to Goodnight Midstream.

Azure sells processing plant

Azure Midstream Partners LP has sold the 100MMcf/d Panola I processing plant and Murvaul pipeline to Align Midstream Partners for $44.9 million in cash proceeds. Azure's CEO, I.J. "Chip" Berthelot, II, said the transaction allows the company to reduce debt by $41 million and increase annual EBITDA run rate by about $1.5 million through the elimination of fixed costs associated with the assets sold. Wells Fargo Securities LLC and Evercore served as financial advisor to Azure.