TEPPCO ordered to sell Mont Belvieu NGL storage

Sept. 4, 2006
The US Federal Trade Commission has ordered TEPPCO Partners LP to sell its interest in a Mont Belvieu natural gas liquids storage facility and associated assets by Dec. 31.

The US Federal Trade Commission has ordered TEPPCO Partners LP to sell its interest in a Mont Belvieu natural gas liquids storage facility and associated assets by Dec. 31.

The Aug. 18 order came after the federal agency determined that Enterprise Product Partners LP’s February 2005 acquisition of TEPPCO’s general partner, Texas Eastern Products Pipeline Co. LLC, for $1.1 billion created a potentially uncompetitive situation (OGJ, Feb. 21, 2005, Newsletter).

The preliminary order did not come as a surprise to TEPPCO, which mentioned a possible divestiture of its 50% interest in Mont Belvieu Storage Partners in its latest proxy statement and quarterly financial filings with the US Securities and Exchange Commission.

“This is a negotiated settlement of an informal investigation. Nothing has been finalized yet. It has to go out for public comment,” TEPPCO Chief Financial Officer Bill Manias told OGJ on Aug. 24.

The FTC said that the transaction likely would result in higher prices and lower quality service by reducing the number of commercial salt dome storage providers at Mont Belvieu from four to three. Dan L. Duncan ultimately owns and controls both of the NGL storage facilities involved in the transaction through EPCO Inc., Enterprise’s parent, and TEPPCO, it indicated.

“The natural gas liquids storage system in Mont Belvieu is the largest in the world and represents a critical component in the US petroleum infrastructure,” said Jeffrey Schmidt, who directs the FTC’s Bureau of Competition.

“The commission’s challenge of the Enterprise/TEPPCO transaction will preserve competition among these vital facilities and ensure that Americans do not pay more for products derived from natural gas liquids, including plastics, heating fuels, and gasoline,” he maintained. The FTC ruled that the acquisition violated Section 7 of the Clayton Act and Section 5 of the FTC Act, as amended, by reducing competition in the market for salt dome storage for gas liquids at Mont Belvieu.

70% of capacity

The salt dome storage market there is highly concentrated, with Enterprise and TEPPCO being the two largest suppliers based on storage volumes. Combined, the two companies account for 70% of all commercially available salt dome storage volume at Mont Belvieu, with Targa Resources Inc. and Valero Energy Corp. owning the rest, according to the FTC.

It said that Enterprise and TEPPCO competed directly for NGL salt dome storage volumes at Mont Belvieu based on price and service levels before the acquisition. Both companies are connected to the Dixie Pipeline and competed for customers who wanted to ship products-primarily propane-into the southeastern US.

In addition, along with Targa Resources, Enterprise and TEPPCO competed for storage customers’ marginal volumes, as well as for their trading volumes prior to the acquisition, with many customers ranking Enterprise and TEPPCO as their first and second choices for NGL storage, the FTC said.

Combining the companies gave Duncan dominant ownership of the Mont Belvieu area’s NGL storage capacity and the ability to exercise market power since Targa and Valero can’t replace the competition lost through the acquisition, the federal agency said. The resulting elimination of competition between two leading NGL salt dome storage providers likely will lead to higher prices and reduced service for storage customers, it said.

Entry into the Mont Belvieu salt dome storage market by other competitors is not likely to occur soon enough to offset the acquisition’s alleged anticompetitive effects, the FTC added.

Under the preliminary order, TEPPCO and Duncan must sell the 50% interest in Mont Belvieu Storage Partners to an FTC-approved purchaser by Dec. 31. If they can’t, the commission would appoint a trustee for that purpose. Duncan also will be required to notify the FTC before acquiring, operating or managing any NGL storage facility at Mont Belvieu within the next 10 years, and to send the commission copies of any new NGL storage lease with third-party storage facilities within 15 days.

Finally, to maintain the competitive viability of the divested facility, the FTC said that the preliminary order contains several provisions related to the operation of TEPPCO’s TE Products Pipeline, including requiring TEPPCO to continue to operate the pipeline on open stock service for propane, provisions governing TEPPCO’s conduct in the event that it interconnects any storage facility that it owns in Mont Belvieu to the pipeline, and terms relating to the implementation of new allocation procedures on the pipeline.

Comments on the preliminary order should be sent by Sept. 18 to the FTC, Office of the Secretary, 600 Pennsylvania Ave. NW, Washington, DC 20580.