Ready, Set, Go……..New Fractionation – All Eyes on Texas

With all the new NGLs coming on, there has been periodic hand wringing about fractionator capacity.  The good news is that there is a lot of capacity being built.  So much so that it appears that the fractionators will be able to keep up with the producers and inbound pipes, at least most of the time. Notice however, that even though new NGL production from shale gas is growing most rapidly in the Northeast over 60 percent of the new capacity will be at Mont Belvieu or the Texas Gulf Coast region. Today we examine why Mont Belvieu remains the center of the NGL universe.

There are 27 fractionation projects in the works around the U.S.[1], some greenfield, some expansions.  If these projects (announced through 2014) are completed as planned, they will add 1.3 MMb/d of fractionation capacity increasing total US capacity to a whopping 4.6MMb/d, an increase of over 40% in just three years. Fourteen of these projects – representing over 60 percent of the new capacity are being built either at Mont Belvieu or elsewhere on the Texas Gulf Coast. All that construction is no small feat.  These facilities are gigantic, high-dollar investments (~$400MM for a 100Mb/d plant) and they take at least a year and a half to complete.  And cash flow? Assuming the average fractionation fee these days is 6 cents/gallon, that 100Mb/d fractionator will generate over $250M/day in fees alone.  You can do the math….all together, this new capacity will generate lots of low risk fee based revenue. But just as important, this fractionation capacity will provide the capability to turn additional y-grade (raw mix) into more valuable purity products.  

So the race is on to get fractionation capacity up and running to capture a share of the growing market while it’s hot and while lucrative,  firm contracts can be had. In all cases frac rates are up, contract terms are longer and nearly every bit of capacity is spoken for. Unless plans change, new fractionation capacity will be rolling out over the next 24 months on a pretty steady basis. In this blog series we will report on the progress of new fractionation by reviewing the remaining projects (and a few that are still being considered) and comparing them to the latest production forecasts. We begin with the largest NGL fractionation hub in the US - Mont Belvieu because in spite of  the Northeast gaining momentum, most of the new capacity continues to be built  at Mont Belvieu or in the Texas Gulf Coast region.   

The Big Kahuna – Mont Belvieu

By the end of 2014 a total of 1.7MMb/d of fractionation capacity will be operating in the Mont Belvieu area alone. That’s 620MMb/d or 50% more than is available today.  That represents well over $2B invested collectively by midstream energy companies. And that’s not all - because each project (or fractionator) requires new storage wells, brine ponds, receipt and delivery infrastructure, and locked in firm long term fractionation agreements with credit worthy energy companies. The table below lists the 7 new projects expected online by the end of 2014 as well as the recently completed Enterprise plant.

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