The exploration and production sector may be feeling the heat from slumping natural gas prices, but they had little impact on Enterprise Products Partners LP’s Permian Basin operations during the first quarter, executives said Tuesday.
Driven by its operations in West Texas, natural gas transportation volumes during 1Q2024 improved from a year ago to 18.6 trillion Btu/d from 18.0 trillion Btu/d. Fee-based gas processing volumes increased to 6.4 Bcf/d from 5.5 Bcf/d. Natural gas liquids (NGL) fractionation volumes also rose, climbing to 1.6 million b/d from 1.4 million b/d.
At the Waha hub in West Texas, gas prices turned negative this year, but Enterprise came out of it calm, cool and collected.
“Essentially, we’ve seen no effect from the weak natural gas prices,” Vice President Anthony Chovanec of Fundamentals and Commodity Risk Assessment told analysts. “If you look at what drives the economics of the producers in the Permian, it’s not natural gas…
“What we’ve seen in natural gas prices is not going to cause people to shut in or even throttle back oil-related natural gas at this point. We haven’t seen it. I guess proof is a little bit in the pudding,” Chovanec said.
“If you go and look at…rig counts in the Permian since the first of the year, they’re as steady as they can be.” In addition, “the same can be said” for the rig count in the Eagle Ford Shale, which is an oil-weighted formation. The rig counts have fallen in the gassy Haynesville Shale and in Appalachia, “but not in your oily basins.”
That sustainability in rig activity has occurred even as natural gas prices at Permian benchmark Waha averaged at negative $1.095/MMBtu in April. This was down from $2.420 in January, NGI Daily Historical Data show. For comparison, prices at Haynesville benchmark Carthage averaged about $1.285 in April, off from a January average of $2.95.
Higher Ethane Recoveries
Even with the negative Waha prices, Enterprise captured the upside, according to Senior Vice President Tug Hanley of Pipelines & Terminals.
“It’s puts and takes,” he explained. “From the negative gas price perspective, we are seeing lower prices, obviously, for our equity volumes. However, on the positives of the lower gas price, we’re seeing wider margins for C2 to gas,” aka ethane to gas. The C2 margins are “key for us…They are over 22 cents/gallon.”
What that means, Hanley said, are “higher ethane recoveries across the system. So we’re seeing record pipeline volumes…” Enterprise transports “around 375 MMcf/d” from the Permian to the Gulf Coast, “which is the premium market versus the Waha negative price.”
What about the domestic price for propane? The price is “widening the spreads to the international markets,” Hanley said. “We are seeing lower freight prices, which are leading to higher spot export opportunities for us. We’re seeing some of those opportunities in the low single-digit numbers materialize. That’s been a benefit to us on that aspect…
“Propane is going to be constrained here domestically until new export capacity comes online…Next year, you could probably see the storage value start widening out because that’s the only place you can go at this point…
“But once you get out…next year and years beyond, we think the appetite” for NGLs “is there across the world,” Hanley said. “We think freight is going to be there. So at some point in time, it’s going to come back to the U.S. producer and for them to catch up to align with the export capacity, the freight and the overall global demand.”
The Houston-based midstream giant transported a total 12.3 million boe/d total during the first quarter. The marine terminals, which move NGLs to overseas markets, handled a record 2.3 million b/d.
“The Permian Basin is expected to account for more than 90% of domestic NGL production by the end of the decade as producers and oilfield service companies continue to push the envelope and develop new and more efficient techniques in one of the world’s most prolific energy basins,” said Enterprise’s Jim Teague, co-CEO of the company’s general partner.
In the Natural Gas Pipelines & Services segment, gross operating margin (GOM) was $312 million in 1Q2024, down from $314 million a year earlier.
On a combined basis, GOM from the Rocky Mountain Gathering Systems declined by $37 million year/year, primarily because of “lower average gathering fees indexed to regional natural gas prices.” Gathering volumes on the systems, which include the Jonah, Piceance and San Juan, decreased by a combined 16 billion Btu/d, or 1%.
For the Texas Intrastate System, GOM increased $14 million on the back of “higher capacity reservation and transportation revenues, in addition to lower operating costs,” management noted. Transportation volumes increased 46 billion Btu/d.
The GOM from the natural gas marketing business increased $17 million primarily because of “higher sales volumes and average margins,” the company noted.
Permian gas gathering reported a combined $4 million increase in GOM. Enterprise attributed the increase to a 503 billion Btu/d gain in volumes, partially offset by higher operating costs.
Enterprise said it fetched an average natural gas price of $2.25 in 1Q2024, compared with $3.44 in the year-ago quarter. For ethane, the average price was 19 cents/gallon, down from 25 cents, while propane averaged 84 cents, off 2 cents from 1Q2023.
Net income was $1.5 billion (66 cents/share) in the first quarter, compared with year-ago profits of $1.4 billion (63 cents). Revenue increased to $14.8 billion from $12.4 billion.
