Demand for capacity to process growing associated natural gas volumes in the Permian basin has prompted Enterprise Products Partners to add two processing plants and expand NGL takeaway capacity on its Shin Oak Pipeline, the midstream natural gas and crude oil pipeline company said Aug. 3.
Enterprise will build two new gas-processing plants in the Permian, one each in the Delaware and Midland basins, which would have a capacity of 300 MMcf/d each and be able to extract more than 40,000 b/d of NGLs, it said.
In the Delaware basin, Enterprise will add a third plant at its Mentone cryogenic gas-processing plant in Loving County, Texas. Enterprise said the project is supported by long-term contracts and is expected to begin service at the end of the first quarter of 2024. In the Midland Basin, Enterprise is expanding its network of processing assets acquired in the purchase of Navitas Midstream in February. Enterprise will add its seventh natural gas processing plant in Midland County, with completion targeted for early 2024.
Crude oil, gas, and NGL production in the Permian Basin is quickly growing and Enterprise intends to take the lead in adding much-needed gas processing and NGL transportation capacity in the region, co-CEO Jim Teague said on an earnings call Aug. 3. Enterprise plans to expand Shin Oak's capacity by up to 275,000 b/d initially -- up from the current capacity of 600,000 b/d -- through looping and modifications of its existing pump stations, with the project targeted for completion in the first half of 2024.
The company framed the Shin Oak expansion as a potential forerunner to a move to convert part of its 1,373-mile Seminole pipeline in West Texas back toward NGL service.
"We now have powerful options as it relates to takeaway for NGLs out of the Permian," Teague said on the call. "We can close those loops and gain a lot of capacity, or we can put Seminole back into NGL service, or we can do both."
The 658-mile Shin Oak system stretches from the Permian to Enterprise's NGL fractionation and storage complex east of Houston in Mont Belvieu. Shin Oak was opened in early 2019 with initial capacity of 250,000 b/d before ramping up to as much as 550,000 b/d by the end of 2019. A modest capacity expansion has occurred since then.
Permian backdrop
Enterprise is not alone in looking to expand its gathering and processing profile in the Permian, with the Navitas deal part of a recent flurry of regional M&A activity. Targa closed July 29 on a $3.55 billion deal to buy Lucid Energy Group, a natural gas processor, while companies like Matador Resources and Delek Logistics also have moved in recent months to buy gas gathering and processing assets in the Permian. DCP Midstream Aug. 3 announced the closing of a $176 million deal to buy the James Lake gas gathering system in the Permian.
Production growth in the Permian also contributed to record-high volumes on Enterprise's natural gas transmission pipelines in Q2. Gas flows on Enterprise pipelines averaged 16.8 trillion Btu/d in the period, marking a new quarterly record and an 18.3% increase from Q2 2021.
Cost pressures
Costs for ongoing growth projects have increased for Enterprise this year, with a 10-15% increase in materials costs among factors leading the company to increase its full-year capital spending guidance.
"We are starting to see softening in some markets, particularly steel," said Chief Operating Officer Graham Bacon, but "labor markets are going to still be strong and have some upward pressure on cost as we go into 2023."
Enterprise raised its full-year forecast for capital expenditure to $1.6 billion Aug. 3, up from a $1.5 billion target shared in May.
Enterprise recorded a net income of $1.44 billion in Q2, up from $1.1 billion in Q2 2021.