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Coming To America: Greater International Investment Could Be Coming To Oil And Gas Midstream Sector
-International investment in the US shale dominated the news several years ago as US companies teamed up with global partners to capitalize the enormous cost of developing new shale plays. That wave appears to have mostly subsided, but a new dynamic is taking shape that could lead to a second round of international JVs–this time in the US midstream sector.
Already, a raft of global players have opened their wallets to invest in the early stages of the dozen or more planned Liquefied Natural Gas (LNG) export facilities, which chills methane gas to -260 degrees to move it as a liquid in ships. International owners include China Investment Corporation, BG Group BG Group from the United Kingdom, Government of Singapore Investment Corporation, Mitsui from Japan, Osaka Gas Osaka Gas from Japan, Qatar Petroleum, RRJ Capital from Hong Kong and Singapore , RWE from Germany, Temasek from Singapore, and Tokyo Gas Tokyo Gas.
Midstream Master Limited Partnerships (MLPs) are the logical owners of LNG export facilities, an industry source told Mergermarket, and Cheniere, Kinder Morgan and Energy Transfer are already in LNG game. As the export projects move closer to fruition, and wheat gets separated from the chaff, Mergermarket has reported that international companies from Japan, Korea, India, or Europe, or global commodities trading houses could come in as late stage investors to ensure supply for themselves. That could set up a scenario where private and public US midstream companies could garner global backing, as has already happened with Cheniere.
But LNG is not the only area of US midstream attracting global attention, so too are Natural Gas Liquids (NGLs). Not to be confused with LNG, NGLs are as common as the propane you use for your barbecue, and also include propane’s cousins ethane, butane, isobutane and natural gasoline. Last fall, NGL production hit an all-time peak of 2.5 million barrels per day in October, and it is expected to reach more than 3 million barrels per day by 2025, according to a recent Brookings Institute report. However, America only uses so much NGLs so surging production has meant a drop in NGL prices.
Ethane now is so cheap that in some basins producers have gone into “ethane rejection mode” and don’t even bother to produce or sell the stuff. Propane pricing is suffering too. But don’t get the wrong idea, the rest of the world is hungry for NGLs from the USA.
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Global petrochemical companies in Europe and elsewhere are clamoring for ethane as a cheaper alternative to oil-derived naptha, said Peter Fasullo, a principal with EnVantage, a natural gas advisory and energy investment firm. Meanwhile, U.S. propane is used widely as a fuel throughout Latin America and the widening of the Panama Canal in 2015 will open up Asian markets, particularly Japan, to new cargoes, he said. That’s why the oil and gas industry is abuzz over NGL export projects.
In the Northeast, MarkWest and Sunoco Logistics are working to move stranded Marcellus ethane overseas to supply companies like Switzerland-based Ineos Group, and possibly Austria-based Borealis AG, according to recent wire reports. In Houston, Texas, Enterprise Products and Targa Resources are expanding their NGL export facilities as fast as possible. Similar planned projects have emerged backed by Energy Transfer and Occidental Petroleum.
On the Gulf Coast, two global trading houses, Switzerland-based Vitol and Japan-based Itochu Itochu, have joined forces to fund their own NGL export project. However, Itochu is looking to invest in more than export facilities, a source recently told mergermarket. The company is interested in buying into other US midstream assets. Itochu’s fellow sogo shosha Marubeni is already active in the US through its funding of the Gas Infrastructure Alliance of America, a private real estate investment trust that invests in energy infrastructure assets. In February, Samchully Asset Management paid $170 million to Marathon Oil Corporation for a 34% stake in a Louisiana gas processing plant, which according to the company was first direct investment in a United States midstream asset by a Korean financial entity.
Given the value of U.S. oil and gas resources to the global economy and the massive capital requirements to get it to market, more international midstream investment appears to be a win-win for everyone.