Insight Conversation: Jim Teague & Chris D'Anna, Enterprise Products Partners

Enterprise Products Partners is a key delivery point for physically settled futures markets, with global hydrocarbon risk management from the wellhead to waterborne markets. The Houston-based midstream titan's reach goes far and wide with fractionators, pipelines, storage and export terminals for natural gas liquids, crude, liquefied petroleum gas, refined products and increasingly, petrochemicals.

In recent years Enterprise has increased its petrochemical footprint, with 75% of current capital expenditures in the petrochemical space – mostly on a second propane dehydrogenation (PDH) unit under construction. That footprint also includes the sole US propylene export terminal, polymer-grade propylene production with one propane hydrogenation plant and another under construction, a new 1 million mt/year ethylene terminal, 530,000 mt of ethylene storage, and ethylene pipeline connectivity to 80% of third-party ethylene pipelines.

Co-CEO Jim Teague and Chris D'Anna, Enterprise's senior vice president of petrochemicals, recently spoke with Kristen Hays, S&P Global Platts global market lead – polymers, about that petrochemical push, which includes serious consideration of adding a cracker to its olefins lineup.

You've been growing quite a bit in the petrochemicals sphere in recent years. Enterprise sees petrochemical demand being a good 60% of oil demand over the next decade or so. Could you elaborate on your petchems strategy going into the future?

Jim Teague: We just feel like petrochemicals is just a natural extension of our value chain. We're so big in NGLs, and petrochemicals in the US and natural gas liquids, I think, are kind of married if you would, especially ethane.

I want this company to be here in 50, 75, 100 years. We've got to go beyond what we're doing right now. It's not to say what we're doing right now is wrong. It's to say if we're really going to position ourselves, we've got to go beyond where we are. That's why [we have] PDH, and PDH two. That's why we're doing propylene. We've got a great propylene hub. That's why we would like to have a great ethylene hub.

If we can toll propane and propylene, we can damn sure toll ethane and ethylene. And we're not going to be a merchant. But it's just a utility. And I'd love to be able to do something like that.

We're not going downstream. We're not going into polypropylene or polyethylene. We like primary petrochemicals. That's kind of who we are.

Chris D'Anna: We're continuing to develop really around ethylene. That's what our focus has been this year – extending our system, extending our pipeline system.

We had focused on connecting to all the production, and now we're connecting to more and more of the consumption of ethylene.

Enterprise has said it wants to connect ethylene from the Mississippi River to Corpus Christi. Would you envision something a little more getting A to B rather than A,B, C, D, and E?

Chris D'Anna: Absolutely. That's a project we're trying to develop. It's one that's needed. I think the market acknowledged that it's needed. It's one that one customer can't underpin, you need more people to step up.

Jim Teague: His vision is to have in ethylene what we have in ethane.

We have an ethane header from the Mississippi River to Corpus Christi. But it creates storage business for us, it creates throughput on the pipeline and what we say is just float on us.

Chris D'Anna: Having that well-functioning hub and header system – it means anyone that needs to build a derivative plant, they don't need it next to a cracker, they can just be along that header – and have surety of supply, reliability. It all goes back to having a good functioning hub, and well connected.

On the possibility of a cracker – if you could structure some sort of deal that you could have an anchor customer, like you did with LyondellBasell for the second PDH – would that give a little interest in possibly building a cracker, or maybe buying NOVA's cracker at Geismar?

Jim Teague: I won't say never. But we kind of like stuff around Mont Belvieu. It's not to say we wouldn't do something somewhere else if we had the pipeline connectivity.

Chris D'Anna: Our goal for a cracker isn't to compete with our customers that also have crackers. It's to enable people that don't want a whole cracker – they want 15% or 20% of a cracker to have that same structure and economics as if they build a world-scale themselves.

Jim Teague: I had a CEO of a big petrochemical company call me if you all do that you're going down the right track because I think there's the potential for a domino effect.

Why spend all that money on a cracker if you can toll that thing through someone else's and it's pretty damn cost advantaged. Spend it on the derivative plant.

Everybody looking at capital allocation and how you're doing it and all this stuff right now so maybe there's an opportunity. I will tell you Chris is thinking long and hard about that.

Enterprise has established an evolutionary technology segment as part of the company's environmental, social and governance initiatives. Could you talk more about this push for energy evolution?

Jim Teague: We refuse to use the word "transition". We use the word evolution. We set up a group called our evolutionary technology group. Basically what we're looking at is carbon capture and sequestration, we're looking at hydrogen, we're looking at plastic recycling – we're looking at saying, "Okay, can we make a business out of this?"

We started out with just a group of chemical engineers looking at the technology of all this. Now we've added a commercial person to it. And they're talking to everybody.

We know how to build pipelines. We know how to repurpose pipelines. So what is the opportunity there? What I'm getting to is whenever you start getting to that, and you start making a business out it, that's an opportunity for somebody. So we'll see where we get with that.

The reason we don't use the word transition is I think it is absolutely absurd that we have – that we think in just a few decades we can transition to no fossil fuels. That is insanity and it's wrong. Personally I think you're going to need more energy, but fossil fuels, I think in 2050 we're going to be using more crude oil than we're using today. Because, population.