Consolidation has been a big part of the midstream the past year and also a big part of Hart Energy’s annual rankings of the top natural gas processors and natural gas liquid (NGL) producers for 2012. Two previously ranked companies: Southern Union and Energy Transfer Partners (ETP) now fall under the same general partner: Energy Transfer Equity (ETE). For the purposes of the rankings, Energy Transfer officials asked that the rankings refer to this combined entity as Energy Transfer Enterprise.

ETE acquired Southern Union in early 2012, which combined with the acquisition of Regency Energy Partner’s general partner and Sunoco Logistics Partners has given the combined entities an equity value of more than $50 billion. ETE’s diverse operations include more than 69,000 miles of pipeline, 51 natural gas processing plants, two fractionators and 2 billion cubic feet (Bcf) per day of liquefied natural gas (LNG) import capacity along with 4,900 Sunoco gasoline retail locations.

Acute observers will notice that the production and processing figures for the combined Energy Transfer entity are lower in the rankings than the companies held separately last year. The reason for this discrepancy is that ETE officials removed some double counting in previous figures as well as adhered to survey criteria more closely.

The standards used to compile the rankings remain the same as last year when owners of processing plants and fractionators were asked to submit their full processing and production totals at their facilities for 2012. In years prior to 2011, rankings were based on first-party processing and production volumes, which wasn’t indicative of the largest midstream companies.

However, this year the survey further worked with companies to properly account for these figures. This led to some changes in the rankings for both 2012 and 2011, reflected in the accompanying tables. Primarily, these changes were related to reflect U.S.-only production and processing totals rather than North American totals. The companies with the largest impact in these figures were Encana and Chevron.

Rankings

These are the most representative figures of the top midstream operators that the survey has compiled and published in its 30-year history. There were no estimates or double counting of figures, and the companies better understood the methodology and criteria. This was most reflected in the change in ONEOK Inc.’s figures from 2011 when numbers were estimated. As it turns out, these figures were estimated too high as they included double counted volumes.

In the updated rankings, the combined ETE entities remained in a retroactive 11th place in the natural gas processor rankings and moved up one slot from sixth to fifth in the top NGL producers’ rankings.

However, the company’s volumes grew greatly in both cases through this combination as the processing totals rose 18% from 884 million cubic feet (MMcf) per day in 2011 to 1.045 Bcf per day in 2012 while the NGL production totals rose from 68,300 barrels (bbl.) per day.

As impressive as this growth was, the company has even bigger plans. While speaking at Hart Energy’s Marcellus- Utica Midstream conference earlier this year, Rick Cargile, ETP’s president, midstream, said that by 2015, ETE will be the largest NGL producer in the U.S. with 450,000 bbl. per day.

This goal will be fueled by building critical mass as it organically builds liquids-focused assets in the Marcellus and Utica, the Eagle Ford, Barnett and Permian.

While ETE is eyeing the top spot in the future, DCP Midstream remained the largest NGL producer for the fifth-straight year and surpassed Enterprise Products Partners as the largest gas processor. This was the first time that any company held the top position in both rankings.

DCP Midstream experienced a slight increase in its gas processing figures in 2012 as it rose to 6.1 Bcf per day from 6.079 Bcf per day in 2011. The company’s liquids production growth was much greater as it rose 5% from 383,021 bbl. per day in 2011 to 401,914 bbl. per day in 2012.

Interestingly, DCP Midstream’s ascent to the top of both rankings was done in a similar way in which ETE is now growing. The company can trace its history back more than 80 years ago, but it really began to make its mark when DCP Midstream Partners was formed in 2005 by Duke Energy Field Services, a joint venture (JV) between partners Duke Energy and ConocoPhillips.

This new MLP led to the formation of what company officials now call their “super-systems,” which are its bread and butter. These legacy assets were tied together so that they operated in tandem with a large footprint in various regions throughout the country rather than independently to create flexibility and reliability.

“We think it’s a competitive advantage for us as it enables us to reroute volumes in a region if one facility goes down,” Wouter van Kempen, chairman, president and chief executive of DCP Midstream Partners tells Midstream Business. The company’s super-systems are located in the Midcontinent, Denver-Julesburg and Permian basins and the Eagle Ford shale.

While ETP may have slipped in the natural gas processor rankings, its numbers were largely unchanged from the previous year, and it was a close call at the top between them and DCP Midstream. In addition, its NGL production grew at a larger rate than DCP Midstream.

ETP, Targa find success exporting LPG

For 2012, Enterprise experienced a 1% drop in processing volumes from 6.131 Bcf per day in 2011 to 6.052 Bcf per day for 2012 and saw its NGL production climb 13% to 343,600 bbl. per day in 2012 from 303,000 bbl. per day in 2011.

While speaking at the National Association of Publicly Traded Partnership’s (NAPTP) annual MLP investor conference earlier in May, the company’s chief executive, Mike Creel, said growth has been focused on liquids as its NGL services and pipeline division is its largest division with its crude oil segment growing at an even faster rate.

This growth has been achieved, in part, because of its first-mover status in the Rockies, and it is also a first-mover in another area: liquefied petroleum gas (LPG) exports. In 2012, Enterprise loaded 46 million bbl. of LPG from its export terminals and expects to load approximately 62 million bbl. this year.

In 2012, the largest export markets for propane from Enterprise terminals were South America at 17.3 million bbl. and Mexico at 10.8 million bbl. Other destinations are Central America, Europe, the Far East and the Caribbean. Creel said more destinations will be added when the Panama Canal is opened up in 2014.

In order to meet supply with demand levels, Enterprise announced plans to build one of the largest propane dehydrogenation units along the Gulf Coast. This facility, expected to begin operations in the third quarter of 2015, will consume up to 35,000 bbl. per day of propane and produce 1.65 billion pounds per year of polymer-grade propylene.

Targa Resources, which is ranked as the fourth-largest gas processor and NGL producer, is also heavily focused on LPG exports as the company is expanding its Patriot Terminal on the Houston Ship Channel. This additional space will help increase capacity at its Galena Park Marine Terminal, which exported more than 1.2 million bbl. per month of LPG for export in the second quarter. This was a 46% increase over its export level in the same quarter in 2012.

“Export activity continues to exceed our expectation as we improve our ability to load ships even with the ongoing construction at Galena Park that resulted in a slight reduction in sequential quarter-over-quarter volumes,” Matt Melody, the company’s chief financial officer said during a conference call to discuss second-quarter earnings.

The Patriot Terminal is located about two miles from the Galena Park Terminal and includes an existing dock, acreage for expansion and will have access to the Colonial- Explorer Pipeline interconnect. Beginning in 2011, the company announced plans to invest approximately $250 million to expand its propane-export capacity.

Upon completion of this program, the Galena Park Terminal will have the capacity to export more than 5,000 bbl. per hour of fully refrigerated, low ethane propane. This will provide loading capacity for up to four VLGC (very large gas carrier)-class ships per month. The project also includes the addition of a propane de-euthanize, additional salt dome storage at its Mont Belvieu, Texas, NGL fractionation and storage facilities.

Targa experienced a 3% decrease in its processing volumes in 2012 as they fell from 2.162 Bcf per day in 2011 to 2.098 Bcf per day. This was counterbalanced by a 4% growth in NGL production from 123,900 bbl. per day in 2011 to 128,700 bbl. per day in 2012.

Williams focuses on U.S. market

The third-largest NGL producer and processor in the rankings, Williams, is also heavily focused on infrastructure build-out this year. However, its growth is focused on the domestic market and not on exports.

“We think that natural gas and natural gas products here in the U.S. are undervalued up against world prices that we have a lot of infrastructure to install to be able to arbitrage the spread between U.S. natural gas prices and its derivative products against the rest of the world. That takes a tremendous amount of infrastructure like we are developing to help arb that out,” Alan Armstrong, the company’s president and chief executive, said at the Barclays CEO Energy Conference in September.

Part of this infrastructure growth includes, the Bluegrass Pipeline, which Williams is co-developing with Boardwalk Pipeline Partners. This system will transport up to 400,000 bbl. per day of NGLs from the Marcellus and Utica shales to petrochemical markets. The exact route for this project is currently under development.

According to Armstrong, until this pipeline comes online in late 2015, the Northeast petrochemical market will remain inefficient. Currently, producers have to fractionate the product locally and then rail it out, which adds extra costs.

“An NGL solution has got to start to appear to give producers confidence to continue to drill, because they are not going to be realizing the kind of prices that they need as these local markets become overwhelmed by the degree of production that’s out there,” he said.

JV partnerships are also critically important in the Northeast as activity in the Marcellus and Utica shales are exploding, Armstrong said. “This area is developing so rapidly and the infrastructure constraints are so complex that having the kind of joint ventures that we have is very important, even though they are also very complex to manage. We have a very good feel for what is going on in all of the plays around us.”

Crosstex makes NGL rankings debut

Crosstex Energy Services has been a consistent figure in the survey’s top-ten rankings for natural gas processors for the past six years. However, the company made its debut on the top-ten rankings for NGL producers as it experienced a 23% increase in production from 22,697 bbl. per day in 2011 to 27,813 bbl. per day in 2012. This pushed the company to the No. 10 position in the rankings.

A large part of this growth was due to opportunities created in Louisiana, which is becoming less dependent on the Gulf of Mexico. In 2009, Crosstex was one of the first companies to transport production from the Haynesville to South Louisiana. This move is paying off for the company today.

“In Louisiana our NGL assets are perfectly positioned to take advantage of this robust environment by linking supply with growing demand,” Barry Davis, the company’s president and chief executive, said during a recent conference call to discuss second-quarter earnings.

“In the past, the Louisiana industrial market depended on Gulf of Mexico gas in NGL production, which in recent years has declined from about 12 Bcf per day to 4 Bcf per day. Our customers rely on us to make up the difference,” he continued.

Davis stated that the petrochemical market in Louisiana consumes up to 300,000 bbl. per day of ethane, but only 100,000 bbl. per day of the product is produced in the region. This demand is expected to grow and much of this increased demand is expected to be met by the company’s Cajun Sibon expansion project, which is expected to begin full capacity operations in the fourth quarter and lead to more growth opportunities for Crosstex.

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