Daytona 400: Targa on Fast Track for NGL Market Share

The Daley Note: November 21, 2022

On its 3Q22 earnings call, Targa Resources (TRGP) announced plans to build Daytona, a new Permian NGL pipeline with an initial capacity of 400 Mb/d. While NGL pipeline egress out of the basin is overbuilt, according to East Daley’s NGL Network Model, Daytona makes sense for TRGP as it rapidly grows its Permian G&P systems and NGL production.

The new project will add a twin line to the 550 Mb/d Grand Prix pipeline. Like Grand Prix, Daytona would be a 75/25 joint venture between TRGP and Blackstone Energy Partners. According to our NGL Network Model, Grand Prix throughput will near capacity by YE24, which means Daytona’s expected in-service date of 4Q24 would be perfect timing.

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Management said the Daytona project will cost $650 million and will follow expansions to the company’s downstream and upstream NGL projects. TRGP expects to complete its 120 Mb/d Train 9 fractionator in 2Q24 and is expanding its LPG export capacity by 1 MMbbl per month by mid-2023. Targa is also bringing online over 1.13 Bcf/d of Permian natural gas processing capacity through 2024. At full capacity and assuming a conservative 5.0 gallons of NGLs per Mcf of natural gas (GPM), those new processing plants could generate 135 Mb/d of Y-grade to send on Daytona and Grand Prix to Gulf Coast fractionators.

Over the next few years, Targa also has commitments rolling off competing Permian NGL pipelines for its  existing Permian processing plants. Our NGL Network Model shows DCP Midstream’s (DCP) Sand Hills and ONEOK’s (OKE) West TX LPG pipelines are set to lose ~80 Mb/d and ~60 Mb/d of Y-grade volumes from TRGP plants through 2024. We use forecasts from the NGL model to inform the outlook for DCP, OKE, TRGP and other midstream companies in our Blueprint Financial Models. Fortunately for DCP and OKE, FERC-indexed rate increases and continued growth in overall Permian NGL supply should limit the financial impact of these contract roll-offs, according to our company Blueprints.

The bigger issue for DCP and OKE will be trying to grow volumes on those pipes. The competition for volumes is certainly heating up for long-haul Permian NGL pipelines, and having control of the barrel at the plant will be crucial to ensuring continued volume growth. TRGP’s acquisition of Lucid and Enterprise Products’ (EPD) acquisition of Navitas are prime examples of this trend, as now both companies have announced expansions to Permian NGL egress capacity. — Ajay Bakshani, CFA Tickers: DCP, EPD, ET, OKE, TRGP.