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UPDATE 4-Enterprise Abandons Texas Pipeline Project as Oil Prices Remain Weak

Source: Reuters, September 9, 2020

HOUSTON (Reuters) – Enterprise Products Partners LP on Wednesday abandoned a major 450,000-barrels-per-day Permian crude pipeline project in Texas and agreed to give customers lower near-term commitments on other pipelines as oil prices remain stagnant.

The cancellation of the Midland to ECHO 4 pipeline is in line with other delayed energy projects, including export terminals and pipeline builds, hurt by lower demand after U.S. oil producers chopped output to cope with oil prices below $40 a barrel.

Enterprise also said it no longer expects to receive regulatory approvals for its offshore crude export terminal in 2020.

The company previously anticipated final approval in the second quarter. But the project has been hit by delays after the United States Coast Guard and Maritime Administration (MARAD) requested additional information.
Many analysts have said that pipeline capacity in the Permian basin is already more than needed at current production levels. The pipeline, also known as M2E4, was planned to transport crude from Midland, Texas – the heart of the Permian basin – to the ECHO 4 terminal in Houston.

“The cancellation of a pipeline this size is directionally helpful but not a gamechanger for the market oversupply. The Permian will still be significantly overbuilt,” said Ethan Bellamy, managing director of midstream strategy at East Daley Capital Advisors.

Rival Plains All American Pipeline LP’s CEO said the oil pipeline industry is shifting out of a growth phase and consolidation is likely.
However, the cancellation is expected to reduce cash flow risk for Enterprise.

“We see this as a great win for Enterprise,” Bellamy said.
Enterprise shares were up 2.7% at $17.50 in early-afternoon trading on the New York Stock Exchange.
In April, Enterprise pushed back the expected completion of the M2E4 line by six months to the second half of 2021 and cut its 2020 budget by $1.1 billion.
The Midland-to-ECHO 3 pipeline is expected to start up initial service in the third quarter.
Broadly, crude prices could spike as soon as the second half of 2021 if the global economy continues to recover, Enterprise said, adding that more consolidation and bankruptcies are likely among oil producers. (Reporting by Shariq Khan, Arathy S Nair in Bengaluru and Devika Krishna Kumar in New York; Editing by Sriraj Kalluvila, Bernard Orr, Dan Grebler and Tom Brown).