Testing. Okay. Good morning, everyone.
We're going to go ahead
and get started. Wanted to welcome you to the Enterprise Analyst Day, and thank you for coming. We've got quite a presentation put together for you today, pretty exciting, and I look forward to going through it. A few housekeeping items. The webcast or the presentation today will be webcast live, so there's going to be some listeners in addition to the participants here.
So just keep that in mind. Also, since this is April, we normally have this in March. This is April, so we're blacked out. So there will be no comments regarding the quarter results or anything like that, which this is not tailored for that anyway. We have our customary forward looking statement here.
And don't worry, I'm not going to read it. It's there for your reading pleasure. It will cover our comments today in our presentation. You should have a tent card on your table that gives the Wi Fi password. It's Hilton 2019 and that's the Enterprise Products Network.
You also have a medallion. It's a little box there, a little black box medallion that commemorates our 20th year anniversary of listing. So 2018 was 20 years, 1998, with our IPO and 50 years as a company. Back in 1968, Dan started the company with pretty meager beginnings. So we're really proud of that.
So 20 year and 20 50 year is pretty big year for us. And I think that's all I have. So with that, I'm going to hand off to Rhonda.
Okay. I
think I'm double mic'd here. Good morning, everyone. Jim Teague asked me to convey his regrets that he's not here with us today. He spent the weekend getting ready for this meeting and acting as a chauffeur for his 2 tween step kids, enthusiastically cheering at both middle school baseball and softball tournament and somehow in the course of that managed to crack 3 ribs. So last year, we celebrated, our 50th anniversary of our founding and the 20th anniversary of our IPO.
These are obviously major achievements. I believe we're one of the oldest midstream companies and the only one that's still under the same ownership. But because we're enterprise, longevity and staying power isn't enough. We had a record breaking year on a number of fronts: record revenue, record coverage, record volume and we outperformed every major index and all the market sectors on the S and P. I think that's pretty cool.
If you're familiar with us, you've heard us talk about the enterprise family or the enterprise team. We work that way and we've organized today's presentation that way. So you're going to hear a number of panels made up of people from different groups who work together every day. And I want to thank all of you who are able to join us on the tours of Mont Belvieu of 9,420 and at the reception at HM and S last night. Weiss Energy Hall is a true testament to the generosity and innovation of the energy industry here in Houston and in the state of Texas.
And so now I'll turn the meeting over to Ivan to start the way we start all enterprise meetings with a safety moment. Thank you.
Thank you, Randa. As Randa said, we start every meeting in enterprise with a safety moment. Today's safety moment is on leading in safety. Our words will always be interpreted by our actions when it comes to supporting safety. Examples like what we pay attention to, how we allocate our resources, the behaviors we reinforce in others, all of those things will be observed and used to interpret our words.
So we can say safety is a priority, but we need to use our actions to reinforce that. And one quick example is exactly what Randa said, these safety moments. We allocate time at the beginning of every meeting we have to have a brief discussion about safety and that includes our main meetings like the supply meeting and the Tuesday management meeting, but as well as our weekly meeting that we have with Randa and Randy and Jim every Friday at 7:30 a. M. To just talk about safety.
So remember, when bleeding, your actions will always be used to interpret what you're saying.
Front row. The enterprise model was created in an attempt to capture and define what makes us enterprise. This model is posted all over the company and we focus on different aspects every week. But because I'm sure you don't want to be here for several months, as we cycle through it, I'll give you the cliff notes version. My great grandmother, Ms.
Nettie drummed into Dan's head to do the best you can every day and God will take care of the rest. It must have worked because he did it and he made sure that all of us got the same lesson. So the first and foremost thing in our model is our values. The key element in these values is caring. We care for our fellow employees by being safe.
We care for our unitholders and our investors by being honest and fiscally responsible and we care for our customers by being reliable. The next element is how we work. We're creative, we work together and we make sure we've got it right down to the last detail. And the third is how we lead. We listen, we learn, we're flexible and creative and in being all of these things, we make things happen.
Finally, underpinning the entire model is humility. We know that all of the things we do happen because we contribute in our own way. We give credit where credit is due and celebrate both the individuals and the group's accomplishments. And we let our actions speak louder than our words. And that's enough words from me.
Thank you.
Okay. Last when we were here a year ago at our Analyst Meeting, Jim kicked it off by getting on the cell phone with his broker and buying enterprise stock. So we thought it would be good to come back in and sort of take a look at how did Jim do on his transaction. And when we came in and compared this to the Alerian MLP Index, the FANG stocks that we hear so much about, the S and P 500 and all the different sectors in the S and P 500 enterprise had the best total return since our analyst meeting last year. And probably the only thing that's keeping Jim from coming in and repeating that fee this year other than 3 cracked ribs is we're in a blackout right now as Randy mentioned.
Coming back in and looking at our financial performance, we came in and looked at several years. And I think we're really as proud of the 2014, 2015, 2016 years as we are the record performance that we had last year. And a lot of that was working through that cycle and the hustle that we had in coming in and managing our operating costs. Graham and his team did a remarkable job in managing our the expense side of the ledger during the downturn. But it's also the work that was done during that cycle, which is probably the worst energy cycle that I've seen in my career, was the work with our commercial teams and engineering teams and ops teams to come in and basically negotiate new contracts, underwrite new projects.
And it's the investments that we made during that downturn that really set 2018 up to be the record year that it is. So to underscore what Randall said, it was really all about teamwork and executing through the cycle, setting up 2018 and we're setting up well for 2019. And briefly, hitting 2018 performance, again, it was a record year for us, a 30% increase in cash flow, whether you measure it in distributable cash flow or cash flow from operations, a 50% increase in free cash flow up to $2,000,000,000 which that set us up to really hit our goal of becoming equity self funding a year early. So we were able to do that. The only equity that we raised last year was through our distribution reinvestment plan.
And then it also set us up well from a capitalization standpoint, we were able to come in and lower our leverage down to 3.5 times debt to EBITDA, which again gave us some financial flexibility as we enter in 2019 and we ended the year with about $6,000,000,000 worth of liquidity.
On the 2018 projects and milestones,
one of the ones
we're most proud of is for the 2nd straight year we won the GPA Midstream Association Safety Award. And as we pointed out when we were talking I was telling you about the model, safety is a big part of our culture, and we encourage every one of our 7,000 plus employees to be safe at work, at home and in all points in between. As you'll hear from our panels, we had quite the year. The launch of the Houston CME contract, completion of 2 new gas plants, 1 new frac, several new pipelines, and if that weren't enough, expansions of existing facilities and pipelines, and in the case of M2E1, a brand new pipeline. Our operations group made sure that all of our assets hummed along at record volumes to support our commercial group's efforts.
Jim had this list divided up into 4 categories, but those categories only relate to the type of opportunity. The hard work to achieve all of these milestones belongs to every group at Enterprise, whether they're commercial, operations, finance, accounting or engineering.
And when we come in and take a look at from a macro perspective, we continue to see excellent fundamentals in the business. I think you're going to again, you're going to hear this in more detail from the panels as they come up and present. Shale plays have been a game changer for the U. S. In terms of energy independence and also frankly just lowering energy costs for consumers globally.
There are large and growing markets in Asia and Africa. Tony and his team are going to hit that here in a little bit. And if you would, we're entering in soon we'll be entering into the 2nd decade of the renaissance of the U. S. Petrochemical industry.
Some of that is we've already been talking to customers about if you would another wave of crackers that would be built in the United States on the Gulf Coast in the mid-2020s. But also the next generation of crackers globally are really planning to utilize whether that's in Europe or whether that's in Asia. They're coming in and planning on using U. S. Ethane and U.
S. Propane as one of their key feedstocks. And we're positioned uniquely for this. If you would, we've got a front row seat, whether we come in and if it's through our premier supply position and storage position in NGLs and crude oil or if our export marine business where last year from an NGL standpoint we probably had 50% to 60% market share on NGL exports last year. And when it comes to crude oil, we probably had about 30% to 40% market share last year in the U.
S.
You'll see, when you see the presentations, the maps of our system and the integration that we so we can supply customers both domestically and internationally, I think, is one of the best. We're connected to all the ethylene crackers in the United States as well as 90% of the refining capacity east of the Rockies. And we supply petrochemical and refining refining customers
worldwide. Our
crude NGL and refined product storage combined with our multifaceted distribution system allow us to ensure that our customers rarely miss a beat and we've managed this through several storms and other types of disasters. During the recent Houston Ship Channel closure, we helped ensure that no pipelines were slowed down and any refinery that was connected to our system got their crude. We shifted delivery points where we were able and are fast catching up where we weren't so that our producers and our customers don't suffer.
And this is a picture of our crude oil tank farm outside of Houston in Sealy where we have we already have a lot of tanks built there and more tanks to come. But the key thing here is American oil equal American jobs. And getting a little bit more granular, the momentum that Enterprise has will continue into 2019. First, if we come in and think about the projects that we put into service in 2018 that will benefit from a full year of EBITDA in 2019. To highlight a few of these, our Midland to Crude Oil 1 Midland to Echo crude oil pipeline, The first one was put in service Q2 of last year.
We'll get a full year benefit this year plus we have a small expansion of that pipeline that we'll benefit from in 2019. An item of note, the old ocean and North Texas natural gas pipelines, this was a venture that we were with Energy Transfer on to increase capacity to move natural gas from Waha back to the Gulf Coast. Currently, depending on the day, we're benefiting from about 250,000,000 to 350,000,000 cubic cubic feet a day, where we can come in and pick up the differentials on that movement. And then our Orla 1, Orla 2 plants, again, will benefit from that for a full year as well as our Loving County crude oil supply lateral. Frac 9, Aegis, PDH, we've got more operating experience under our belt on PDH, so looking forward to a full year with PDH.
And then there are several other projects, some of them that had already started operations in 2019, where we converted our Seminole pipeline from NGL service into crude oil service. We call that Midland to ECHO 2. If you would, we completed that in February and it's been in limited service for a couple of months. It actually went into full operations here beginning April 1. As I mentioned earlier, we do have an expansion small expansion coming in on Midland to ECHO 1 that should complete in the frankly in the next few days.
The Olla 3 plant, another natural gas processing plant out in the Permian will come on later in the Q2. Moving on down to we've got 2 NGL pipeline expansion in the Front Range and Texas Express that will go into service in the Q3. We're restarting another 55,000 barrels a day of fractionation outside of Mont Belvieu. So some of this is in South Texas, some of it is over in Louisiana. And if you would, that'll this should help relieve some of the capacity constraints for NGL fractionation capacity in Mont Belvieu.
And then latter towards the end of the year, in fact, right at year end, our isobutane dehydrogenation plant, our IBDH facility and our ethane, ethylene export dock should come in and service as well. So from where we sit right now, our current expectation is 2019 is going to be another record year. In addition to that, we have other major projects that are currently under development and our teams are coming in and are in active negotiations. This includes Brad Motal and his team working on 2 more natural gas processing plants out in the Permian Mentone 23. We also have in discussions as far as depending on the basin additional pipeline infrastructure whether it's crude oil, NGL or petchem as well crude oil.
We're working on developing another NGL fractionator at Mont Belvieu. And then we have additional projects as far as expanding our Aegis ethane pipeline that serves the petchem industry on the Gulf Coast and another PDH facility as well as our VLCC offshore port. In total, when you come in and you look at these major projects, these that are on this page, the ones that aren't on this page, probably we have projects under development in the $5,000,000,000 to $10,000,000,000 range. And if you would, we come in and, I guess we're living in interesting times with the midstream sector at a crossroads. From a macro perspective, I think especially going through the last commodity cycle, energy investors have been burned to a degree as far as relative returns to other sectors in the S and P 500.
And we've seen that weighting of energy in the S and P 500 go from some 15% down to 5%. And I think many investors and companies too for that matter are asking to really investors care about the energy sector that much now. In the MLP sector, we're at a place where restructuring all the restructuring phase that we're going through is near complete. It's been painful with the distribution cuts and with a lot of LPs coming in and getting tax bills from conversions into their GPC Corps. But again, we're transitioning out of that and into a mode where again, we're going to talk about later today is business fundamentals are really strong right now.
And we see good opportunities not only from continued volume growth, but also to come back in and underwrite new projects at good returns on capital. But to a degree, investors are still in a little bit of show me mode, which is totally understandable. We think that one of the keys to come in and that coming in whether it be the equity self funding or being able to come in and have a strong balance sheet. Where we are right now, the equity markets are the capital markets are just not that deep and equity can get expensive very quickly. So we think, again, at least the season that we're in right now, the more reliant the self reliant we can be in raising our capital, the better we'll be at coming in and increasing cash flow per unit going forward.
And then it's interesting on how to return capital to investors. And so again, that's when you come in and you get into the high class part of this of how to return capital. And while we've gotten, if you would, a lot of feedback from investors, I don't think we've necessarily got consensus, but we certainly have gotten bookends whether it's distribution growth. We've heard some say we'd like to see 10% distribution growth. Others were like we really don't want to see any distribution growth.
Just keep reinvesting your capital back in your business. On the buybacks, we've heard we love buybacks. We've heard we hate buybacks. We've heard we like programmatic buybacks. We've heard we like for it to be opportunistic buybacks.
On leverage, we've heard we'd like for you to leverage up and return more capital to investors. And we've also heard that we'd like to see delever more. So again, we've got bookings to work from. And I think the way we're looking to come in and manage through this is really to come in and take a moderate and a balanced approach, very deliberate as we come in and work through where we are today. We also, if you would, these are probably the top four questions that we get in many of our meetings.
So we thought we just addressed at least part of it from the get go. And will the Permian get overbuilt? And our view here is most likely it will for a period of time anyway. If everything that's announced gets built, we could see a period for 3 or 4 years where the Permian could have excess crude oil takeaway capacity. But ultimately, we come in and we think that gets filled up.
And if you would, I think Brent and Tony both will come in and hit this a little bit later on. PDH 2, really? And yes, really. I think here when we come in and look at PDH, we see it as an excellent fee based business with from a credit standpoint with strong customers with a needed product. It's also a business that you would very well integrates in with our value chain.
And there's one other point. Oh, yes. And it has high barriers of entry. And you really can't say that. There are some parts of the business that you're not seeing us participate in as much because of low barriers of entry and some of these returns getting competed away, we can get good returns on capital in the PDH business.
And we also think we can come in and deliver a PDH constructed and deliver it successfully. And Graham will hit on that a little bit later on. And with that, Brandon and I are going to come in and turn it over to the next panel, which will be the fundamentals panel, which will be Tony Chavonic, Natalie Ragan and Richard Tubio.
Thank you.
Okay. Thank you. I want to start off by introducing my other 2 panelists today. I'm Tony Shivanik. I'm responsible for what we call fundamentals, among a few other things at Enterprise.
When you think about fundamentals, think supply and demand. When we started the group 8 years ago, we thought about supply and demand domestically, and now we think about supply and demand globally every day. To my right is Natalie Reagan. Natalie is in charge of our supply appraisal team. It's a small group of geologists and petroleum engineers, some are both.
And all of the oil and gas forecasts that you see from enterprise, they're responsible for. The other thing they do is they do a fair a significant amount of business development work for us. So when we're thinking about buying or building something, they're deeply involved. And then to her right is Richard Tuvia. Richard Tuvia is Richard Tubia is works on the fundamental side of the equation with needs.
We'll have him talking about demand today. Richard is, by education, originally a rocket scientist, so an aeronautical engineer and that makes him in my opinion a very big thinker. And then he's got a graduate degree from UCLA. This is the 2nd time in my career that I had the opportunity to work with Richard. And you'll see when he talks that he's a global thinker.
He has a little bit of an accent. So he's well traveled. I want to start out with this slide and the top of the slide says executing on fundamentals, not a reactive approach. So if you follow enterprise and you do or you wouldn't be here today, you understand we're not a reactive kind of company. We believe that you're going to have to there are always what I call on the slide the big doubts.
And if you can't find opportunity in the big doubts then you're going to be a follower and not a leader. So I'm going to go through what some of the big doubts have been through the cycle as we know it today, the shale cycle, and then what our reaction has been. First of all, I think back to the 2011, 2012 timeframe when we all had the question, are the shales real and do they really have staying power? And I have to tell you there were a lot of consultants making a living countering what was happening in the shales and saying they don't have staying power. We began to forecast production at that point through Natalie's group.
And I will tell you that from the fundamental standpoint, from a supply and freight standpoint, we forecasted and we defended those forecasts extensively. And then our commercial teams went out on the road and did the same thing. So I say here on the slide, we began intensive domestic and global market development with the petchem and export markets. So we burned up the streets of Houston talking to people and their consultants and Brent and his team did the same thing in the air, crisscrossing the globe to talk make sure people knew how we felt. The next big question, I call it 13, 2015.
Remember in 2013, we announced that we were going to add considerable LPG export capacity. And then we announced again that we were going to add some more as customers started signing up for it. And people would always ask, well, where are these LPGs going to go? Is there a market for them? As we viewed it, that was just the first question.
So in 2015, we doubled our LPG export capacity, but we did other things during that time frame. We bought oil tanking. We reversed and looped Seaway. We started the extension of the Aegis pipeline. We developed began an ethanol export project and then I say here we led the industry in condensate export initiatives.
The next one in 2016 and it goes into 2015 also, but we had a very, very low price environment and people said will oil prices be low forever and can the U. S. Shale make it through this? Every newspaper you'd pick up in Houston every day
talked about the Saudi's desire
to kill Shell in the U. S. Richard was really my true north at that time. Richard would say obviously, we're listening to our customers. They don't feel that way.
But he would say, think about it, Tony, the world can't afford $30 crude. They simply cannot afford it. And so I would tell him before he would leave at night, tell me that one more time, Richard, so that I can sleep on it. So we looked at the big doubt and we said there's opportunity there. We loaded our 1st crude oil, the 1st crude oil cargo after it became legal to do it and began a massive Permian build out processing initiative, multiple large diameter pipelines, NGLs and then crude oil pipeline that we've already discussed and added to natural gas takeaway.
My two favorite projects here is as oil prices were falling. In the Q1 of 2015, Enterprise announced that we were going to build Brent announced we were going to build Midland to Sealy and it was really jaw dropping. And probably my next one in this time period that's a favorite is when we announced Shin Oak. What you heard from Shin Oak all the time is you all just have to do that pipeline as a joint venture. You just you must do that pipeline as a joint venture.
And we would look at the appraisal forecast from Natalie's team and we would do our balances and go, I don't see it's going to have to be a really good joint venture for us to joint venture it. At the same time, Brad started building processing plants in the Permian Basin for customers. So there you have your doubt and you have to have a view and your customers have a view when you go forward. Next one probably is my favorite. In this analyst meeting in March of 2017, we presented a slide that showed that the U.
S. Was going to be a massive crude oil exporter and that there was no way around it. And it was really it drew a lot of questions. It was somewhat controversial and I guess rightfully so because as people pointed out in that meeting, the forward arms for export of U. S.
Crude oil were closed. To us, it was simple. The crude oil was going to be exported. So since then, we've loaded our first VLCC on the U. S.
Gulf Coast, expanding significantly what we do on the Houston Ship Channel, including a large purchase. We have become the largest crude oil exporter in the United States. It all happened on the U. S. Gulf Coast.
We've begun a VLCC project development. We'll talk about more today. And then we're very proud of the fact that working with CMEs that we're developing a NYMEX contract for crude oil.
So, Leroy, there are
some big doubts and we're going to address 2 of them today. The first one is, does the Permian Basin have staying power? And I think when you leave here today that you will understand why Enterprise believes that the Permian Basin has decades of staying power. The next one is my favorite to read about and that is, is the U. S.
Producing the wrong kind of crude? I have heard it all. I've heard the light blight. It's unfortunate that the U. S.
Is producing light. I had one consultant who I will not name, a banker actually, fairly famous one came in and said, I feel sorry for you guys. The position that you all have taken in the U. S. Crude market, I really do I feel sorry for you all.
I love you all's NGL position, but I it's too bad that you all have done what you've done in crude. So I'll move from this slide, but this is how we see it. If you're going to be the industry leader, you have got to find opportunity in the big doubts and the big doubts are not a bad thing. This is my 6th year to show this slide and I'd say I've worn it out. But when I first showed it, I said this is what's going to happen, right?
And now as we look at it and we see that big dark red line in Asia and we see the U. S. Tailing off, it's not what's going to happen. It is what is happening. This is our existence today and this is our future.
I don't believe I showed this slide before and I'll just take your eye to the left to that 100% red diamond. So what that is, is energy intensity per capita in the U. S. So we're grading ourselves at 100%. There's nothing that looks like the U.
S. And there's our population. For simplicity, let's call it 350,000,000 people. The next column there is India. They have over 3 times the population that we do.
Their energy intensity per capita is 10% of ours. The next column there is China. They have 4 times the population we do and their energy intensity as calculated in 2017 is 32%. And then we put other major Asian countries at 800,000,000 people and energy intensity of 15%. If this group of people would move up to 50% of the energy intensity that the U.
S. Has, which they won't, I promise you, there is not enough oil and gas and there's not enough renewables to meet those needs. This is where you're seeing the growth. They know what you have. We're past the information age.
They want the standard of living that all of us in this room have. And the word here that should stick out is plastics. And I'll use that term generically. There is a peer, if you'd read the press, a war on plastics. And I guess if you'd read it, you would believe that plastics has lost.
So I'll start with a gray box there. GDP over the last 10 years, 3% globally. Crude oil growth during that same time is 1.5%. If you look at ethylene, ethylene derivatives, it's beat GDP by call it 10% and look at what propylene has done. We're going to talk a lot about propylene today, but as we do, I want you to think about that gray box.
This slide is a wow, okay? When you look at plastics compared to the other things that we use every day in our homes, in our cars, there's nothing like what plastics has done. Again, using the word plastics kind of generically, there isn't anything to trade for it. It has relative to all of its replacements has a very low carbon footprint. It's friendly to the things that we're doing on the renewable side.
We do have in parts of the world, we have a problem with the recycling of one time use plastics. And the initiative is to figure out how to make them not onetime use. But when you think of and that's the ethylene derived products. When you think about propylene, that's not the case at all. And the U.
S. Is not one of these bad actors in this regard.
And I'm going
to tell you my own house is not one of these bad actors. But the important thing, if you look at the IEA out of Paris, France, the IEA says that our crude oil growth, one part of it between now and 2,030 is going to be used in the petrochemicals industry. They say by 2,050, it's going to be a half, okay? So, we're using about 10,000,000 barrels a day. They say that will be 20 by 2,030 and they look at their low case scenario that's only 500,000 barrels less in their low case scenario by 2,030, there isn't a replacement for plastics.
I'm going to
go to the next one. Summarly, this is our supply forecast that we publish every year. Last year, we only published to 2022 mid year. We published it to 2025 because there are so many questions. But as we see it, uh-oh, we've got battery running low.
Okay. As we see it, 5,000,000 barrels incrementally from now to 2025, another 3,000,000 barrels of liquids if we recover them all then 26 Bcf of natural gas. Put it in perspective for you, in the Permian Basin, generically, for every 1,000,000 barrels of incremental oil that we produce, we produce about 500,000 barrels of NGL. So that should help you with those ratios. What we don't say in here is what we think 2019 is going to do.
And I'll just tell you for oil, we have about 1 0.35000000 barrels of growth for the entire United States. That compares to what the EIA said yesterday for 2018 was 1,600,000 barrels. So we have the growth slowing and I'll leave it at all for right now. I'm not going to spend too much time on these next slides. I think the title says it all.
We wanted you to have them for reference, but almost all the growth in oil and condensates is from the Permian and the Eagle Ford. When we look at NGLs, 80% of it is from the Permian and the Eagle Ford and then of course the Appalachia makes a contribution also. And then for dry natural gas, we talked about the large contribution from the Permian. This is quoted in dry numbers because we don't want to double count the molecules. When I look at our Permian natural gas number, I would say generally I see other forecasters our numbers a little on the low side.
So the big barbells are in Appalachia for growth in the Permian, but we also don't forget as to what's happening is on what we call other Gulf Coast and think the Haynesville kind of area and some in the Eagle Ford also for natural gas. This whoops, how do I go back? This next slide is one that Natalie is going to present. And I will just say that Natalie tells a story. I'm going to try to get her to she's a petroleum engineer from Texas A&M And she also has an MBA out of UT Permian Basin.
And I'll let you talk about your history with Permian Basin because it's a good one.
Well, let me just start by talking about the math. Okay. I don't think we need to go into my history personally working in the company basis. But this map was prepared by our team. And we divided the Permian Basin into what we consider the core, which is in blue, the core being the most prolific and economic areas of basin and non core in yellow, which is the area that has yet to be proved to be highly prolific.
But we see geologic potential in the non core. And the pink is the units with horizontal drilling. So picture, you're flying over West Texas, you're looking down, you see 12,000,000 acres in the core, 9,000,000 acres in the non core. We use this area to calculate the remaining undrilled horizontal well locations. And so just in the core, we calculate over 200,000 remaining well locations and it's over 300,000 if you include the non core.
So I'll show my methodology on the next slide. But the thing to note, over the years, we observed that areas that are non core tend to move to the core. Operators try new ideas and improve technology. So an example of this would be Alpine High. A few years ago that was not been considered core.
Apache has drilled quite a few wells, been very successful. Now we consider it part of the core. So moving to this slide. Really, the Permian is very large, but what's important is that there are many productive zones. So this picture illustrates the stacked pace.
Picture a layer cake of reservoirs. So we have used an average of 5 zones, 30 wells per unit in our calculations, a unit being 1 mile by 2 mile area. And as I mentioned, this leads to our calculation of over 200,000 remaining well locations. So when you think about today's drilling rate, that puts us in the range of 35 to 50 years of drilling, maybe even more. What's interesting to me is that this basin has had such a big renaissance in the past 10 years.
So, the USGS recently released their new resource assessment just of the Delaware Basin with the mean undiscovered resource of 46,000,000,000 barrels. So their previous assessment And that's just in the Delaware? Just in the Delaware side of the basin. And if you look at their previous assessment, 1,300,000,000 barrels in the entire Permian. So to put that in perspective, we produce more than that in a single year.
Currently, right?
Currently. True renaissance in this basin. And Tony mentioned our forecast showing growth of 1,350,000 barrels a day in 2019, 750,000 of that would be from the Permian. Last year, I think the Permian grew about 900,000. So does the basin have staying power?
Yes, I would say the Permian has plenty of staying power.
When we
look at all those dots and we read about parent and child, how do I think about those dots and those layers?
Okay. So picture when you read what's written about this, journalists, you would think that the Permian Basin is in decline.
Here's the way to look at it. It's self defeating, right?
There's no point even drilling anymore. Okay. So take a zone, Say we drill one well. We would leave a lot of oil in the reservoir. So we go back in.
We drill infill wells. And say the infowells do not produce as much as the original parent well, but we are still coming out way ahead in terms of the unit. So what people miss is that producers are not trying to maximize the recovery per well. They're trying to maximize their net present value of their unit. And they're studying their data.
It's just a matter of optimizing their spacing to maximize their net present value. And to a certain extent, some interference is even desirable because this shows that we're draining the entire reservoir.
Anything else? That's a great summary of how we think about it.
Right. It's just resource any way you look at it.
Yes. I think that in 2014, when we talked about supply, we had a picture of the Grand Canyon. Do you all remember that? And we said that it was we were in the early beginnings because of all the stacked pays that were going to emerge. And there's no better example of it than the Permian Basin in the United States.
We're going to move
to demand. Thank you, Natalie. We're going to move to demand next. Won't spend too much time on this slide. Everything is up and to the right, whether it be motor gas, whether it be ethane, crude oil, LPG exports.
What we find is going to be exported, end of story. Just an update of this slide, and this is ethane supplies could exceed what demand is. We've layered in the new crackers that have been announced exports And when we put our line on there in supply, that does not include Appalachia, only what comes down in ATEX, just U. S. Gulf Coast ethane is significantly oversupplied after we look at everything we plan on using in that regard.
There's a lot of white space on that page. We publish this slide every year also. The gray is export capacity as we see it at an 85% operating rate. And then of course the white space is the gap between how we see LPG supplies in the entire United States. So this includes exports in the Northeast and how we see our ability to export it.
If we're going to produce it, largely it's going to be exported. So we said this last year, dock capacity expansions will be required. We're in the process of adding as we speak. When we think about what's happened to the LPG global markets, going back to 2010, and so let's call it an 8 year timeframe that we have here, if you look across the spectrum and say who has met the needs of growing LPG demand in the United States in the world, only the United States has. When you look at the Saudi's or any of the other countries that are exporters of LPGs, if they have increased their exports, it's been, I will call it, minimal.
This is a trend that we expect to continue. And then this is that slide on crude oil exports. Our number is not large anymore, projecting that it's going to go to 8,000,000 barrels by 2025. I'd say it's in the normal range at this point. The one thing that I have on this slide is if we look if we do get there, I'm going to say when we get there, if the Saudis don't increase their exports, their 2018 number was right around 7,000,000 barrels a day.
So the U. S. Will exceed the Saudi's and what we export in our crude oil. That's the trend that we're on. And so next we're going to get into the topic of where does all the light material go as we put more of it on the water.
And I will summarize it this way. The light material is going to go where it's going today. So it's going into the petrochemical community. It's a great fit for pet chems. It's a fabulous fit for where you have refineries and pet chems integrated and Richard's going to talk about that.
But that's how most of the world builds a refining and pet chem complexes there. They're integrated. That's not what we've done in the United States, but that's how most of the rest of the world does it. Refined product demand, this low sulfur light crude is easily placed in these low complexity refiners. And Richard is going to break down the barrel for us here in a minute.
We see upside in gasoline demand. I would say our projections for gasoline demand have leaned stronger than the industry. So think that's a trend that continues. And then any consultant that writes about this, writes that the U. S.
Crude is a great fit for IMO 2020. I'll open this up. This is looking at it's 2 crude oil assays, one's Brent and the other's for not WTI, but WTL. And I'll kick it off with Richard and let you break down the barrel for us.
So I'm going to try to frame the situation because I feel like there's a lot of hand waving and people talking in the abstract. And before I get started, just right now having breakfast, I was asked about this, are we producing the right the wrong type of oil as it all compensates and so It's a good question, right? So here, this is the distillation cut for the assays of the West Texas Light Oil 48 API from the Delaware Basin actually. It shows you have 41% light end naphtha and lighter. The remaining is 60% distillate and heavier and they are all low sulfur.
And this is what the market needs, low sulfur middle distillates. If you compare it to a typical Brent barrel of oil at 38 API, so the difference in light end between the WTL and the Brent is 12%. So Natalie and her group expect 5,000,000 barrel growth in light oil over the next 5 years from the Permian area. Assuming it's all WTL in this analysis, at 12% differential, you have an incremental 600,000 barrels a day over the next 5 years more light end to be put in the market. So the question is, is this going to tank the market?
I don't think so, especially given the preference for the petchem fee that comes from it.
And Natalie, what's the difference in crude quality between the Midland Basin generically and the Delaware Basin? Is that a fair question?
Yes. I was just looking at new production in 2018 and it was averaging 40 degrees out of the Midland Basin and averaging 45 in the Delaware.
So I don't think you see when you take a deeper dive and read the articles, you don't see a pushback on U. S. Light material. The only pushback that I read and I think it's a valid one and that is when we have contaminated that barrel somehow and not keeping it neat and clean into the markets that want it. Okay.
So you've given us a barrel breakdown. Now let's compare that to the needs in the market.
Correct. So let's see where the disposition of these light valves could go. And again, if we start with 5,000,000 barrels a day growth over 5 years, that's 1,000,000 barrels a day on a yearly basis. We saw that 60 percent of those are distillate and heavier, so no problem there or low sulfur. The remaining 40% is this, call it, naphtha.
It's about 400,000 barrels a day. We think half of it will go in the petchem demand, naphtha into the steam crackers and the other half could go into the gasoline pool. So this petchem demand here exactly matches the IEA prediction of 200,000 barrels a day incremental growth in the petchem industry. And if you were to put this amount of naphtha in a typical steam cracker, that would satisfy 40% of your ethylene growth and about half of your propylene growth every year. So you still need, if you want, to produce propylene ethylene from ethane, from PDHs, from CTOs, MTOs and the FCCs.
You need it all, right?
You need all the above, basically. Just going back to the graph you showed, the strength and the growth in the petchem is going to absorb a lot of the material. On the gasoline side, and we'll see in the next graph, IEA is expecting $200,000 a day growth in gasoline over the next 5, 6 years. We think we probably could be surprised on the upside of that demand. If you flip to the next one.
Just a couple of points to make here on the gasoline demand and we're showing gasoline and diesel demand in China and India. And you can see the growth over the past 5, 6 years have all been in the gasoline sector, especially in China as industry or the economy rebalances from investment and construction to personal consumption, the demand for gasoline has been dwarfing the demand for diesel. Another point to make here is that in Europe for example over the past 3 years the sales of diesel cars have been down while gasoline car sales have been up. Significantly correct. Correct.
So this is due to 2 things, two points. 1 is gasoline prices have been better than diesel prices And the thing started with the scandals of the emission and the cheating scandals on the mileage with Volkswagen and other cars. So that put people off from buying diesel cars. And at the bottom of the page is what the IEA says about this issue and exactly mimics what we are saying here, agrees with us.
And this is our last slide. Okay.
So it's pretty easy. I mean it's a schematic of a typical schematic of an integrated refinery and petchem plant. So we keep talking about this growth and the strength in the petchem industry and the chemicals. Again, simplification of an integrated setup here and the trend lately has been to build these integrated petchem plants. For example, India is bringing online 3 of these refineries.
There's one in Malaysia called RAPID. So RAPID stands for Refinery and Petrochemical Integrated Development, just to make the point here. The point to make here is that this setup is meant to maximize the production of chemicals and plastics while reducing the output of naphtha and gasoline. So if you think about it, this setup reduces the output of light ends, but we have a little bit more light ends coming from the shales in the United States, so they balance each other out, if you want. If you contrast this to what happened and how we build refineries in the United States, the refineries were here built to be a gasoline machine, correct?
Everything centered around Because demand was so big. Demand was so big and the petchem industry was supposed to be in decline. So everybody focused on gasoline demand and satisfying gasoline, whereas as we shift, demand is going to be strong in the petchem and that's the trend that's going to be with us. To the extent for example Saudi Arabia announced they want to start building what they call oil to chemicals. So just take the whole barrel of oil more or less and make chemicals and plastics out of it and skip the refined products.
I think those are our fundamental remarks, but I think we're going to do Q and A for the
first group of us, correct? Right. And before we do that, did we keep you on the edge of your seat as far as the last how many VLCCs get built. I don't know if we have a strong view on how many get built, but we think ours is a natural when it comes supply aggregation, ability to segregate, maintaining quality and the transparency from the CME contract. And if you would, Corey and Brent will cover this in more detail later.
So we don't know about anybody else's, but we feel pretty good about ours. The last question, MLP or C Corp? That is I think that is the number one question we get these days. And in fact, a couple of people on last night is today the big announcement day, right? It's not.
And I think from our standpoint, the MLP form still fits us. It's not limiting our ability to come in and finance and fund the growth of our business. Stay in an MLP, we still have the flexibility of being an MLP or we can always come in and go the C corp route if we think we ultimately need to go there or if the capital markets are not going to be there for MLPs. It's easy for us to go the other way. But right now, we're going to maintain our flexibility and again, the MLP is working for us.
And so with that, I think we'll open it up for questions for the Petkin Group.
Hey, good morning. For the fundamentals. Yeah.
We've got about 10 minutes here. We can take questions. So by the way
Hey, Randy. Hey, good morning. Tony, you mentioned that you thought that we'd have a surplus of ethane. Can you describe and you also mentioned that you thought naphtha would be sort of in balance. Why would naphtha win out over ethane?
Why say that again, I'm sorry?
Why would naphtha win out over ethane?
So if you the rest of the world consumes naphtha as a general rule in their pet chems and they're set up for that kind of derivatives that you get from naphtha. But what we see for ethane exports is people want to diversify. They don't want to be completely beholden to oil. They have been for their entire lives. And they look and see that U.
S. Has plentiful ethane and they are very willing to spend what it takes to be able to diversify the U. S. Ethane. People ask all the times, hey, can we do the numbers to show how it wins out, right?
Or it doesn't win out and we don't build those ships and we don't build the infrastructure on the other side to receive it. I see consultants take a shot at it. I'm not going to. If we did, it would be a fool's game for us because our customers would look and say, oh, that number is way too low or it's way too high. We have nothing to gain.
What we know is that they want market based U. S. Ethane and they're willing to come over here and get it. And the last thing we know is we have a lot of it. So we see it I'll speak for myself, I see it developing into a bigger market than what I gave it credit for 3 years ago.
I hope that answers your question.
Over here. Shneur Gershuni with UBS.
Good morning.
Good
morning. Two questions really. One is, how do we address the looming issue with if you're switching from naphtha to ethane crackers that we don't get the same co products, like butylene, for example. Does that set up the stage for an on purpose butylene facility?
That's a great question. But you want to give me the second one too?
The second one is logistics of moving chemical
products to
the next part of the MLP chain. As we send everything to crackers in the U. S, don't we need export capability as well too? Okay. So what's the
is as you just like in the U. S, as we went to ethylene and essentially we increased our ability to make ethylene by 60% over a 5 year period and we did it all with ethane, means no co products. So your short co products, very short propylene, for example, and you see companies like Enterprise step in and say we're going to do it on purpose. Petrochemicals around the world, it's going to take NGLs. It's going to take NGLs.
If we're going to meet the need of petrochemicals around the world, it's going to take NGLs, it's going to take naphtha and it's going to take on purpose. It's going to take all of the above. Again, you look at that per capita kind of energy intensity, there is significant upside in all of these numbers in any consultant, any think tank, any group of economists that write about this, that write about this and do this analysis are all in the same place, it is going to take all of the above. And your second question?
It was just about infrastructure for logistics to move
the chemicals out of
the U. S. Is that sort of the
No, no, sorry. We're moving every we're building all these ethylene crackers and so forth. I assume that U. S. Can't consume everything it's producing.
Is that sort of the next thing we need to think about from a logistics perspective that we need to move ethylene pellets out of the U. S?
I'm sorry. Your mic is very blurry. Hold it closer. So infrastructure to move pellets out of the U. S?
Is that
the question?
Yes. I mean,
the petrochemical companies, if you read the studies from the ACC, for example, depending on which one you read, some say 60% of the product is going to leave the U. S. Others say as much as 100% in some form or fashion. I think that's a big number. But the petrochemical companies are very efficient companies and they're focused on their value chain.
And they understand just like we do that the material is going to have to be shipped.
When you build a petchem facility, correct, you get the capital investment and you get the cost of operation or feed. Today at the prices we have and if you look at the supply of ethane, ethane is expected to be very, very competitive compared to other feeds. So between cheaper construction cost and cheaper feed, ethane is going to win in many, many other places.
Is this better?
Yes.
Perfect. This is Jean Ann Salisbury from Bernstein. I guess I'm stuck in 2013 from your chart earlier, but my question is how do you have conviction that the world can absorb all the LPG that the U. S. Is going to produce without a massive
Great question.
And thank you for asking it. Richard, sorry, Mike. That's okay. She wants to know how do we have confidence that the world's going to be able to drink all this LPG. They drank the first tranche,
how are they going
to drink the second tranche? That's a really good question.
So Tony showed the graph showing the export from United States, correct? And if you look at it back in 2013, I think 2014, we used to sit down and ask the question can the market absorb all this material that Net of his group is saying is going to happen? And I can say that I had I worked in the LNG business for a little bit and I learned very 5 important words, the big sucking sound from the East. And you see it today. All this stuff is really going to Asia, whether it's LPG, crude, LNG.
And So how much LPG do we use globally? Yes.
So LPG today consumption is between 9,500,000, 10,000,000 barrels a day. But if you look at the demand of LPG in just China and India, India has been growing at about 8% over the past 6, 7 years. China 16% to 17% growth over the past 6, 7 years. Once we provided them with a cheap clean fuel, these people have said these countries said just bring it on. China itself today, but just China has 12 PDHs.
They are constructing 9 and they are talking about planning for 12 or 13 PDHs in China. There are other PDHs in the world, including here being planned and other countries. So I hope I have answered it. It just provides us with clean, affordable, clean energy, clean LPGs and
this demand is going to materialize.
So if
we look at demand today, global demand, we increase it by 2%, you drink it all, don't you?
Correct. Good. Yes. If you do the math, about 1.8% annual growth. Even if China and India grew at 6% combined, you cannot keep up with them.
It's a great question.
Thank you. Good morning.
You noted that the Delaware barrel has a higher degree of gravity. And I'm just wondering on the export side, are you seeing a preference for Delaware barrels over Midland barrels? Thank you.
So he's talking about price of the Delaware barrel over the Midland barrel.
Is that the question? What's this demand on the export side? Is it more higher than for a
lighter barrel? Yes. So
So I'm not in the crude market. Brent, you want to take it? Somebody, here's the microphone. Let's talk about the real market rather than me talking theory.
So I think on the light barrel, we're seeing more and more of it month by month. So if you look at our pipeline system, I'd say, and Natalie can correct me when we go up here, but 3 or 4 months ago, we weren't moving any West Texas light barrels. They were all getting blended up there in Midland. I think next month, we're going to do a couple of 100,000 barrels of West Texas Light. Right now, the Koreans have been very, very active buyers of that barrel.
I think ultimately they have more appetite for them. I think Japan has an appetite for them. I think ultimately China is going to step in and buy those barrels as well. So we're going to see how this all plays out, but so far there hasn't been a lack of bids.
Okay. I think that will conclude our first round of Q and A. Shneur, on your question on petrochemical export infrastructure, while pellets are not in our focus area, frankly, because now you're beginning to move more petrochemical products and that's non qualifying earnings for a public and traded partnership. But I will say where we are focused is coming in and getting our ethylene dock running by the end of the year. And then also we're looking at opportunities to expand our propylene export capabilities.
So that's where we'll cover that all. Next, we'll go to our supply panel and that's going to be moderated by Brad Motal and then also Jay Behney, Tug Hanley, John Thompson and Cory McGinnis is on that panel.
Thank you.
All right. Good morning. For those of you that don't know me, I'm Brian Motall. I'll be moderating today's supply panel. Sitting to my left are members of our commercial team.
I'll start with Jay Venu, who's Vice President of Crude Oil Pipelines and Terminals. Sitting next to him is Tug Hanley, who's Vice President of NGL Pipelines and a piece of the terminal business as well. Immediately to his left is Corey McGinnis. Corey is Senior Director of the Eastern Gas Gathering Assets here at Enterprise. And finally down there on the end is John Thompson, who's Director of Gas Supply and Process and specifically for the Permian Basin.
So I'll ask because a lot of what I was going to frame as context for this discussion ran to hit right out of the gate. But I got to thinking about what makes this successful when it comes to supply. And I wrote a long list of things trying to figure out how to frame this context and pretty much narrowed it down to a few things. I think when we talk today about our successes on the supply side, I think you'll see that some of these things and these concepts are really key, and what drives us for our success across all of the commodities. Our success has been driven by being creative, attentive and forward thinking.
Again, I think, Rhonda started out talking about those. And we often talk about an integrated platform. And I think most people in here when they think integrated platform would think physical assets. I believe our people are an integrated asset for growth. From operations and engineering to commercial and distribution, everyone works together.
We leverage each other's strengths. We leverage relationships across commodities. There are some people that have better relationships with various organizations than others. And we cultivate relationships across those commodities. No one has their own objectives up here.
We have enterprises' objectives. And so we rationalize what we do to gather and aggregate supply on a daily basis. We've seen success from challenging our conventional thinking. We ask ourselves why. Why do we do things a certain way?
What if we did things a different way? Would that lead to further opportunity? I'll have to pick on Tug a little bit. He walked in my office one day and stared at a map of the natural gas system and said, hey, do you really need that pipeline? The answer was yes, but it's that kind of thinking that leads us to look towards opportunity.
Should we rationalize using a piece of pipe in a different service? It's that kind of thinking that's taken the Permian gas processing business from frankly from nothing earlier this decade to by 2023, we estimate somewhere around 350,000 barrels a day. It's that kind of thinking that again daily rationalizes the use of individual pieces of pipe. I don't know especially on the gas side, I've seen us take lean gas, turn it to rich gas and then turn it back to lean gas in the span of a few months, capitalize in on opportunities. And it's that same mentality that takes an NGL pipeline and turns it into a crude oil pipeline.
So today's discussion across the panel is going to be real Permian centric. There's a that's the thing that everyone wants to talk about. But what I want you to take away from it is even though we focus there, this mentality stretches across the whole organization, from Wyoming to Mississippi, all of our assets in between as we gather and work to aggregate supply. But I'm going to look at Jay and everybody wants to talk about crude oil and Permian specifically. So why don't we talk about crude oil first and talk about being successful on the supply side out in the
Permian Basin, Jay? Absolutely. Well, thanks, Brad. Flipping the slide there to there you go. Yes, it's been an exciting 2018, start of 2019 for Enterprise Permian Crude.
What I'd like to start off with is just giving an update on our Loving County. This is the orange line on the slide here, an update on that project. And Brad mentioned or showed a few keys to successes and just how that relates to our crude assets and how enterprises differentiated through those keys to success. You may recall the Loving County pipeline effectively looped our New Mexico assets, 4 times really the capacity we brought on from the existing capacity working through Hobbs to Midland. It originated in Red Hills.
We laid 40 miles of 16 inches pipeline down to the Loving County Station. From that point in, it was a little over 100 miles of 20 inches Initial design capacity on this pipeline was 190,000 barrels a day and it started service last year July timeframe. One of the keys to success on that previous slide, and I think it's important here, we've noted the forward thinking already on the Midland to ECHO 1 pipeline. I think it's just as true on this one. When we made a financial investment decision for this pipeline in 2016, there wasn't the buzz of the Delaware that we see today.
Crude pricing wasn't the same as we see today. And to be honest, we had a single commitment on this pipeline for roughly 30% of the capacity. What we did internally though is we were listening to our customers. We believed in the rock. And I think through Tony's group, we got comfortable with We've launched an expansion of this pipeline up to 350,000 barrels a day.
You can see the lateral there. We're building a new line into Wink where a portion of that supply will originate. And yes, we're out there active in commercial negotiations to fill that capacity and then some. Another key to success, really just a case study for this is that integrated platform. I mentioned the commitments we've got on this pipeline.
Every one of
those commitments either has a downstream pipeline to the Gulf Coast commitment and dock services or they're currently in negotiation for those services. What we see are the majors, and large independents that a solution, basically from wellhead to the water. Another one that we see just keys to success that this project highlights is market choice. I mentioned the 20 inches ends in our Midland terminal here. As you're aware, this is the price point for West Texas.
And shippers on our pipelines and our systems have access and you can see it in this Midland connectivity. They have access. 1, it's the price point, so there's liquidity and trade, but also access to every major terminal in Midland and now access to our 2 outbound pipelines. We've talked about the Midland to ECHO 1, the Seminole conversion, which is the other highlighted, which we're creatively calling Midland to ECHO 2. And then finally, this is one that wasn't on your slide, Brad, but it's important to crude and that's quality.
This pipeline offered segregations, one of the first ones to offer segregations from the Midland Basin. We've mirrored that in our Midland terminal where we're able to segregate not just the standard West Texas intermediate, but also West Texas light and condensate. And from there that really created an add on value to work with Brad's team and the gas group. You can see another extension out to the Orla plants there for condensate.
Thanks, Jay. John, down on the end, equally impressive as the crude oil growth in the Permian has been our expansion of our gathering and processing business out in the Permian. Why don't you talk a little bit about what's been what makes our system so robust and what's led to our success out in the Gathering and Processing business?
Yes. Thank you, Brad. The cross functional nature of the Enterprise Commercial Organization really allows us to leverage the enterprise platform. The quick example is Jay and I both operate in the same basin, but we're chasing different hydrocarbons. Our teams are out in front of customers every day listening to their feedback, tell us intelligence.
And we come back to the office, We gather that intelligence, and we go out and provide solutions. And I think one of those solutions is condensate. I mean, we keep hearing everybody, please help us with our condensate. So
one of the things that
we can tell everybody here is that we're in early development of evaluating condensate solutions for people in the basin. And hopefully, you'll hear more about that in the future. So this communication is essential for enterprise opportunities, not only for new business development but with our existing portfolio of customers. Essentially, we want to be the 1st mover when opportunities present themselves. And I think that the Permian processing asset is a classic example of where we see an opportunity.
So just to give everybody a quick example or a quick history on this asset. This asset was historically operated as a land gathering asset. In the 2014, 2015 time frame, we saw this system begin to fill up with rich gas, not only our system, but nearby systems. And at that time, we identified the opportunity to expand our footprint in the Delaware Basin. Brad and Corey, who were up here on the stage with me, had a lot to do with that and their vision kind of created what we see today.
So what we did was we constructed 2 new cryo plants that anchored the system, 1 in New Mexico and also one in Texas. That was really a strategic decision, and you'll hear this a lot today, but we leveraged the enterprise platform because we had nearby existing NGL pipelines in the area and we are able to leverage those assets and point this rich gas and these liquids towards Mont Belvieu. And then the last piece was a vision of the super system. So the super system enables us to move wellhead gas to different facilities to reduce outages for our customers during planned and unplanned maintenance. So what is a super system?
And it's illustrated on this chart with these black arrows. But essentially, the vision was for the entire system to be a super system, and it's made up of 3 main components. We look at it as 3 legs and stool. So the first thing is new build, large diameter, bidirectional steel pipelines that allow our operators to shift gas between different facilities, as I mentioned. But it also enables us to handle increased gas on our system that is Natalie in the supply room talked about earlier, we're seeing increased well density.
The graph that she showed, I think Natalie had said 30 wells. I've had producers come to me recently within the last couple of weeks on 1280 ESUs with 48 wells. So it's just the future potential there is just it's unbelievable. The second leg of the stool is our NGL export redundancy of each plant. We have 2 options in each plant, and Todd is going to fill you in on that a little bit later.
And then the last piece is our residue optionality. Each of our plants have 2 residue export options. That way, if one goes down, the plant will keep running. But also at the Orla facility, we have a 36 inches dedicated residue pipeline to the Waha area. Gives our customers all the flexibility and optionality that the Waha area provides.
But the new Mentone facility that we've been talking about today will also have its own independent 36 inches pipeline. So at the end of the day, our super system here in the Permian combined with the enterprise integrated platform allows us to provide commercial solutions to large integrated customers from the wellheads to the dock and beyond.
One of the things I think, Suneet, that we can point out here is the fact that you wouldn't think that East Texas Haynesville would have much to do with the Permian. But what we've seen is the same producers in one area of the basin excuse me, in the Permian as there are in East Texas. And I know that you and Cory actually work together trying to come up with combined solutions that basically aggregate residue gas out of the Permian as well as gas that's produced in the Haynesville. That's a benefit to you, Cory. But beyond working those combo deals, can you elaborate a little bit on our efforts in East Texas and then rebirth of the Haynesville?
Sure. So when you think of the Permian Basin and the Haynesville, you don't immediately think of combo deals and collaboration among groups. They're 500 miles apart on opposite ends of the state, pretty big state by the way. What we have an asset that often flies under the radar within our portfolio here at Enterprise and that's called our Enterprise Texas Pipeline. And this is an intrastate natural gas system that has 2 pipelines that originate at Waha, one that goes into North Texas, a 36 inches that terminates in Carthage and another one that goes south into the Eagle Ford into our South Texas markets.
If you follow pricing at Waha et al, you'll know that transportation out of the basin today is at a premium. And so this pipeline allows the Permian and the Haynesville groups to collaborate and also allows the Permian and the South Texas Eagle Ford to collaborate as we have pipeline between them and there are certain producers that have acreage positions that span multiple basins. So John did a good job, mentioning what our integrated value and super system is in the Permian. I'd like to provide a quick example of how we collaborate across our value chain. So if you go to the wellhead in the Permian Basin, we have pipelines that traverse the Permian Basin.
We can gather that gas and collect a fee. We then transport it to our processing plants. We'll use Orla as an example where we collect a processing fee. At the processing facility, we separate the gas into NGLs and pipeline quality gas. The NGLs then move on to Shin Oak and to Tug's group where we collect transportation fee.
They move into our fractionation group from there. You'll hear from Zach Strait where we collect a frac fee then into storage. Storage fee, you kind of sense a theme here across our value chain. On the natural gas side of the business, we utilize Enterprise Texas Pipeline to take the gas from the tailgate of the plant and move it across the state of Texas to Carthage. Carthage is not a consumer of natural gas.
It's an interconnecting hub of pipelines. So in order to get our customers better netbacks and premium pricing, we need to move this product to an end user. So in true enterprise fashion, we're looking to extend the value chain. And we're developing a project that we call the Lumberjack Pipeline, Lumberjack because we go through Nacogdoches, Stephen F. Austin University.
And Lumberjack will move gas from Carthage down to Beaumont, really the missing piece of our interstate system. If you look at it on the map here, once we commercialize lumberjack, we will effectively have a loop of intrastate pipelines around the state of Texas, moving supply basins, the Permian, the Haynesville and the Eagle Ford to growing demand centers, which include Corpus Christi, Houston and Beaumont. Currently scoped, Lumberjack is a 36 inches pipeline, which will move 1.3 Bcf a day of growing Permian supply, which is constrained, and also organic Haynesville supply, which is looking to get to the growing markets on the Texas Gulf Coast, which include LNG, petchem and industrial demand. So moving more to the Haynesville gathering and processing assets, specifically, the Haynesville is often overshadowed by the tremendous growth story, which is the Permian Basin, but it's had a quiet comeback story of its own, which has been pretty significant. In the last 2 years alone, it's added over 4 Bcf a day of natural gas.
And in fact, in 2019, it will eclipse the 2012 record of the Haynesville back in the heyday. A ton of growth is going on in the Haynesville, which we are positioned well to capture. We talked about being forward thinking in the opening. Brad mentioned it. And I think what could be included in this discussion was our 2017 acquisition of the Azure system.
So back in 2017 really before the Haynesville started taking off again, we acquired distressed assets out of bankruptcy for only $189,000,000 which included over 800 miles of pipeline and 2 gas plants. That system back then was moving 200,000,000 cubic feet per day. Fast forward to today, we're moving over 0.5 Bcf and the system's full. You're going to hear us today talk a lot about our systems being full and
this is paving the way
in the Haynesville for a lot of expansion opportunities. The Azure acquisition was strategic for two reasons. 1, you can see it on our map here, it's in green in between the 2 red gathering systems, which we call the Haynesville Gathering System. We have an East Texas Gathering System and The Secondly, it provided processing capability. Prior to 2017, we had a gathering system, we had an NGL pipeline, which transport NGL to and frac, the same system we use out in the Permian, which is successful.
And with that, we were able to commercialize a new 200,000,000 a day gas plant, which we call Bulldog. It's currently under construction. It will be ready by the end of this year. So similar to our Permian story where we went from 0 to 350,000 barrels of NGLs upcoming. In the Haynesville, we've gone from 0 to 320,000,000 cubic feet and we'll supply 20,000 barrels a day to our Mont Belvieu NGL value chain.
Additionally, that was sort of the rich Haynesville side. On the lean Haynesville side, we have a few projects upcoming this year, significant expansions to our gathering system on the lean side. So stay tuned. We have a lot of growth and a lot of projects upcoming on the natural gas side of the business. And I think our value proposition when we talk about combo deals, Brad and John, we offer a significant valuable story to Permian gas, which is constrained to move across the state and ultimately down to the Gulf Coast.
But organically, there's enough Haynesville production to commercialize these projects, and I think there's a long runway for projects in the Haynesville.
Thanks, Corey. John, real quick, let's jump back to the Permian. If Jim was here, I would have already been harassed from Mentone 2 and 3, either Randy or Randy 1 who mentioned it earlier, but he likes to give me a daily grief about that. So what are we doing to continue the growth of our Permian G and P business, John?
Yes. So this chart thanks, Brad. This chart shows really the exponential growth of the Permian processing assets since 2015. At that time, we had approximately 150,000,000 a day of processing capacity. Today, we're at a Bcf.
And by Q1 of 2020, we expect to be at 1.6 Bcf. So the crown jewel of this asset is the Orla processing complex. So just to give everybody a little bit of background on that, we're expecting Train 3 to be online Q2 of this year. That's early. So tip of the hat to Graham Bacon and his crew.
Great job there. I'd like to highlight a couple of things about Orla. Orla really is you'd be hard pressed to find a facility like this anywhere in the United States, not just the Permian Basin. This is a 1st class facility. It's got multiple redundant compression at both the front end and the back end of the plant.
It's got 36,000 barrels of condensate stabilization capacity, which is why we're talking about starting a new business line and condensate stabilization. So this facility is really a world class facility. And then the third thing I want to talk about is the guys that operate this asset. They're unmatched. They're unparalleled.
They'll do anything. They're commercially minded. But in terms of safety and reliability, execution of projects and just day to day operations, these guys are doing a great job for us and they make me look really good. Mentone 2. So 13 miles east of Orla or not Mentone 2, Mentone 1.
13 miles east of Orla in November, we broke ground on Mentone 1. We expect that to be done in Q1 of 2020. The gray shaded area in this chart shows the identified commercial opportunities that we're currently in negotiations to commercialize both Mentone II and III. We see strong demand for these two facilities and we're actively talking to premier creditworthy producers to underpin and anchor these 2 expansions at Midtown. In addition, I can tell you that we're looking for new locations to expand beyond Minton.
On the top left hand side of this chart, you see a graph showing our Y grade production in the basin. So currently in 2019, we're at about 150,000 barrels a day. By the time mid zone 2 and 3 are commercialized, we expect to be producing approximately 325,000 barrels a day of Y grade just from this asset alone. I think one of the things I want to point out so that everyone really understands the scale of these 900,000,000 a day facilities that we're constructing at Orla and at Mentone. 1 Orla complex or 1 Mentone complex is the equivalent of 150,000 barrels a day of NGL make or the equivalent of 1 fractionator at Mont Belvieu.
That's a lot of raw make, John. Doug, the growth that we see in the Permian is undeniable. Tony's group talked about it. John's talked about it. So what's enterprise doing from an NGL pipeline perspective to be poised to handle this kind of bad growth?
Yes. That story is impressive. What's also a good
story to tell though is Ben's, Graham and Kevin's ability to bring these products online.
We originally had Shunno forecasted. I'm not online. Hello?
Hi, Doug.
Sorry. Hello? All right. There we go. So what I was saying was which is equally as impressive as the growth story has been Kevin and Graham's ability to bring these projects online.
Originally had forecasted Shin Oak to come online in the Q2 and these guys were able to bring the Shin Oak mainline online in February. So a little bit about that is in the past when we've seen these products come online, a long haul pipeline, there's always a time period of when the production behind the gas plant and the plant has to ramp up and that has to coincide with the timing of the pipeline. We've seen that timeline anywhere from 2 to 3 months and it could be sometimes longer depending on where and which basin it's in. Well, Shin Oak was very interesting because the timing on bringing the liquids online in Shin Oak, there really wasn't there wasn't any commissioning. It was effectively full day 1, which is always great.
So the initial capacity is 250,000 barrels a day. We've already achieved rates over 250,000 barrels a day. We're eager and excited to see additional pump stations come online between now and Q3 to get back up to its capacity of over 550,000 barrels a day. There's a lot of barrels to move these guys keep bringing online. So since Shinob's come online, we've done what we've always done at Enterprise is we've integrated it into our existing system.
It's since then been connected to 4 of our existing pipelines in the basin. There's a couple of things for us. The flow assurance reliability we can offer our producer customers is par none. There's nothing else like it. We can get a barrel west, east, north, south.
We can get a barrel anywhere it needs to on our system. And in addition to that, all the existing basins that our legacy system touches effectively can get on the Shin Oak. So we now have 5 pipelines across Texas with the ability to move over 1,000,000 barrels a day out of the Permian Basin alone. And if you recall last year, what we said is we have 6 pipelines across Texas in NGL service, now we only have 5. Well, that's because we're able to work with Jay and his group and get, similar pipeline put in the crude oil service.
What we've done is we've looked at takeaway capacity is 1. We don't look at NGL or crude specifically. We looked at across the board what does the market need and Jay and his team were able to put some all together and it's now moving crude.
Excellent. Yes, I'll talk about it. But to Tug's point, this was a real team effort. I think Randy got up and talked earlier about the enterprise model and teamwork. And that's not just a piece of paper that we carry around the office.
I think this project demonstrates it's a real thing. The heavy lifting on this one was in TUGS Group trying to find homes for the NGLs without impacting customers' business. The other piece of this was on Graham and Kevin's team will be up here a little bit later, but just speed to market. Once those two things were done and the easy part was going out given the demand for incremental space out there and getting competitive rates and long term commitments, which we did, and that pipe is full today. It's in service and moving product.
In addition to that one, we've talked a little bit about the Midland to ECHO 1 expansion up to $575,000,000 and Randy hit on the fact that we've got another debottleneck really working through increasing DRA and getting up to the 620,000,000. That's really an opportunistic volume or capacity that we can use when the market allows for.
Thanks, Jay. Doug, we'll jump back to NGLs. We spent a lot of time talking about Permian, but obviously, we have NGL pipes that touch a multitude of basins. Can you talk a little bit about what do our expansion projects look like in other basins?
Yes. No, we focus a lot on our equity production talking about Shin Oak and the Permian, but we're also looking at a lot of third party volumes as well, notably Front Range and Texas So we have expansions underway on those assets as well, roughly 100,000 barrels a day on each pipe. It's really nice to say the word full when you're in the pipeline business. So Front Range is currently flowing at its design capacity right now and we're excited to see that expansion come online in the Q3 as well to get incremental volumes open on that. They're all backed by long term contracts.
In addition, ATEX is another area of our focus. We have the expanded capacity here of 145,000 barrels a day on this slide. We've actually seen really great rates on ATEX. Most recently, we've seen throughput in excess of 170,000 barrels a day out of Marcellus for ethane alone. There's a lot of interest right now from the community in the Northeast on getting additional takeaway solutions in place and we're evaluating expansions on ATEX and discussions with our producers on that area as well.
So whether it's the ethane barrel in the Northeast, the Y grade barrel in the DJ or the Permian, the common theme is all these are coming down to the Gulf Coast. If you get the if you can get these barrels at the Gulf Coast and you can get them into our system, you can offer the producer the solution to store the barrel, sell the barrel to a domestic end user or export the barrel to the growing international market. At the end of the day, the entire menu is there and available to the producer community. Assuming you're seeing
the same thing? Exactly the
same thing. We talked a little bit about the Permian, but the same thing in the other basins, Mid Continent and Eagle Ford. As you know, we went out for an open season on Seaway given the demand for incremental takeaway capacity there. That was a successful open season, long term commitments for the full in excess of 100,000 barrels a day, and that pipeline is full day 1. In addition to that, we saw some expansions in our Eagle Ford asset last year, 40,000 barrels of incremental production coming online this year.
We expect that to double early next year. So we see good things happening with Eagle Ford. And just as acreage changes hands there, we expect some good things, as I mentioned before. And all of this back to some of the key successes, and this is across the pipelines and across the basins. You see the three stars are there in the picture.
We've got our Cushing. We've talked about the price point in Midland. And Brent will talk a little bit more about the HCL. But these projects are successful because, one, they have access of supply at Cushing Terminal. They have access to supply at Midland.
Just a metric of success that we see out in Midland. A little over 5 years ago, we were receiving and delivering roughly 500,000 barrels a day. Today, that's in excess of 1,000,000 barrels at Midland. And then going down to the Gulf Coast there at Echo, and you see the insert there is just market choice. All of the shippers on any one of those pipelines have access to in excess of 4,000,000 barrels a day of refining capacity.
You guys see the enterprise ship docks and the footprint that it creates there. Same thing, metrics of success for Echo. There was what was it? Same time frame, a little over 5 years ago, 200,000 barrels a day coming through Echo. There's days today that we move in excess of 2,000,000 barrels through that facility.
Those are
that's impressive growth, Jay. That's going to wrap it up for us. I hope you take away that we work as a team. We're constantly working and evolving our approach, try to fit our producers' needs. And as Jay and Tug both talked about, getting to the coast is the key.
I think Enterprise has got 2 of the premier supply aggregation points in Echo and Mont Belvieu and we can connect demand customers with this aggregated supply. And with that, we see continued success in the future. Thank you.
Thank you,
Brad. We're going to take about a 10 minute break now, and we'll see you back in here about 9:50. Okay?
If you want to go ahead
and take your seats and we'll get started with our next panel. Thank you.
Okay. Let me introduce our next panel, if we could go ahead and get started. We were being kind to Brad Motal this morning, but because we are riding Brad and John pretty hard on Mentone II and Mentone III, so for the record. Our next panel is what we call our demand panel. It will be moderated by Brent Secrest.
And then joining Brent on the panel is Natalie Gayden, Corey Johnson and Zach Strait. So they'll come in and hit the demand side. And Brent will tell us everything we need to know about especially about crude supply and demand. So with that
Brent?
All
right. Thank you, Randy. I'm going to warn you all, this might be a little bit confusing. So, Cory has got responsibility for crude oil marketing. ZASK got unregulated NGLs, but they each had the other's job not too long ago.
So, they're going to start talking for one another just because that's what they usually do at the office. But don't be confused. And then Natalie's overall the distribution we have. Before we get started, I wanted to share a story with you. So this is about demand.
And about 1.5 months ago, I was meeting with a large Chinese company and they had a delegation here. And we're talking about ethane at the time. So we went through some slides about how much enterprise exports and what percent of the market share we are. And he asked the question one gentleman asked the question, he said, how much ethane do you produce? How much ethane does Enterprise produce?
And so I thought about it. I said, well, we got 1,500,000 barrels a day of fractionation roughly. And depending on the ethane content of the Y Grade stream, I'd call it around 600,000 to 7 100 and 50,000 barrels a day. And he said that's how much ethane you produce out of the ground. And I said, I'm sorry, I misunderstood your question.
I said, that's how much fractionation capacity we have. We actually don't produce any ethane out of the ground.
And he
said, I don't understand how Enterprise is able to export so many barrels. And so if you think about who he typically probably buys from, you got to think the Kingdom of Saudi Arabia, you got to think Iran, Iraq, where whoever owns the production owns all the midstream assets and owns the docks. And I said, so the U. S. Is a little bit different.
I said, if I had to give you an analogy, said, are you familiar with Amazon? He said, I am. And I said, I would look at enterprise as the hydrocarbon version of Amazon. Amazon doesn't produce anything, but they handle all the production and they have a world class distribution system that takes it to buyers, that takes it to consumers. And I said, I would like Enterprise the exact same way.
We have a world class distribution system and what we do is hook up producers with buyers. So we're going to talk a little bit today about who we sell to in the demand side. We're going to say sometimes you might hear the word shorts. So we try to go establish shorts we have domestically and internationally. But with that being said, we're going to start off with crude oil.
And Corey, I want you to walk us through this because this is a little bit about the supply side, but you can't have a demand panel up here without a supply side look at crude oil in this case.
The supply side, Jay covered it in great detail, really is an impressive system that we put together out in Midland. Also Cushing is also a wonderful asset that Enterprise has, bringing barrels across from Midland down to Cushing, also bringing barrels up from the Eagle Ford, even off shore and utilizing other companies' assets as well to aggregate these barrels in the Houston market. When you look at the Houston market, it's access to supply. You're looking at over 8,000,000 barrels of potential supply every day, 300,000 barrels of storage access to export docks. It's Jim likes to call it a sponge, Brent, and I can't think of a better sponge in the entire Gulf Coast area.
All right. And that sponge, it all leads to Echo. And we always you'll hear us talk about how is Echo different? How is Houston different? Houston is truly a market.
It's not a destination. It is a market where you do have choices. And let's talk
a little bit about choices, Corey, once you get to Houston. So you talk about this market that we have. And again, I go back to that unmatched phrase. I mean enterprise alone has 45,000,000 barrels of storage as we sit in the Houston area. We have access to 13 refineries with over 4,500,000 barrels a day of refining capacity.
We have access to, I guess, 18 actual docks as I read, Natalie. And those docks are spread out across our Houston Ship Channel dock. We've got our Texas City dock. We have a Freeport dock and we also have docks at Beaumont as well, giving us diversity of location, which I think Natalie may address as we saw some of these channel problems that we had earlier where Natalie and her team were able to do some pretty amazing things to get through fog season and the ITC situation. But one of the things that really transpires from what you see on this slide here in front of you is the development of a market, a market of not only domestic demand, but you also have international demand and you've also got storage.
You add all three of those pieces up and that's how you get price transparency. Price transparency that allows people to buy and sell producers, meet consumers and come to a good clean price.
So when you look at connectivity and you look at all this connectivity downstream puts buyers in the market. And the more buyers you have, obviously, typically the more your product is worth. And you'll hear Zach talk about NGLs. So having downstream connectivity makes the stuff you're selling worth more. And what else makes your crude oil worth more, Natalie?
What do you have to live with? How do you guys go about doing this?
So you've either heard it said or we're going to say it here, but quality is king and consistency is queen. And if that's true, then that makes Graham and I the adjusters of making sure it happens. We do a lot on the pipelines. There's a lot of detail that goes into scheduling. But when you're trying to keep part per million levels segregated and that's what's important to our customers, it takes large batch sizes.
Sometimes it takes moving higher value products into lower value products to make an interface cut pretty tight. We're not new to the quality game. We're good at policing people when our injectors whenever they go off spec. We optimize our batch sequencing in crude. We do it in refined products as well.
We do it many places. So we've taken what we know from other commodities and other businesses and applied it to crude. It's an initiative that has kind of been an evolution that continues on, and it's important to our customers.
Corey, what's quality mean to you?
It gets back to what you spoke of earlier, value. And so when we look at value and we talk to our consumers, whether it be a domestic refinery or an international buyer who is the refinery or a counterpart who would be taking those barrels to a refinery overseas, they stress quality. And one of the things that Tony's group touched on is, a lot of these lighter barrels are tending to go to these front end refineries for a chemical complex. So quality to them is key. So when I have Natalie on my side and the work that she's doing, it not only makes us feel more comfortable, but it makes a lot of the consumers of our product in the area more comfortable.
It's extremely important.
Natalie's got probably one of the hardest jobs in enterprise in the sense that folks like myself and these 2 gentlemen down here make a lot of promises to our customers and we asked Natalie to figure out how the heck we're going to do it. So her and her team did a great job. So we talked about connectivity, we talked about quality. And what did that lead us to a couple of months ago, Corey?
Well, a couple of months ago actually, I shouldn't say a couple of months ago. Brent, you've been working on this for a couple of years. One of Brent's passions and I had the opportunity to step into it right when it got exciting, but Brent's been working on this for a couple of years, was to work with the CME on developing a true contract. So the HCL contract as they're calling it, so creatively the CL is the route for the Cushing contract, so they just put an H in front of it for Houston. They came to us and said your distribution system, your storage, your access to supply is exactly what we're looking for in the Houston market.
As you see on the screen here, we've got 3 different locations that we allow buyers and sellers to meet up where there's appropriate distribution to have price transparency with consistency of quality, access to supply that's unmatched in the area. Again, I keep saying unmatched, but it truly is. And then also access to refineries and docks. There is no better place than the enterprise system to create a market.
Is it is that any different than the way we view Midland or
Cushing? No. It's a great point. So Jay put a slide up earlier. We don't have the slide in our deck, but it showed Midland, Cushing and Echo.
And essentially, Enterprise is the delivery point, the settlement location at each one of those basins. So those are the 3 most important trading basins in the United States, essentially for not only crude movements, but price transparency.
It's going
to point back.
We'll talk a little later about why this is important for some of
the projects we're doing, specifically spot. I'll also give Zach credit. As I said earlier, Zach had about a 10 month stint in crude oil. So we'd started this process a couple of years back. And so Zach made a few trips to New York with me to go pitch this.
So Zach, we talked a lot about crude oil. We're going to get to you now. So is our approach in terms of the commodities any different in NGLs?
No, I don't think it's regardless of the commodity, I don't think it's any different. And I think we stick to what we know. I think we stick to what we're good at. And I think when you think about the strategy on the crude oil side, a lot of that strategy developed because of how successful we've been in NGLs. So when I think about NGLs and this is just an example of some of the connectivity we have on NGLs, but connectivity is important to enterprise, but it's more important to our customers, for flow assurance 1.
And 2, our customer wants to be able to reach the highest priced market. If they're not able to reach the highest priced market, then they don't get the best netback into the field. So to me, connectivity is king in NGLs and I know it's king in crude oil too.
So same store on NGLs. And I want to talk about storage. And let's go with you first, Natalie. What does SALT Dome storage mean to you in terms of how you go about scheduling and handling nominations and those sorts of things?
Sautom storage or storage in general is how we sleep at night. It's a wide spot in the line when things don't go well. Somebody asked me earlier, what's the hardest thing to schedule? And without a shadow of a doubt, most of the time it's vessels. So our terminal schedulers by far are the hardest working people probably in this company, because they are making quick moves of a schedule based on what a vessel is doing or based on what a refiner is doing.
So you have to have a wide spot in line to put product that continues to come. Fog events on the channel, events in general, natural disasters like Harvey, any place in crude and in NGLs that have storage just makes the pipe continue to move.
Zack, do you want to comment on that?
I think our customers value it too. So we value it from an operational perspective. Our customers value it also from an operational perspective, but they also value it in the sense that they want the highest priced market. And sometimes the highest priced market is not today. It's in the future.
So they want the ability to store product, sell it in the future and get the best netback in the field again. And I think one thing we do want to point out about this slide and I'll maybe kick it over to Natalie is this slide is showing sort of independent facilities. These are not independent facilities. We've spent a lot of money to integrate these facilities. The way we view this facility is one facility.
I mean, you schedule it every day.
If you have rings, those are our rings of reliability. And we schedule them as 1, Mont Belvieu is 1 complex test. But to get to one storage place over the other, it's just a redundancy. And we have multiple products in each place. We don't store all Ygrene at North Storage, for example, and we don't store all Ygrene at East Storage.
We have a mix of everything at every point.
I mean, at the end of the day, stuff happens. It always happens. So the ability to have these three facilities that act as one, but can also act independent is really important.
Randy touched on earlier, but the Ship Channel being closed, there wasn't one pipeline, there wasn't one asset upstream that slowed down. So whether it was crude oil, whether it was NGLs, the store you see how much storage we have on crude oil. You see how much NGL storage we have with SALT Dome. I'll go back to my Amazon analogy. Those are called very large warehouses.
That allows you to go ahead when stuff like this happens. Now we're in catch up mode and we will catch up. So we talk about the supply side, talk about the destination side, how do
we go
about trying to fund
So sometimes maps don't do, our systems justice.
And what I mean by that is if you had
to go count all origin points for crude oil and supply aggregation, we did that. And this is the count. There's 108 origins for crude. Mixed NGL, that's gathering of raw mix, 113 origin points. You could go back to 2 or 3 slides and you could see all of the deliveries for purity NGLs.
Pet chem, same thing. We're connected at many places, but a pipe is just a pipe without supply and this is kind of a way to show there's plenty of supply points.
Yes. Natalie, when I look at this slide, the one thing I see all the arrows, I see all the busyness, but what immediately comes to mind for me is optionality. Anytime that you have a problem, any time you have a situation, I mean, look at all the choices you have to solve that problem, right?
And the choices we can offer if there's difference in prices,
opportunities.
All right. So we had a friend of mine who's got his own dock and he does dry bulk. And a couple of years ago, he told me, he said, prosperity because 100 of years ago, prosperity flowed to the water and commerce all happened on the water. And he said, if you think about it, everything on the commerce side happened on the rivers, the various rivers in this country. He said it's not a whole lot different in what you do except now that water is the ocean.
So having access to water, the vertically integrated system we always talk about, how does that help you do your
business, Corey? So again, I mean, I feel like Rama's being redundant. Again, you've heard Zach say it a couple of times and it's value, it's price. How do you get the highest price for your producer? How do you provide the most reliability from your end user, your consumer, your export?
And it gets to our access to the water, our access to refineries, that optionality that everybody has is what gets that bid higher for all of our customers on both sides and also provide that optional flexibility. Now when I look at this slide and you see 5,000,000 barrels of export capacity and then obviously growing and we'll touch on the growing a little bit later. This gives us the ability to get to the water in order to clear the barrel that Tony talked about earlier. So some people doubted Tony years ago. And Tony's team, they were wrong.
He's been right again and again and again. I believe in his forecast. I think it's right. You asked the question earlier, can the world drink all this stuff up? I look at Tony's intensity slide, the energy intensity and people's drive to live in a society similar to America, that's going to continually put a bid or a higher price for the value of the barrels across our docks.
And those docks are getting fuller and fuller by the day, not only from my side perspective, but I would also say on your side as well, Zach. Yes. It's no different
on the NGL side. It provides the highest price market. Tony said it for years now. The incremental demand is not in the United States. It's elsewhere.
I think I have a little bit different perspective because the NGL business is sort of changing. On the producing side of the business, the producers have been used to doing transportation, storage, export. On the NGL side of the business, they have not. It's been transportation, fractionation, sell it in Mont Belvieu. I think more and more and more as we're talking to people, I can't get fractionation deals done unless I can offer transportation, fractionation, transportation.
That transportation is the dock.
I think if you look how this thing is going to evolve, the customers we have on our systems, I would consider them fairly sophisticated, actually very sophisticated. They understand markets. They understand why they want to be in Houston. And every one of them has a dock deal for crude oil, every one of them. And they recognize and they all have their own slide that Tony presented about how much demand is going to be here in the U.
S. And that ultimately they want to control their own destiny. And who they want to control their destiny with is 1 counterparty. So that when something happens, you pick up the phone and you call us. We all sit there and point the finger at this guy and say, no, you need to go talk to this guy, you need to go talk to this girl.
It's all with enterprise. And that's what helps us get these deals that basically every deal we offer now, Jay, I think it is from the field to the water. We don't typically go upstream in Midland, but now the producer is saying, I want you to come get my barrel. We talked about quality. It is about putting it in one person's hand to be the steward to maintain that quality.
And that's the one thing that I think enterprise does very well as we can take you all the way. Jim take you to the seats and other people could take you to the ballgame or something like that, Randy. So, but it's ultimately taking you. I'm going to he's going to yell at me for not doing
it at all.
I always love this meeting because I get my annual review in front of like 250 strangers about what I'm not doing right. So but obviously these docs are incredibly important and the U. S. Producer is stepping in. The U.
S. Producer recognizes it. They believe Tony's slide that says there is no more demand for HD5 propane in this country. There has to be demand elsewhere beyond the United States if you to sell it. It's probably not as much so on butane and it's the same for all these products.
So Natalie's one of her job descriptions is to make sure that so her and her team, I call this the Tetris slide because you guys are like trying to fit everything in as tight as you possibly can. And so what does this slide mean to the crowd, Natalie?
Okay. I just want to say something before you say that. When someone picks up the phone and calls commercial, it's not a good day for distribution because then we get more help than we
need and
more scheduling advice than we can take.
Thank you for all of your help, Natalie. You're welcome.
We don't say it enough.
Yes. So this is actually one of our schedules and Brent makes fun of it, but it is our doc schedule. And the white spaces in between, are is our job to make as small as possible. So we want to get shipped on the dock and off the dock. If you ever fly over the any of our docks, our job is to make sure it's shipped on the dock and actually doing something.
So we want to be loading it or whatever its business is. We do have a birth scheduling software that's got 30 years of algorithms behind it. It's sophisticated and what it does is it basically moves ships to an optimal burst scheduling application. We also have a lot of experience and sometimes our experience is just as great as the software. We do have multiproduct connections to each dock, so that's always helpful.
We can only move some of our bigger vessels during the daylight. So during the winter, that's when we start to sweat because, there's not as much daylight in the winter and we need to move loaded vessels out during the day. We labor solutions are just basically when we're done with a vessel, we need to get it off the dock and put another one on. And so sometimes that might be the scheduling trick. Redirecting vessels to load at other enterprise destinations, maybe that's Texas City, just depends.
So just optionality is key for us and planning ahead is key. Planning for the unknown is hard, but we've managed to make it happen.
People always ask us, do you see any issues with dock infrastructure and the ability to clear barrels? So you can't speak for other people, but you can't speak for yourself. So I will give credit to Natalie and her team. We don't see any issues with Enterprise. We see some opportunity that we're going to have going forward to help fill up some of the white spots on there.
But our job as a midstream company is to make sure that we get people who sign contracts with us to a market and we do what we said that we're going to do, we do it when we say we're going to do it. So, Corey, talk to us about how you're traveling these days versus how we were traveling 4 or 5 years ago?
Well, I would say, Craig Brent, before we get into this, I want to say before we exported our
That was the one question we didn't prepare for. I did it to Corey just to see if you just stand
a little trip. I'll get you back here
in a little bit, Brent. So before we exported our 1st barrel of condensate, our 1st barrel of crude oil, my travels, Zach's travels, but we were back and forth to Findlay, back and forth to, San Antonio. San Antonio, absolutely. Obviously, Houston has a lot of friends, Chicago as well. And then we find ourselves making our way to Europe as we start exporting crude oil, a little bit of Latin America.
And then we keep pushing further and further east. As Brent likes to say, we're chasing the bid. And the bid has moved from Houston all the way to Beijing. And so we've had multiple trips to Beijing, probably more than Brent would like given the fact that he doesn't fit very well in an airplane seat.
And he's 6 foot 7 here. I mean, he's
seated. So didn't go there. That's not fair. And so these opportunities really have gotten us to really travel the world, meet with a lot of people, get a lot of different perspectives and move to truly a bulk game. So if you look at this slide, you see 82% of the product going from Houston to Asia is on VLCCs.
This is a bulk game. This is a large
I won't go into too much detail about
it because you all hear about it every single year. But the only reason I'm up here today because I don't run our NGL marketing group, this is more of a marketing panel, is give a shout out to Justin Klatter who was supposed to be doing this. He actually had to get on a plane and go to Beijing. So that shows you how important it is for enterprise to be going to the East.
Yes. So the more and more of stuff that this country produces, I'm stating the obvious, it's got to go further and further away to find buyers. So 1 or 2 years ago, we'd go to Central America and Latin America, then we had to go over to Europe, then next year we had to go to Japan. Year after that we went to South Korea. Now we spend a heck of a lot of time in India and China.
And Tony and I are leaving in a week and a half to go to China. So we are doing a heck of a lot of trips to China as a company. Before you all ask, we haven't opened up an office there yet, but Jim bought a house in Asia a couple of months ago. So hopefully he's going to work from there, so we'll call that. So it sounds like he's going to go into Private Wealth Management after that first slide.
He did so good with his stock purchase.
All
right. So Corey, you talked about efficiencies and the need for VLCCs and where the feature is going. Why don't you walk us through? This is a tag I mean, this is a we talked about the team effort, Jay Bandy is a big part of this project, the marketing team is a big part of this project, but walk us through this, Corey.
No, this is a lot of fun. I mean, Jay is probably jumping at the bit to jump up here and talk about it because he's really excited about this as well. The collaborative effort, Enterprise has really been trying to find a good solution for the problem that Tony keeps creating for us as he keeps showing all of this increased production. So, it really is a neat position. So, we're looking at doing is basically connecting the Houston enterprise system that we talk about, not necessarily just Echo, but Echo, Houston Ship Channel, all over our system that sponge that we talk about.
We're going to run a 36 inches line to a terminal that's going to be right around that Freeport area. So we'll stage about 6,000,000 barrels, I believe. Is that correct, Jay, 6,000,000? And from a 6,000,000 barrel terminal, we will have twin 36 inches pipelines going approximately 35 miles offshore. It's going to go to a platform offshore in 125 feet of water with 2 single point mooring locations, buoys that the VLCCs could come in and dock.
Individually, these facilities will load at 85,000 barrels an hour, so one at a time. So we'll be able to bring in 1 VLCC, get it docked, lined up, connect and load it at 85,000 barrels an hour while another VLCC is coming in and it starts getting hooked up for the next load. Now the way that this happens is because these buoys are almost a mile apart, about 5,000 feet apart. So we're able to do both of these things at the exact same time. So once the first VLCC is finished loading, all we have to do is switch that manifold over and then immediately move on to the next VLCC.
Loading a VLCC 2,000,000 barrels in basically one day, which is just mind blowing. So it's a great project. It has scale, which we love. It has access to 40 grades of crude oil, which the international community loves. So it's a lot of fun.
But I told you, Brent, I was going to get you back here. And I've got a surprise question for you here and it's the one that Randy kind of punted to me. Now I'm going to keep punting it down and send it over to you. How many of these VLCC docs get built?
So I always hate speaking for other companies, but let's just talk about the merits of our project, which I think you hit most of them. But I mean the ability to aggregate barrels, you have to have that ability to do any kind of dock or any kind of market type product. So when you look at the amount of barrels that Enterprise can aggregate, I don't think anybody can touch us. And I'm trying to practice humility and be humble about this, Randy, on your presentation. But I mean we have an incredible system.
And you got to have storage. And we see other parts in the United States, whether it's LPGs in Pennsylvania or whether it's crude oil going down to Corpus, things happen. And you got to have the ability to store barrels. You got to store them in a very large, large number. You have to have a contract.
You have to have the ability to hedge. You got to have a physical financial contract that people can access. When things happen and you don't have storage, you have to have the ability to move barrels into a market where there are buyers. And there's always buyers in an open market You might not like the price, but there's always buyers and there's always sellers. And that's how markets work.
This is a big project. These are projects that Enterprise likes to do. We talk about barrier to entry. Enterprise likes these projects. And to have the wherewithal to pull this off, I think Graham and Kevin Ramsey, you'll hear from them here coming up, but the team that they assembled, the consultants they hired, to do this project, I mean, Enterprise does these things the right way.
So I think we have
the where I thought to pull this off. And at the end of the day, I think customers recognize that. I think the customers that we're talking to want us to do it, almost require us to do it. And we'll figure out they'll pick us and we'll pick them and we'll do a contract that works for them and a contract that works for us and we're in the process of negotiating all these contracts. But this slide right here, when you talk about crude oil, there were some questions last night about Waha Gas.
Waha Gas and what's that going to do to production? And if you look at the Delaware Basin, but even the Midland Basin to some extent, Tony's group ran some numbers that, gas, whether it was free or whether it was $3 or $2.50 you're talking about 1% to 3% of what these guys are going after. And NGLs is about 8% to 10%, Tony, of what they're going after. And you look at crude oil, it's somewhere between 85% 90%. So, the price of crude right now, I would I haven't looked at it, but I'd probably say it's the highest it's been in 5 years.
Because we're talking about the Midland Basin, so you got to factor differentials, right? So, I think these guys have it as good as they've had it in a very long time when it comes to returns. When somebody says paint this scenario, how this thing slows down, I don't think Waha gas has a whole lot to do with it. They could give it away, they could pay $10 I mean, we were meeting with a very large Permian producer a couple of months ago. We talked about gas and infrastructure issues.
And the head guy said, he goes, I don't care about the rest of this country when it comes to natural gas, but these guys better be prepared to compete with free. He said that, he goes, they better be ready to compete with free because we're giving it away and
we don't care.
So there's probably some other scenario we could say how this thing slows down. The key for us is how as enterprise, how do we go back to our customers and how do we do this in the biggest way and the most efficient way when it comes to getting crude oil so there are no bottlenecks. They have open access to lots and lots of buyers. And this is our way to make sure that we keep this thing going.
One more question that I want to throw at Zach. What does this do for you?
This being the export, the VDOT. Yes. It's not just the NGL group though. I'd probably look over at Chris
and say, Chris, what does this
do for you? I think both of us are looking at it going, any ship that comes off the Houston Ship Channel, I truly believe will get backfilled with either LPG or propylene. And we also have the ability to do refined products there. By the way, all three of those products like 45 feet draft, crude oil does not. So from a synergistic of you get ships to the water where they want to be, we get ships to the water where they want to be, I think it makes a lot of sense.
And you talk about what gets built. If Corpus is successful with their dredge and they go to 55 foot or whatever they're talking about going, that's not as efficient as this, but it's a lot more efficient than 45 foot. And so now you're talking about 1 reverse widening. And I don't see the economics. I mean these economics are tough, but when you start putting both projects together and creating dock space and turns into what I think enterprise does the best is optimizing, then you put it all together and you say, it's a good project.
But when you talk about building a VLCC in Corpus and if they are successful with the dredge, what are you actually saving? It's 1 reverse lightering. So I mean like I can't predict whether somebody's going to build or not. People do things that we scratch our heads all the time. They probably scratch our heads at us a few times when we said we're going to do it.
They're probably going to scratch their heads when we go out and offer rates on LPG dock that have never been seen before. But I'll share this is last story. If Jim was here, he'd be going like this to me to get off the stage. But we talk about LPG docs, I personally take a lot of responsibility for Tony's slide that showed 5 years ago Enterprise probably had like 75% of market share. And now we're a big chunk, but it's a heck of a lot less than it was 5 years ago.
And we had probably 50 different counterparties who want to sign up for long term dock deals in the low teens. And we decided to pick 20. That's all we had room for is 20. And we did 5 year deals with these guys and the arb was $0.70 a gallon. I remember people ran the numbers.
You could actually stack propane trucks on container vessels and ship them over there and you still made money. That's why the ARP was open. I don't think it was safe. I don't think Graham was a big fan of it, but I mean theoretically it made money. And so these guys are willing to pay these numbers and we said, oh, that's great.
Let's go ahead and take it. And I'm sitting there saying, man, these guys can pay more, let's get more. I don't know how we pick this number, but that's the number we got stuck on. And at the end of the day, what we did is we introduced competition and we justified new build economics. And we will not make that mistake again.
We are going to gain market share in this business. Now we can't stop what people do. But when it comes to retaining and growing market share, they are going to have to compete like nobody's ever competed before. And it's the same lesson on ethane, it's the same lesson on crude oil is we have a great system and we will compete. So with all that said, we'll run this up.
Enterprise has a great platform. I hope you guys are can recognize on the supply side, the demand side. We have a ton of opportunity in front of us. I've never felt better about where we're going and what we have in front of us. It's going to mean a lot of travel for a bunch of folks in enterprise.
I'll tell you what, there is a ton of opportunity out there. So with
that, thank you for your time.
Yes. While Tony and Chris are getting mic'd up, one, Brent, let me see if I can help you with your review. So, the baseball usher analogy is many midstream companies can get a producer's product to the stadium, but only enterprise can get them to their seat. So Corey, you embarrassing Brent in front of 250 strangers, I can't help you. Can't help you.
Then, if introducing the next panel on Petrochemical Services, If Tony Chvonek up here earlier and then Chris D'Anna. Interesting thing about Chris and I think I've been at presentations, bank meetings and investor meetings with Jim going back to 1999. And I think one of the obligatory remarks he always has to make is letting everybody know that he's a Dow Chemical retiree. Well, Chris is a fellow Dow Chemical alumni. So with that, we'll kick it off to Chris and Tony.
I'd like to start out. Is that all right?
Sure.
I never worked at Dow Chemical. So I can be objective and I think I am. I can't replace Jim Teague in supporting Chris here today and you all know that because I didn't work it down. But here's what I'll say about petrochemicals. Every time that we start looking at a petrochemical project or I can crawl up on a desk at work and talk about the strong fundamentals for petrochemicals.
I have been, I do and I will do it. And I'm just going to give you some simple examples. When I say steel, steel, you think what do you think? You think about your industry and that is correct. That's what you should think.
When I say aluminum, what do you think? You should think a maturing industry. Some people would argue, when I say oil, you would think a maturing industry. When I look at demand in Asia, I would argue otherwise. But when we say petrochemicals, it is absolutely not the case.
When I was a little kid, I hate to tell my age here, but all the planes were silver because they were made of aluminum. And then there was a point where the airlines decided to paint those silver planes to use them for advertisement. And then there was a point when they decided to strip all that pain off of there because it was extra weight, right? Today, your airplanes are made out of carbon fibers that come from propylene. This is there are issues with the disposal of plastics, no question, but you cannot replace petrochemicals with anything else.
End of story from a fundamental standpoint.
Yes, Karim, I would add that it's not just airplanes. If you look at cars and the light weighting that's going on, we used to have all steel. Now you look at the amount of plastics that's in cars and it just continues to grow and it will continue to grow.
Has to from a weight standpoint. Absolutely. So the fundamentals relative to demand are fabulous and the U. S. Has tremendous feedstock capability.
That's why you've increased your ability to make ethylene here by 60% over a 5 year period. I cannot think of any commodity that has done what ethylene has done and I can't think of any commodity where the fundamentals are better than what they are in propylene, end of story. So I can't be any more supportive than that.
All
right. Well, we'll get into some of that here in a little bit. But one of the things I wanted to do is to back up and really talk about the model that the Petchem business uses because I think it's gotten lost over time. So, the picture you see at the top there shows the enterprise value chain. You all have heard us talk about the value chain probably every analyst meeting.
But what we haven't done a good job of is talking about the pet chem business and how the pet chem business is really just a midstream service provider. We're just a service provider to a different set of customers. And so if you look closely about the around the activities that we do and the services that we provide, you'll see that they're no different than those services that we provide for the NGL side. We gather, we transport and store, we process and then we store and then export. The exact same activities that we're doing on the NGL side And we have a value chain where we're collecting margin as we go through that side.
And when you start thinking about that and the volumes that we move, so last year 300,000 barrels through our petchem pipelines. We have 7,000,000 barrels of 3rd party storage contracts. And so with that, it's easy to see that we have a large majority of our margin that's fee based. One of the other things, and we've talked about this in the past is how the petchem business extends the value chain. And there are certain projects that do that.
So if you look at the top there, we have our PDH. And if you think about what a PDH is doing, it's creating a new demand source for the producer in the Permian or the producer in the field. That demand wouldn't be there if we didn't have that PDH. It's raising the value of that product all the way through our value chain and then adding additional steps to it.
If you think about it and we think about our splitters, right, they're like fractionators on the NGL side, aren't they?
Absolutely.
And if we think about PDH, this is not a stretch for me, it's really like the because you're taking a molecule and you're making it into a higher value molecule.
Absolutely. I was talking to somebody last night at the
reception and they said they had been studying PDH to try to understand it. And said from a business perspective, it's really easy. You take a molecule, you run it through a process and you make something that's worth more. It's no different than we're doing. I mean, I think the ISOMS is a great example of that.
I guess before you flip this slide, we have coined the term petrochemical midstream services. And when you think of this business for us, that is exactly what we are. We're not a petrochemical company, but you are the lead in petrochemical midstream services.
We absolutely are. We'll go through some of the assets, what our asset footprint looks like here a little bit later and some of the value that we provide to our customers. But some of the things that you don't see in there is on the splitter side, we're a merchant buyer of RGP. So on the splitter side, we're not backward integrated to the field, but it's its own little value chain where it's we're doing the same sort of things, again, transportation, processing, storage, exporting as we're doing within the NGL business and we're collecting revenue throughout that chain. And there is integration between the splitters and other parts of our business.
For example, our RGP splitters make an ultra low ethane propane and we can take that propane that's produced off the splitters, blend it up and now we have more propane that we can export across our docks. So there's those type of things that the splitters do for us. The other thing is when we're buying refinery grade propylene railcars from some of the refiners, we unload that railcar and we return it back to the refiner. But a lot of times, we'll sell them ISO, so isobutane that they can use in their alkylation plants. So it's creating opportunity to do more business with our customers.
I'm going to guess that 25% of you in this room have been out to Mont Belvieu. And when you look at Mont Belvieu and you take a tour or you do a flyover, there's not a corner where all the petrochemical stuff sits. I mean, the units are integrated, same operators, it's core to our business as I see it.
Yes. I mean, think about storage, it's the exact same operators that are operating our petchem storage, that are operating our NGL storage. And the same is true for our plants. It's all under the same supervision. So we talked a little bit about the fee based nature of petrochemicals.
This slide may surprise many of you that 2 thirds of our margin is fee based. And if you think about the activities, maybe it's not that hard to understand. 100% of our ethylene, obviously, we're not a producer, so we're making fees on all the ethylene that we're moving through our system and storing. As we continue to develop our system, that will still remain the same with our exports, it's fee based. On the propylene side, 71% of our volume is fee based.
And if you think about that on the splitter business where we're a merchant buyer, it may seem a little counterintuitive, but we buy on the same basis that we sell in a lot of cases. And so effectively, we're locking in a spread on that business. We keep about 30% of that on a spread basis and we like to have a little bit of that flavor in our portfolio. And then on the C4 side, it's about 2 thirds fee based. So all of our high purity isobutylene that we sell and our mix that we sell is on a feedstock plus basis.
And our NTBE is the only thing that's really spread based for that segment. But if you think about how we contract it, 1 to 2 years in advance and on a way that allows us to hedge it. So really you could say that our MTBE, at least on a 1 or 2 year horizon, is mostly fee based as well.
When I look at the word ethylene on that slide, enterprises C2s. When I look at propylene C3s, when I look at butylene and MTB C4s, just going through the words. And I'm a B school guy.
Yes. So if you think about the C4 side, it's really another example of how we're extending our value chain. So we take isobutane and feed it to that process. That isobutane comes from our ISOM plants that are fed from our fractionators, that are fed from our gas plants, that go all the way back to the wellhead in the field. So I think we've talked about in the past that the very first plant we ever built in Mont Belvieu was a propylene splitter or I think Tony is calling them fractionators, so we'll stick with the fractionators team.
So that first plant that we built 40 years ago gave us really a foundation to start growing a propylene system. And over the last 40 years, we've grown that system into now what is the largest propylene system in the world. We see the same opportunities on the ethylene side of the business. And so Tony showed a graph earlier that showed how much ethane was being consumed by these crackers. What you don't hear about are infrastructure projects that take away ethylene and that's really created a huge But what you can see from the graphs on the right is we've been incrementally growing and our margins have continued to grow.
So everything in those pictures is up until the right.
And because I don't want you to miss Jim too much. Where are you headed and when? Up and to the right is a little vague.
Jim would want to hear a number, right? He would hear a number. He would hear a number. He's probably listening, so he'll hear it now. Our goal, I think we have visibility within the next few years for this business segment to be over $1,000,000,000 in gross operating margin.
By 2025? Easily by 2025. Okay. Thank you.
So we'll talk a little bit
more about the propylene side of our business. As I said, we have the largest system in the world. We're the largest merchant seller of propylene in the world. And the way that we've been able to grow is our focus on reliability to our suppliers. So one of the key things for us when we talk with our suppliers, which are refiners, is the takeaway is key.
They do not want to shut down their refinery because they can't get rid of their byproduct. So we've built this system with gathering pipelines, with strategically placed storage to make sure that we always take care of them, whether it's a hurricane, whether there's some other event going on, we have the ability to take that product away. And our system on the PGP side, on the polymer grade propylene side is equally impressive. We today we have the only U. S.
Based export facility. And so we're able to export and get prices globally and take advantage of any arbitrage that exists.
Really when you look at it, this is no different than the demand panel that just left, right? The key to what happens on the demand side is that you have great supply aggregation and obviously you do with RGP, second to none. Upgrade capability, the ability to add services to it, that is to store it, distribute it and now to export it.
Yes, when you think about the basic pieces again, it's just like the NGL business model. We've leveraged that to create this business. And like Tony mentioned, if you think about the operations experience that we have, it's storage, it's building pipelines, it's building fractionators. There's really no difference in what we're doing on the petchem side.
I'll have to tell you on this next slide, if you want to go ahead and switch it, this takes my simple slide that had the line that said plastic on it, makes
it pretty lame, doesn't it?
I'm not going to go through and read all the details. These are all the different uses of propylene. So, Tony gave the example about the airplanes, airplane wings and fuselage, it's created from propylene. When you think about windmills and the turbine blades, those are low weight, high strength composite materials that have propylene in them. And so you start thinking about being green, you can't do that without propylene.
And I'll leave it at that with the propylene side. What that means though is that there's going to continue to be growth in propylene and you saw Tony's numbers in the plastic chart, what he showed versus GDP. We really like the PDH project. We like the primary petrochemicals business. And PDH, if you think about it, is really a perfect midstream project for us because, one, we have the feedstock position like nobody else with the propane aggregation And we have the asset base on the finished product side to pull this off.
So when you think about cost plus type project, what we do is we take propane and we add our cost to operate and our margin on the capital investment and that's how we turn a PDH project. The added benefit, and I talked a little bit about this on the first slide to the value chain is that now we're creating a demand source all the way back to the field, all the way back to the Permian or the Eagle Ford by pulling that propane molecule all the way through our value chain.
Okay. I'm just going all the way through our value chain, all the way through. Well, you take a deeper dive into PDH2 now. Perfect. So on PDH2,
we're trading term sheets and contracts. We're still in the commercial development. We haven't announced this project and somebody asked me if we were going to announce it today and we're not. But we feel pretty good about it. We're implementing all the lessons that we learned from the first one.
One of the key things that we're doing is on the construction side, we're going to firm bid this so that we have certainty in what the costs are going to be. And we're going to use the same technology that we're using today to make MTBE or what we call our beef plant. And the plant that we're building, the IBDH plant. And really the driver for this is our customers. We hear the need for additional supply and so we have a lot of requests and that's how we feel good about the development piece.
And on the engineering and construction side, typically when we do these type of projects, it's commercial, it's negotiating the contract and then we go to ground and say, all right, we're ready, now build it as fast as you can. On this one, we've actually done it more from the design and construction basis leading the way so that we have really a firm understanding of what the cost is going to be. So at this point, it's more Graham pushing us than, than us
pushing us.
Same as we're ready.
We're ready. Yes. When are you
going to be done? He asked me that this morning. How close are we?
Before we switch from that graph and I'll go back to something Richard talked about, take you to the lower right. We make propylene from naphtha. In China, they make it from coal, for example. But they have 11 of these PDH units and I don't know another 9 planned. And the facts are to meet that capacity gap on that lower right, it's going to take it all.
And in the U. S, because we make so much ethane ethylene out of ethane, it's going to take on purpose, end of story, because we're not making byproducts yet.
Yes, absolutely. If you look at the basis or the demand for the very first PDH, all these crackers that we had started converting to ethane. And so that created a huge gap just here domestically. Well, propylene demand continues to grow. There are new derivative plants that are being built and debottlenecked.
And so the fundamentals are very strong. That's creating the need for additional on purpose propylene. Kind of in the same light, IBDH2, we've talked about this in the past, so I'm not going to spend a whole lot of time other than to say that our construction is on time or on budget. This is the same technology that we use in our beef plant today and it's the same technology I just talked about that we're going to use for our next PDH plant should we go forward with that. The nice thing about this plant is that it's going to create additional feedstock so that we can operate our existing plants at full rates.
So today, our MTBE plant and our HPIB plant can't run at full rates because they don't have the feedstock for it. We were able to underpin this 50% of the capacity with a long term contract. And really at the time, it was a customer that we didn't do a lot of business with. And now they're a huge customer and we're looking for other ways to grow together. So this is a great project.
It will be on at the end of this year. We talked a little earlier about the growth in ethylene and how we're really not seeing a lot of announcements around the infrastructure to support that. On the ethane side, you see a lot of we have our Aegis pipeline and there's a lot of connectivity to feed those plants. But there's not a lot of infrastructure investment that's happened. So we see a lot of opportunity in this area.
We have some pipelines that we're building and these pipelines we have customers that have signed up for 20 year contracts with us and we're growing it incrementally. But if you look at how our propylene system grew over the years, it took us 40 years to grow a system. In this case, we're starting to grow it incrementally over year periods where we're constantly getting requests for additional links of the system.
I said it before, but I've never seen a commodity, especially the size of ethylene where you've increased your capacity by 60 percent in a 5 year period. That doesn't come without noise. There just is no question about that. When the build out this phase of the build out first started, people thought that all of the derivative points would be up before the crackers would be up. That's what I read, that's what I thought.
And what we found is that's just not the case. And I'm assuming that people are beating your door down to ask you when are you going to be able to store and export ethylene?
Yes, absolutely. And I saw Brian here earlier. He led the charge on our export terminal. And it took us over 2 years to develop that project and a lot of it was some noise coming from the producers, the ethylene producers at the time saying we're going to export all of our product as pellets. And ethylene exports aren't needed.
Now whenever we meet with those guys, exactly, they're asking how much faster can you do this? We need it now. And the same thing is true with our storage. While we're using the same NGL model on our ethylene storage as we're using on our propylene system as well. We want a system that's well connected that has a lot of liquidity and transparency.
And so that's we're building that. It will be online later this year in a couple of phases similar to our export terminal. So our export terminal, the first phase will just be loading directly off our refrigeration system until we get a tank. And then once our tank is in, we'll be able to load it at really high rates. And that's when we'll get the full utilization of that facility.
I keep going back to the growth, but the growth in ethylene is literally all in Enterprise's backyard, literally all in our backyard. Shell is building a cracker up in Appalachia, a cracker up there and derivative plants to go with it. If you look at what has happened over the last 3 or 4 years and you look at the next wave that's coming literally it's in our backyard. So we have Mont Belvieu is the largest NGL hub in the world. I would argue relative to propylene you have the largest hub in the world.
I think that the opportunity is even bigger for ethylene just because if you just look at the concentration.
Certainly on a growth perspective it is. One more thing on the ethylene. When you put up your graph Tony talking about how we're not reactive and how we use fundamentals to develop projects, I can think of and in the petchem business especially, nothing that's more chewy than on the ethylene system.
We from a supply standpoint for Natalie's team, I'm telling you every ethylene plant that was built and every one that was considered, they wore the front door out on the Enterprise Plaza. And we had to defend, defend, defend our views on supply and you had to defend your views on ethylene and you certainly had to defend them on export. That's the way it goes. People should have doubts when markets are moving this quick.
Yes, finally, we'll end on this slide, but we've talked a lot about propylene and we should because it's a big part of today's petchem business. Today, we're the world's largest merchant seller of propylene. We have the largest storage facility, that's we're the hub for the U. S. We are the CME Financial contract settlement location for propylene.
We used to have a closed system. We opened that system up and now we have more liquidity, we have more price transparency and it's opened up a lot more opportunities for us. On the export side, we talked a little bit about what we're doing. We're continuing to look to see what we can do to grow that system, to grow our capacity to export more and we're not done on the pipeline side either. We're continuing to incrementally grow there.
Is it Q and A?
Yes, it is. We're actually running a few minutes behind, but we'll go ahead and continue with our full Q and A to give you guys plenty of chances to ask questions. So do we have any Jeremy?
Jeremy Tonet, JPMorgan. It seems like a pretty consistent theme to the presentation today. You guys have addressed talked about kind of the barriers to entry the enterprise enjoys across multiple business lines and how that continues to spawn new growth opportunities for you guys.
I was just curious if you
could comment a little bit more on how you guys look at kind of growing and expanding those barriers to entry so that you continue to maintain this leadership position?
I'm going to go back to Brent's words, actually you have a microphone, Brent, talking about barriers entry and how we plan on continuing our leadership position. So tell us what you told us before.
You're going to give up market share?
No. I think once you have achieved barrier to entry, then you go establish yourself further downstream and for the right project further upstream. So in my opinion, as long as you got a piece in the chain, then that is high barrier to entry, then it just makes it incredibly difficult for somebody else to enter that space. So, I mean, you guys heard us talk about this crude gathering lines, there's thousands of them out in the Permian Basin. You don't typically see us go out there and do that unless a big producer says, I want you to control my barrels the entire way, okay?
Then we'll talk about doing that deal. But when it comes to just putting in the gathering line, land is not hard to get, getting contracts, it's definitely not the contracts that we like. Credit risk is something that Chris Nelli and his team approve of. And then ultimately, it's just very difficult for us to do. So to answer your question, I think once you have achieved barrier to entry on certain facets of your business, then you have it and then you just go further downstream or upstream.
Chris Sighinolfi with Jefferies. Just two questions if I could. Tony, if I look at your fundamental conclusions, particularly on the demand side, everything seems ultimately destined for Asia. So it does seem a bit like an Asian GDP levered story over time. That's also been the area where trade disputes have been discussed in the last year or 2.
And so I'm just curious, as you guys have traveled to that part of the world and talked to people about the supply we can offer, how do those two things sort of marry? Both, I guess, concerns if they have any around what trade tension might do to your ability to supply them? And then second to that, any hiccup on their economic plan and what that might lead to over time if there's a recession in Asia for example, how do you risk your estimates for that? Thanks.
I'm going to take a stab at it, but I think Brent needs microphone back again. The whole world is counting on Asia to grow in every way. And Richard used the term that large sucking sound in the east, that is what it is. And when you look at the data and you just look at hard data compared to what their energy intensity is and what their population is and we you realize that we are in or well into the information age, they're not going to be denied. Will there be bubbles in the economies around the world?
You can read anything about when it's going to happen, how big it's going to be, how long it's going to last, they're normal. When you go over there, Brent, what how do they feel about U. S. Supply and
I mean, there was a while in there where there was doubts and you had to try to convince them that Tony's we have Tony's slide, that's what we use, that this graph was real. And what we always said is, hey, why don't you all come to Houston, we'll jump on a plane, fly out to Midland and you really have to see it to believe it. You really got to see all the activity to really believe this growth story. And once they saw with their own eyes, they said, man, you guys aren't kidding. And I'll tell you this, the first time Jim and myself and Bob Sanders went to China and you go out to these coastal cities and the reclaimed land for as far as you can see, I mean, as far as you can see.
And 10 years ago, we were standing in the middle of the ocean and you see the infrastructure they're putting in and you see these they'll bring you into a room that's probably 3 times the size of this and it has these like real life models of what they're building. You can see them building it. You can see the cranes. You see everything built. To believe Tony's chart of a red line that goes from lower left, upper right, a very high pace, It's the same thing on the demand side.
You got to see it to believe it. I mean, you really got to see what these folks have going on to believe it. In terms of Trump and tariffs, those are the two words that when we go over there and visit, they always want to bring up Trump tariffs. I'll say this, they have what we need. They have demand and we have what they need.
We got supply. So I think we're fairly optimistic that all this gets resolved and we're off selling them a bunch of the stuff that we're producing. Because I mean like it could still happen, when they have tariffs now, things get more inefficient. I mean, this stuff is still going to flow. It's just got to price harder to flow.
But it's still going to move. It's just the clearing price changes.
I hope we answered your question.
Hey guys, Michael Lapides of Goldman. It's really for crude, DAP and NGLs, but primarily crude and NGLs. How are you all thinking about whether there are last mile constraints? This was something Randy Fowler and I were chatting about just in terms of between Houston and Corpus or some
of the other spots on
the Gulf being able to move, get, I think, constraints in terms of long haul pipe to the Gulf Cities, obviously, being dealt with. But how are you thinking about last mile to get it
onto a boat? I mean, that's always our story is that we say that we control the molecule the entire way and we're not dependent upon somebody else. So when I see Tony's chart or a bunch of you all have your own charts about midstream or Permian crude capacity And everybody they said, okay, well, the diameter of the pipe is 20 inches and so square that and times about 1.15. And that's how much crude oil that pipeline can move. And I don't think the question I don't think the answer is that simple.
And to me, you guys start back with, okay, this pipeline, do they have access to supply? Right? Do they have access to supply? There's pipelines out there that I can really question whether they have supply. And then you say, okay, could they physically move it?
And so that's simply yes. And so then you get to the point of the last mile is do they have a dock that is going to move those barrels? Do they have storage necessary to play catch up when things don't always work out the way that they want to work out? And so I think there's misalignment unless you're operating the whole thing. Because if you're dependent upon a third party dock that happens to have their own pipeline, I just think they're going to find ways to benefit their full long haul movements.
And I think when you look at frac capacity, is frac capacity going to get overbuilt? I don't think it's just simple to sit there figure out how much frac capacity there is in the United States because you got to figure out, okay, do they have access to Y Grade? There's fracs out there. I don't know if they have access to Y Grade. And then once they frac it, do they have the ability to clear the barrel from purity movements?
And do they have storage to have the warehouse to sit there in case something happens. And so that's I mean, that's our whole story is that when you deal with enterprise, it's a one stop shop. And so the last mile, we are aligned with our customers to clear their barrels. I think there is misalignment. And I don't I think it's somewhat naive to think everybody is going to play nice that you have a frac and I got Y grade and I'll bring it to you.
I don't think that's the way the business works.
Okay. Do you want to go ahead and get do we have time for one more or go ahead and get started on our next panel, Randy?
Our next panel is Engineering and Environmental Health and Safety. And our commercial team will come up and either hear from customers of what their needs are or looking out at the marketplace and see what value creation opportunities are. So if you would, sometimes the commercial guys are sort of like the dreamers. Well, Graham's team, with Angie and Kevin and then also with Natalie Gayton, they're the miracle workers to make sure that all that we can take advantage and sort of can come in and get opportunity capture with that. So with that, we'll turn it over to Graeme.
All right. Thank you, Randy.
Before we get started, I
want to introduce the team. On my far left is Angie Murray. Angie is our Vice President of Technical Services. Our Technical Services group, I think, is one of the best in the midstream industry. But there really is a bridge between our capital projects group standard specifications and our operating group to make sure that we execute both on building and operating facilities.
In the middle is Ivan Zerbes who's over our environmental safety and transportation compliance groups as well as training. One of the things that Ivan's group does well, we'll talk a little bit about this in the presentation is, a lot of companies those functions are only for compliance purposes whereas Ivan's group is really integral and strategic as far as our ability to execute projects. And then to my immediate left is Kevin Ramsey, who is over our Capital Projects Groups. Kevin's group is really the key in executing getting our projects from the commercial stage to up and operating as quickly as possible. Today, you'll hear us talk a little bit about how we execute pipeline projects.
Tug mentioned earlier about the time the market on the Shin Oak and how quickly it was quickly it's up and running and we'll give you a little bit of perspective on that. But first we want to hear a little bit about our safety program. So Ivan, tell us a little bit about our safety performance.
Sure. So the slide you can see right now is our safety performance, injury performance over the last 10 years. And really this number of total recordable incidents rate, what it represents roughly is the number of injuries that we've had per 100 personnel that required some level of medical treatment. As you can see, we've had a nice decline over the years, which is the direction we want to see it go. In 2016 2017, we did win the 1st place for the GPA safety excellence.
2018 results are not out yet, we'll have to see where we play. However, you can also see that 2018 had a little bit of an upswing, which is not something that we desire to see. So we're going to continue to work that number down and be vigilant on it.
Thank you. On March 17th, on the Houston Ship Channel, there was a major fire that has had implications for the industry still going on today. Enterprise operates over 500 tanks. So one of the natural questions is what's Enterprise doing in terms of being prepared to prevent those types of incidents from occurring and responding if one should? Ivan, why don't you give us enterprise's perspective on emergency preparedness?
So really when you think about emergency preparedness, the key theme that you need to focus on is being able to address an emergency event very, very quickly and very, very effectively. Because the way to keep a big event from happening is to not let it become a big event. You get on the small events fast so they don't grow. 1st and foremost, we do that through planning. Every asset that we have has comprehensive emergency response plans, including response scenarios.
We drill those scenarios as a company. If you look at how big our asset base is, we're talking about literally doing hundreds of drills every year. Now those drills could be as small as simple table top drills that take a couple of hours, but we regularly do full mobilization drills, including outside emergency responders. Then we also prepare for it organizationally, by which I mean we perform into the command training with all of our personnel. So we're responding, using those plans, response plans that we have and doing those drills.
We're doing it in a unified incident command fashion, again, so we can maximize that effectiveness. And then of course, just the way that we build it in the first place helps us respond to incidents, which is something that Angie's shop handles.
Yes. So when we're building new assets and designing in the building stage, we follow all of the industry codes, but we also have a comprehensive set of engineering standards that we follow that really dictate how we design and build the asset. And on the safety side, our engineering standards provide exactly what we need for those type of facilities in terms of the safety systems, the fire water systems and the foam systems. And those really are there to make sure just like what Ivan was saying that if there is an incident that we are able to handle it quickly and effectively so that we can address that incident and it doesn't grow into something larger. Our standards address the spacing of our assets to make sure that our assets are spaced appropriately, that the area doesn't get too congested to allow for proper operations and maintenance of the assets.
And then they also address containment. So if there's a small spill that that is contained in the area and doesn't run off into something that could damage the area.
Angie, tell us a little bit. Those are for assets we build, but what about assets we've acquired?
Yes. So when we acquire new assets, one of the first steps we'll do is perform an assessment of that asset and that will include an assessment of the safety facilities. And just to give you an example, the picture you see here is our assets along
the Houston Ship Channel.
And when we acquired those assets, we performed the assessment and ended up investing over $13,000,000 to upgrade the safety facilities, including the
incident, we take opportunity to review it, to review the responses and learn from it. It's just part of getting better. We learn from our own incidents as well as learning from others' incidents. Now I want to shift gears a little bit and talk a little bit about pipeline project execution as we referred earlier Enterprise's ability to get pipelines built into the market as quickly as possible is a real what we believe a differentiator. But it all starts at the beginning.
And Kevin, why don't you walk us through how we go about setting up a route and setting up a pipeline project?
Okay. Absolutely. So getting that route developed is kind of step 1. We what we're obviously looking for is the shortest route, right, between the origin and destination points. And what's important to us is that route follows either an existing pipeline or an existing utility corridor.
Because if I can snug the new pipeline up against an existing pipeline or put it inside the easement of an existing, say, power line corridor, that represents the absolute minimum impact to the landowner. And happy landowners make right of way acquisition a whole lot easier. The other thing this does is it also represents the least amount of impact to the environment.
Yes. So on the environmental side, so we've kind of followed the same philosophy. So folks in my environmental group are also engaged in that route planning and we're looking for areas of ecological sensitivity. So immediately you might think about we're talking about endangered species or protected species and we are, but it also includes the habitat of those species. It also may include important prehistoric or historic resources like important archaeological sites.
So in this slide, you'll see where we did do a really significant reroute on our Midland to ECHO pipeline. You see the original route in red. Well, that original route passes through a portion of Central Texas, where there's amphibian species, the Houston toad, that toad is endangered, only exists in a few counties in Central Texas. So we wanted to make sure that we're going to minimize the impact around that. So we routed around that.
This is important enough to us that we actually have a small dedicated group in Houston, in the environmental group that's just entrenched in this effort, making sure that we're routing it as efficiently or as low impact as possible.
So while they're developing the route, Angie, your team is starting to optimize the design, setting up how the pump station is going to look. Tell us how you go about doing that?
Yes, that's right. So early on in the design phase, first we focus on optimization of the design. And one of the most important things we look at on optimization is optimizing the diameter of the pipe against the number of stations along the pipeline. And really what we're looking for there is the sweet spot between the initial capital cost and the long term operating cost of that pipeline. We also look at optimizing the spacing between stations.
And this is important because we want to make sure that we don't inadvertently limit the overall hydraulic throughput for the pipeline by improperly spacing our stations such that one section becomes a bottleneck for the entire pipeline. And then another thing we'll look at early on in the design is expandability. So we want to make sure that our initial design is such that in the future if there's a need to expand the throughput of that pipeline, we can do that in a cost effective way.
There's been a lot of talk in the press recently about eminent domain issues, landowner rights. Are bills going through the Texas Senate that and obviously Texas is an area where we build a lot. So right of way acquisition is very important to how we execute pipeline project. Kevin, can you give us Enterprise's perspective on how we go about acquiring that right away?
You bet. So one of the very first things we do is we'll reach out to state and local representatives and let them know about the project. We'll go meet with county commissioners in every county that the pipeline crosses. We don't want to happen is for a landowner to call the representative and that's the very first they've ever heard of the project, right? So one of the next things we do is we'll send an introductory letter to the landowners, letting them know about the project and let them know that we'll be soliciting survey permission from them shortly.
So once we have survey permission and we're out on the piece of property, I have a survey crew out there, I have what I call a constructability guy that it's an individual that's well versed in pipeline construction. He not only works with the survey crew to do detailed routing across the property, but he works with the landowner because often the landowners have preferences, if they want it on this side of the barn or that side of the property or maybe they specifically want some trees saved that they really care about. And our philosophy has been that no reasonable request should be denied. I think that philosophy alone has gone a long way in helping us be extremely successful with our right of way acquisition and that we typically have to condemn less than 1% of the folks that we cross. Now while we're out on the property, we also have an environmental contractor doing survey work and the information that he acquires helps Ivan's folks prepare some of the permits that we're going to need.
Yes, right. We to get permits to do these pipelines, we need to do comprehensive ecological surveys, again, including historic resources. You can see a picture here of the aforementioned Houston toad.
I don't know what they
said, a Houston toad versus the toad that's in your backyard?
Well, typically well, it looks like that, Graham. But typically, the in this region, we do have a toad called a Gulf Coast toad that looks very similar. The spots are bigger on that toad than on this one and also you can it's hard to make out in the picture, but it's got kind of this V shaped bone ridge
on its head. So that's
what people are out. People are actually looking for that toad, but actually out there looking for the habitat of the toad, so we can protect that habitat. So we're continuing when we do this, we do these surveys for our permitting agencies and really the primary agency we're talking about is the Army Corps of Engineers. We're now refining that avoidance strategy that we talked about before. And this is really where the rubber hits the road from a business perspective is now I can go into that agency with my permit application and I can already show them the diligence that we've done, the money that we've spent, minimizing the impact of this pipeline project in it.
From step 1, make that permitting process go much more smoothly and much more quickly than it would otherwise go?
Yes. It's a major effort that's not often realized what we put into permitting and the amount of resources to address these type of species issues. Angie, there's also a number of other things that are going on. While Ivan's group is permitting, you're working some design issues and really preparing a lot of details on the pipeline. Tell us about some of those details that maybe the average person is not familiar with.
Sure. So during the detailed design of a pipeline, there's a lot of things that go into it. And some of the most critical ones I'll talk about, 1st and foremost, is the design of our safety systems for our pipeline. And so what we do there is we do a lot of studies, a lot of runs to make sure that every scenario that the pipeline might see, every transient condition that it could see that our safety system is designed to handle those scenarios. And then another area of safety is our leak detection systems.
And the screen that you see here is an example of the output that our controllers get on our leak detection systems. But these are comprehensive models that are built with thousands of data points from operations that get pulled into the system every second and provide the operators early and accurate indication of any potential issue. And then we also look at the design of our pump stations and we make sure that our pump stations are designed so that they can handle all of the flow rates across our pipelines and then also all of the various products that our pipelines might flow, so that the pumps will handle all the cases we intend. In another critical area, and you can see a picture of it here on the left side of your screen, is measurement. And this is these are the measurements that we have that tell us the flow going in and out of the pipeline.
And really this is our cash register for our pipeline. So we want to make sure that the measurement system is designed as accurately and reliably as possible. And then also at the bottom of your screen, you see a pig launcher and receiver and these are critical for us for making sure that we assess our pipelines and that we continue to have them maintained properly in the future.
Thanks, Angie. At some point, you have to go out and buy pipe. Obviously, in the last year, the administration's tariffs on steel Section 232 tariffs have had an impact on the purchase of steel and pipe. Kevin, why don't you tell us a little bit how what the markets for pipe and materials are looking like right now? Okay.
Well, first of all, Enterprise has bought Pipe almost exclusively from domestic mills for quite a number of years and we do an awful lot of pipeline projects. So as a result, our supply chain management group has developed excellent relationships with all the domestic mills.
We keep a close eye
on these metrics. If you look at the price of steel and the top chart, you'll notice it's been declining since last summer, but the cost of pipe has gone up dramatically, both due to tariffs and supply and demand. The other metric we keep a close eye on is the is of course labor rates. On the bottom chart, you'll notice that they've been steadily inclined increasing. Both metrics we keep an eye on to help us accurately forecast our projects.
All right. So we've been doing a lot of design and behind the scenes work. Now it's time to actually go in the field and build it. Tell us what's going on there.
Well, all this work that we did up to now, we've put a very comprehensive detailed design package together that's got all the technical details in it that you would expect. It also has all the details from right of way acquisition, the trees that we're supposed to miss, extra depth of cover, fences, that sort of thing, all that is baked into this package as well as any environmental restrictions or concerns that we have to adhere to during construction.
We're going to maintain that same level of discipline that we did in the planning right through the construction phase and make sure that we're not impacting areas that we shouldn't. And that includes environmental monitors that we actually put out there on the pipeline project, just making sure that we don't stray off where we shouldn't go and making sure that we maintain a right of way like this.
So we'll competitively bid these projects out. We'll hand select the contractors that we allow to bid, making sure that they're qualified for the individual applications. We'll go through their execution plan. We'll vet their subcontractors and we'll check their safety records, right?
Yes. Just like the major project contractors that Kevin uses, just like every other contractor that works for enterprise, We track and monitor their safety and they're all graded on their safety, on a regular and ongoing basis and we definitely use that when we make decisions about who to use in the field.
Since we have our contractor selected and we're out in the field, we're actually building the line, our project management and inspection team keeps a close eye on the contractor, not just for monitoring progress, but we're making sure the line is being installed safely, per code and per enterprise standards. We'll x-ray 100 percent of the welds on the pipeline and we maintain a live database for the entire project that ties all the information together. So when the FEMS auditor comes out during construction and they do almost all of our big projects, they can point to any individual joint of pipe or weld and we can immediately pull up, metallurgy from before the pipe was even made, all the mill inspection reports, the welding reports, the welder qualifications, the coding reports, x-ray, everything is available immediately right then, right there. It's been a great tool for us.
So Angie, what else are we building while we're building out in the field?
So while Kevin's building the pipeline itself, our team is building the controls for the pipeline. And you can see a picture of this on the screen on the top left. It's an example of the control screen our operators have to control the pipeline. We do the programming for this. We also build out the design for it.
They all look very similar in the style and the layout, the symbology, the colors, they're consistent across all of our pipelines. You can see here in the bottom a picture of our control center where our operators are operating the pipeline. And what this does is it provides them a consistent way to effectively and safely operate our pipeline?
So when we do it right, we've met our commercial expectations, our customer expectations. The pipeline is flowing. The right of way is restored to its original condition on down to the details of the native grasses that are used. And
thank you.
Okay. We're in the home stretch. Let me introduce this panel. Daniel Boss is our Senior VP of Accounting and Risk Control and then Chris Nelli is our Senior VP of Finance and Treasurer. Coming in, we've had Enterprises has had a history and a proven track record of delivering returns on capital throughout the business cycles.
So what this slide shows here, the blue bars, if you would, are unlevered returns on invested capital going back to 2,005. We just announced our 59th consecutive distribution increase earlier this week. And if you would, this takes us back and this graph encompasses that entire period. So you see on the unlevered return on invested capital, we've, if you would, sort of averaged right around 12%. We've gotten about as low as 10.5% and as high as a little over 13%, depending on where we are in the cycle.
Here we came in and added another, a gray bar, which is showing returns on equity and if you would this is sort of the textbook definition that we've got back in the back in the appendix that is just really net income divided by shareholders' equity or partners' equity. And you see how that's ranged over time, but certainly since 2011 sort of range between 12% 18%. If we come back in and look at this more as a, if you would, an unlevered cash return on equity. So if you would add back DD and A, that range has been between 20% 28% return on equity. And again, showing the consistency throughout the business cycles, whether we come in and measure it in cash flow metrics, whether it's the MLP metric of distributable cash flow per unit or the GAAP measure cash flow from operations, you see that we've been able to come in and consistently perform throughout the business cycle.
And like we talked about earlier, some of the investments that we made during the last cycle that really set us up for the success in 2018. And with that, I'd like to turn it over to Daniel to come in and walk us through some of the attributes of our fee based versus non fee based businesses.
Thank you, Randy. 2018 was a record year for Enterprise. We saw gross operating margin come in at about $7,300,000,000 for the year. This was a 28% increase over 2017 and a 35% increase since 2015, which is really kind of the beginning of the commodity cycle. In order to drive some additional perspective into our performance, we've attributed our gross operating margin across this 4 year period to 3 different categories that are really the underlying drivers for our results.
Those are fees, commodity prices and differentials. As you can see from the slide, the vast majority of our earnings are fee based. These fees are derived from business and transportation, fractionation, storage and a variety of terminaling and product upgrade services. During 2018, we had about $6,300,000,000 of earnings from fee based activities. On the surface, many of our businesses and assets appear to be differential based.
You heard Christiana do a nice job of describing the propylene splitters in the PDH facility. And as you look at that facility, it turns out that the way that business is conducted, the actual feedstocks are purchased on an index. And in many cases and actually the majority of the time, the production volumes are sold on that same index. There's also a variable adder to cover the variable cost of the plant, a fixed adder to cover the fixed operating cost of the plant and to provide a return. And that return then flows through to SV based earnings.
Similarly on our exports, we have customers you've heard a lot about exports today. We have customers that will contract directly with the terminal facilities to bring their own volume and they'll pay a fee for that. Our marketing group also provides an added service to actually supply the volumes to certain customers. And in that case, there's a the sales price associated with that would be a commodity price plus some type of terminal premium. Now to the extent those are term agreements, we would consider that terminaling premium more of a fee based revenue.
And to the extent it's more of a spot agreement, we would call that differential based. So as you can see on the big step up from 2017 to 2018, our marketing and commercial groups were very creative in adding incremental volume, incremental dollars and, they found commodity based and differential based opportunities to the tune of $450 plus 1,000,000 However, the majority of the growth $1,200,000,000 of it is attributable to fee based activities. So it maintains its 86% share
of the overall portfolio structure.
When we look at gross operating margin attribution by segment, you can see that even at the individual segment level, the fee based is the largest component. Not surprisingly, the NGL segment and the petchem segment has the largest differential based earnings. In our NGL segment, that's primarily related to our processing activities. We also have several transportation positions. So think of the north south strategy that involves moving propane and other products from Conway to Belvieu.
It also involves transporting volumes either by pipeline or rail from evacuating the Marcellus. In our crude segments predominantly fee based, we do have an exception with respect to product upgrade and product lending activities where some of that is more commodity based. We did have transportation differential earnings in 2018. However, those were offset largely by unrealized mark to market losses. If you subtract the unrealized mark to market losses from that segment, you'd end up at about a 3% share of earnings for differential based business.
In natural gas, this one's a little bit different. You have 12% of this earnings profile that's based on commodity differential, commodity based I'm sorry, commodity based pricing. And this really is related to our San Juan natural gas gathering system in Northern New Mexico, where about 90% of our revenue stream is tied to a percentage of the natural gas index in that region. That translates to about 35,000 MMBtu per day of fixed price length in our risk position. And finally, the Petrochemical and Refined Products segment, we had the differential based business there.
Again, that's the propylene business that Chris described, the portion of that business that's not RGP plus or PGP minus. It also includes the normal to MTBE spreads that we earned using our octane enhancement facility. And it also has some gasoline blending margins across our various refined products terminals. There is a small portion of commodity based earnings in that segment. That's really attributable to sales of byproducts around our isomerization and dehydrogenation activities.
So finally with our as a bridge from our 2017 earnings to 2018, can really see that the first step of that bridge was around new and expanded asset contributions. And those were mainly the Midland Echo Pipeline, the PDH plant and also the Permian gas gathering and processing assets that Brad's team described. The second step of that is our existing assets with operating leverage. Think of that as spare capacity that was in demand during 2018 mainly as producers were fighting for takeaway capacity and there was also a large demand for fractionation for storage and access to the water. Our legacy gas plants, this does not include the new Permian assets.
This is really those businesses benefited from wide gas to liquid spreads and those mainly affected our steeple contracts. And then higher outright NGL prices also benefited our percentage of liquids and percentage of proceeds contracts there as well. And adding all other changes to that, you arrive at a gross operating margin for the year of about $7,300,000,000 so pretty impressive results. That enables us to achieve 23 operational and financial records. Some of those records include fractionation volumes, marine terminal volumes in Every business segment had record gross operating margin, record gross operating margin in total, record EBITDA and also net income attributable to limited partners.
So with that, I'll turn it over to Chris to talk about our capital structure and more.
Thanks, Daniel. I think one of the consistent themes you've heard throughout the day to day is that we're long term thinkers. And that long term thinking absolutely applies to how we think about capitalizing the business. So what this slide demonstrates is that financial discipline that we have around the investment dollars that we have back into the business. You can see from an organic perspective, we've consistently spent about $3,000,000,000 to $4,000,000,000 on new organic projects.
And then in the gold bars, you see what we've been spending with respect to acquisitions. And to reiterate that long term thinking, and this goes back to Tony's fundamental outlook and their commitment to the Brock. That long term commitment to that supply is what gives us the confidence that through one of the worst commodity cycles that we've seen in history through 2015 through 2017 that we were able to continue to spend this level of CapEx. What's apparent here is that you'll see in 2016 is that leverage ticked up to 4.4, which is outside of our normal range. Our normal range historically was 3.5 to 4 times leverage.
Again, what we did in that time line is we were investing in those high barrier to entry projects. So whether it was a PDH or the 1st Midland to Echo Pipe, some of the processing plants out in West Texas that Brad's group were working on. But as Daniel pointed out on the previous slide, you saw that cash flow starting to come in, in 2017 and then the bulk of that came in last year 2018. So without reducing the numerator, so our aggregate amount of debt outstanding, just from the increase of cash flows, you've seen leverage decrease basically a full turn since year end 2016. And while I point out that also for 2019 in Q4 earnings we gave guidance that we expect to spend $2,900,000,000 in net growth CapEx And really that net is netting off about $640,000,000 of JV contributions that we expect around the Shin Oak pipe and the ethylene export dock.
So again, just more spending and reinvesting in the business, we think that's a good prudent long term strategy. Dive a little bit deeper into the debt side of the portfolio. Really over the last decade, we've talked a lot about again long term is that underlying theme. Well, we're building long term assets and we want to fund those long term assets with long term capital. So on the debt side of the portfolio, you can see roughly 50% has been reinvested in 30 year notes and as part of that was 1 40 year note And then another roughly 30% in 10 year senior notes.
So really 80% of our debt portfolio has been in 10 years and plus. So looking to the right side of the page, what that's been able us to do is increase the duration of our debt portfolio from roughly 15 years to 19 years, all while reducing and taking advantage of this low interest rate environment that we've been enjoying since the financial crisis. And we've reduced our overall cost of our debt portfolio from 5.8 times to 4.7 times. I'd also like to point out that that number could be lower because we're 99% fixed. So to the extent there are other midstream companies out there that have a higher floating rate as part of their debt mix, again, we like to take that refinancing risk off the table.
And I think we've absolutely executed on that and it's demonstrated on the slide here. And then on this next slide, again sticking with the long term theme. In October 2017, we announced the moderation of the distribution growth so that we could self fund the equity portion of our growth CapEx. We thought that would take us 2 years to accomplish that feat. We did it a year in advance.
So maybe we're sandbagging a little bit there. But just again, I think that just speaks to the conservative mindset that we approach the business with. The distribution guidance that we gave for this year will result in a year over year increase of about 2.3%. We do plan to self fund all of the equity. And then what we also did with the 4th quarter earnings is we announced a $2,000,000,000 unit repurchase program.
Randy mentioned this earlier that we have a lot of conflicting views from various investing groups of whether or not they like us to use that or not. I would remind people that it took us 20 years to exhaust the prior program. So don't expect huge numbers from us here. But again, I think what's important to keep in mind is that we like to keep the financial flexibility. So going back to the October 2017 timeline, where we announced the moderation of the distribution growth, 1 month later, we filed a shelf to recharge our ATM.
And we got a lot of questions from investors saying, well, that's a little bit of a mixed message. You're talking about self funding, but yet you're recharging your ATM. Well, that's one, we want to be prepared so that if M and A or acquisition opportunity came up that we could execute on that and then immediately look to delever if it was a cash acquisition scenario. But so think of the buyback in the same vein. It is another tool that we can utilize to better balance out our financing plans.
And then again, the Duncan family as our general partner has been extremely supportive. They've invested over $1,000,000,000 since 2010 in the business. And we there just to remind everybody how they're different and how we're structured different, their only economic interest is the same as every other LP holder. That's their only interest that they have. So we got rid of those IDRs quite a long time ago.
And so we don't have the same issues that others had as far as trying to clean up their structure. Again, as I previously mentioned, the debt is all on balance sheet. So what you see is what you get. And I like this one here where the normalized leverage of 3.5 area. Randy mentioned this during the Q4 earnings call where we reported 3.5 gross leverage, but yet we backed out some $300,000,000 to $400,000,000 for some of the outsized spread opportunities that we recognized in 2018 that Daniel walked through.
I would find it hard to find any other company that actually when they adjust leverage, they adjust it higher. So what we did is that, okay, if you backed out that $300,000,000 to $400,000,000 of spread opportunity that may have taken our leverage to 3.7. And so when we think about our leverage, again, we're just trying to be very conservative with how we capitalize the business. So we're not going to be counting on those outside spread opportunities for the long term.
All right. And turn it back to you.
Thank you, Chris. I'd like to come in and hit a few slides on environmental, social and governance. Ivan spoke earlier this morning about our Friday meetings, where we have senior management meet and basically we review incidents from the previous week as well as coming in and planning and setting some objectives for the future. And so again, we try to stay on top of all of our activities and any developments out in that space. We also have as part of our governance committee, our governance committee comes in and again reviews our results from an environmental and health standpoint as well as helping us set policies in those areas.
Our safety program is called Goal 0 because that is our goal and we work very hard at achieving that. One of the other things that we talked about and we've actually developed back in the appendix, sometimes we get asked about our maintenance CapEx and as far as investing in the maintenance of our assets. And if you would, maintenance CapEx is only one component of that. I want to say typically maintenance CapEx runs around $300,000,000 a year. But when you come in and you look at the asset integrity that's actually in our expense, part of our income statement, it works out to be about $1,000,000,000 a year that we're coming back in and spend as far as to maintain our assets.
Come back in also invest in class training. We had over 280,000 hours in safety, technical and compliance training in 2018. We also have a right of way college. And if you would, with that right of way college, whether it's our internal landowner relations or the contractors that we use there we stress coming in and dealing with the landowners in a respectful and responsible manner. Coming in and taking a look at some of
our other
principles, we are continuously monitoring our environmental data. That allows us come in and track operational and emissions data and help us identify areas of opportunities where we can improve on that. We come in and again as Kevin and Graham talked about, we actively engage with our stakeholders in the community whether that's individuals or at the government level when we come in and when we have our activities in those areas. And one other area as far as community support since 2015, we've invested over $50,000,000 to help support either economic development in the areas where we operate and where we have assets or supporting first responders and also educational development in the school systems as well as public safety awareness. What I'd like to do now is really just come in and look at some of the direct emissions and if you would some economic intensity.
So if we come back in and we look at what we call CO2 equivalent emissions, so if you would, this is greenhouse gases, both CO2 and the with methane, the equivalent. And the chart on the right comes back in. And as we think about our gross operating margin compared to direct emissions, we've seen a 40% improvement in dollars earned compared to our metric tons of emissions. And then when you look at the bottom where we've increased our petrochemical facility volumes, our plant volumes by 47 percent, our frac volumes by 44%, liquid pipeline volumes 36%, fee based processing volumes 21% since 2011, our emissions have only gone up 4.6%. When we come in and again look at efficiency, when we just think about total barrels handled barrels of oil equivalent handled, again this emissions on a per unit basis, We've seen a 12% decrease over that time period as far as intensity on total bulk hydrocarbons handled.
When we look at our natural gas processing business, we see a 19% improvement in emissions, NGL fractionation 27% and then in our propylene business another 7% improvement as we come in and continuously look the way we can come in and look for improvements and emissions in the system.
And finishing up,
we've Randall started it out, the presentation in a little bit hitting on our culture about doing the best you can every day, being collaborative, having teamwork, the humility that we practice, the creativity, the execution. If we did not have that and I think sometimes culture can sort of get some sense overlook. But if we did not have that culture, we could not have had this 20 years of performance and built the system that we've built. And I think this track record, again, there's a lot there are a number of business cycles and a financial crisis that's embedded throughout this time period. But just remarkable that we've been able to pay out $31,000,000,000 to LP investors over that time period and then reinvested almost $11,000,000,000 back into the growth of the company.
And again, while it's been tough sledding over the last few years, when we come in and back up, as shown here on the page, there's not that many investors you can invest 1.19 $98 and it'd be worth almost $18.50 today. So with that, I'd sort of like to close on why enterprise. I think we've tried to show you today our view of what strong industry macro fundamentals look like and then also closer to home the opportunities that we see in our backyard. We see good visibility to continued cash flow growth. We have $5,100,000,000 worth of assets that are under construction or went into service since the beginning of this year.
We've talked about another $5,000,000,000 to $10,000,000,000 worth of assets that are under development that we're trying to commercialize. We've positioned ourselves well to be able to come in and finance the business, if you would, when we see new opportunities that we can come in and finance that. We've provided with what we see and the opportunities that we see. We think we can continue to come in and if you would self fund the equity portion of our growth CapEx. And we think that's just going to lend itself to cash flow per unit growth.
We're levering the business right, again, to provide the flexibility to be able to react and execute on good growth opportunities. And we know eventually the market will come in and recognize that more and more. But we could not have done this without your support over the years. And whether you're on the debt side or the equity side, we're very appreciative of the support. And we will need it in the future also.
But with that, I'd like to open it up for last Q and A. And here, we will adjourn for lunch. And at the lunch, we'll come in and do our usual where we'll split up and actually the panel participants will be available at their tables to come in and continue the discussion in the Q and A there. But I'd be glad to open it up for Q and A now.
Hi, Randy. Steger Gerchuni with UBS. You mentioned earlier that you're not pursuing a C Corp conversion. You're looking to preserve the option, which does make sense. There are other avenues out there to close perceived valuation gaps with buybacks being one of them.
But in your comments just where you sort of said it took us 20 years to do it last time, It would take 20 years to do it again. Just wondering how you plan to be opportunistic with it just to close valuation gaps?
Okay. I think the first, as far as the whole MLP versus C Corp, that's something that we continue to monitor developments on that front. And again, when we look at that there are, if you would, maybe 3 primary focus areas that we look at. And whether it's actual cash income taxes, relative valuation of MLP versus C Corps. And if you would, then the last bucket is actually the depth of the equity capital markets and the access for capital.
And with that, especially on the valuation side, I mean, that's evolving. So we're looking as we're beginning to see more dollars come back into the space where they go and are we seeing more from the C Corp standpoint or a relative change. We're not going to let we're not going to let change. We're not going to let what did a couple of C Corps do in the Q1 compared to what we do influence a decision that's a permanent decision. So I think we'll be deliberate on this front.
As I mentioned earlier, continuing to operate as an MLP is not costing us anything from a flexibility standpoint. We think we can still come in and execute on all the opportunities in front of us as an MLP. On the buybacks, we'll come in and take a look at that. I think you've heard with all the organic growth opportunities that we have, our first choice in deploying capital is deploying capital on projects with good returns on invested capital. And we see that from an organic standpoint.
And especially when the equity markets are as shallow as they are, the buybacks, boy, that is precious capital that you're consuming in coming in and doing a buyback. I think our focus on the buyback is more opportunistic. I think we've said that before. Certainly, if we come in and see dislocations, I mean, we saw dislocations there at the end of last year and we're able to exercise on that. But on the buyback, you just really need to be very deliberate on that.
And again, someone asked me during breakout, a buyback for a C Corp is much more efficient because whether it comes in the form of dividends or if it comes back if the buyback winds up with a higher stock price and a shareholder wants to take advantage of that higher stock price to go ahead and monetize, the long term capital gain and the dividend rate, same thing. But with the buybacks are not as tax efficient for partnerships just with the deferred income nature of the partnership that if a partner wants to take advantage of price appreciation that a buyback might drive or you've got deferred income recapture going back for as long as you own it. So the buyback isn't necessarily as tax efficient as
just distribution growth is.
So we're mindful of that too.
That makes sense. And just one more follow-up question. Is a range in your CapEx for this year. You also talked about $5,000,000,000 to $10,000,000 worth of projects that are being evaluated. Assuming any of them FID this year, would you have to adjust the range or does the flexibility in the range sort of cover any potential
FIDs for those projects for this year? Yes. When we come in and look at
if you wouldn't,
joint joint venture partners, I think we're talking about $2,800,000,000 $2,900,000,000 And if we come in and FID some of this project that may add $300,000,000 $400,000,000 this year. So we still have a lot of flexibility especially when you think last year we had $4,000,000,000 organic growth CapEx, another $200,000,000 of acquisitions. We've got a lot of financial flexibility this year around self funding.
Thank you.
Hi, Keith Stanley from Wolfe Research. Just following on the last question on CapEx. So you've laid out $5,000,000,000 to $10,000,000,000 of projects under development right now. Is it fair to say that's over, call it, a 3 to 4 year period? And then how would you see the 3,500,000,000 dollars spend this year gross, the trajectory of that going over the next, call it, 3 years or so?
Yes. Keith, good question. And you're right. Most of these assets as you've heard about especially the chunky ones, whether it's the offshore port, we still have probably, what, another at least 10 months in just getting through the permitting process. But the construction around that PDH will take some time to build that.
So some of the chunky ones you do have some lead time. So probably, yes, that would be spread out over 3 or 4 years. In our mind, probably the just from organic growth CapEx, it could range anywhere from $2,500,000,000 to call it $4,000,000,000 I think that would pretty much cover the range, what it could be on an annual basis.
Hi, David Amoss with Heikkinen Energy. It's the first time I've heard you talk about the Apex expansion in a while. Can you kind of update us on what that project may look like and what the decision criteria is to proceed with that?
Yes. Could we get a mic for Tug?
Yes. No, actually would prefer not to talk about the scale of the expansion because we do have some flexibility around how much it could be based off of additional horsepower or partial looping. So we do have some flexibility on the scale depending on the customer need. Just simply put, there's a lot of interest in alternative takeaway in the Northeast downbound to the Gulf Coast versus some of the other options they have up there. So we're in discussions with folks right now and we're evaluating expansion.
Great. Thanks. Two questions. 1, so you previously slowed down your distribution growth to get to self funding and hit your leverage target. Is that a permanent change?
Or is that something that once you get to that level, which you're pretty close to, would you consider in the future accelerating that rate? I noticed in your opening remarks, Randy, you said you've heard 10% and 0%. So if I take the midpoint of that, so anyway, that's the first question.
Okay. Yes, on that one, I wouldn't say that's a permanent change. I think when we came in October 2017, we saw some opportunity. The first objective was to get to equity self funding and we had, if you would, just a wave of EBITDA that was going to come on from all projects under development. So that was going to carry us most of the way.
But then we also just banked into that let's come in and moderate distribution growth for a couple of years. And then let's firmly get to more, if you would, a traditional financial model and break away from the MLP model. And I think we're well on our way of doing that. We've also come in and brought leverage down. So we've got some good flexibility.
I think what we'll do is at the beginning of next year we'll take a look at it and see what makes sense as far as returning capital.
Great. Second question is just clearly you have a lot of investment opportunities in the petrochemical area. And the question is kind of how do you think about petchem as a percentage of the total cash flows of the company? And is there any parameters around that where you wouldn't want it to get too big as a percentage because it changes the complexion of the company? Or are you just going to kind of invest where the opportunities are and the chips will kind of follow their fall?
Yes, Michael. Probably today the petchem segment is probably, I'd say 10% to 15% of gross operating margin. With the other growth opportunities that we have on the NGL side and the crude side and to an extent on the gas side, I really don't see it. I think it would just sort of keep that relative ranking going forward. I think it will get larger.
But when we come in and when we come in and look at it, our best returns on capital are NGLs, crude and petchem services.
Okay. I have one back here.
Hey, guys. Just trying to
think about the value chain a little bit and given what's going on with some of the commodity prices. I mean, Asia gas prices are near flows right now, forward curve is a little higher, probably means that LNG export volumes, not contracted amounts, but the actual volumes are a little bit at risk. Back that up, how do you think about how that flows through kind of working backward on the value chain, the rest of the chain?
Okay. I'm looking at Tony and then maybe Tony after you take first shot, look Brent.
Okay. When I think about LNG, it's no different on the water than it is here and it is gas is in a world of its own. So then when I go to the U. S. And I think about what we're going to export, look, the U.
S. Producer and we see it where propane values are where they are today, they're going
to price their product to export.
That's what they have done in the last 6 to 8 years and that's what will continue. So make no mistake about it, the U. S. Is a price taker. And what it takes to make that number is what it takes to make that number.
When we think about propane, its competition is not natural gas and it's not LNG. When we think about propane, the marginal market is either going to be for heat and that market is going to be what it's going to be or it's going to be in the petchem space where it's going to compete with naphtha and oil. Brent, anything to add to that?
Will Sood from BlackRock. Just a follow-up to the share buybacks comments from earlier. Curious how you guys think about some of the harder to quantify benefits to the buybacks when you compare that against obviously a very robust growth capital investment potential? And as an example for generalist investors, as the kind of shareholder base turns over, there is a general preference for companies where the share counts tend to decline over time versus growth. We look at a company like Apple that competes for investment capital that does do a systematic buyback even with a 36% return on invested capital.
Just curious how you guys philosophize about that?
Yes.
And, Will, I think also we're I go back to October 2017 and we're we were more operating. I won't say we were fully under the MLP model, but more like an MLP model. And I'd sort of like to think what we're doing here is doing a soft landing, if you would, into more of a traditional financial model. And we've avoided some of those hard landings that some of the other guys took. And I think a buyback has its role and I come back in and there might be a time we come when we get to a more programmatic approach.
But again, in trying to navigate this soft landing that we're doing, I don't think now is the time to do it, especially when we come in and we've got all these organic growth opportunities that we have. But and that's where we come back in and think from a standpoint of more opportunistically. What we saw there at the end of the year, when we think about cash yield on the units that we bought back and the price that we pay, it was 11% plus cash yield. Well, that comps well against our organic growth projects. So I think where we are right now, probably opportunistic fits us better.
I'm not ruling out programmatic in the future, but we need to finish this transition to a more traditional financial model.
Thank you. Maybe another way to sort of look at the distribution and buyback question is on from the credit side. How do you think about the 3.5 times leverage and potentially going lower? You talked about the length of your debt profile, but A rating is not seemingly out of the grasp. You've led the industry continuously on credit rating strength.
How does that play into things?
Yes. Dennis, I think where we are is when we say our objective right now is 3.5 times area, we sort of interpret that to be 3.25 to 3.75 times. I'll have to say an A rating is not an objective because leverage can be good for shareholder returns. And so we want still some amount of leverage in the system. So I think if we can come in and manage in that 3.5 times area, we think that will give us enough flexibility to come in and be able to finance and execute on some of these organic growth opportunities.
Or and frankly, there may be some acquisition opportunities more for disparate assets that may fit us well too.
I think we probably should cut it off. Thank you very much. As Randy said, lunch is served next door buffet style. You'll notice these little tent cards on the tables. That's for our management teams to split up to have lunch with you.
And thank you.