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Enbridge agreed to acquire the Tres Palacios gas storage facility in Texas for $335 million
03/23/2023![Enbridge-agreed-to-acquire-the-Tres-Palacios-gas-storage-facility-in-Texas-for-335-million](https://images2.rextag.com/public/blog/138Blog_Enbridge_Buying_Gulf_Coast_NG_storage_facility (1).png)
Enbridge, a Canadian company operating in the midstream sector, has recently acquired the Tres Palacios natural gas storage facility in Matagorda County, Texas for $335 million. This acquisition was made through a deal with Crestwood Equity Partners LP and Brookfield Infrastructure Partners and will add approximately 35 Bcf of Gulf Coast natural gas storage to Enbridge's portfolio.
Located in Markham, Texas, Tres Palacios is a natural gas storage facility that uses salt caverns for storage. It comprises three storage caverns with a working gas capacity of approximately 35 Bcf and is currently in the process of obtaining permits for a fourth storage cavern that would add another 6.5 Bcf of capacity. According to regulatory filings, the facility has a maximum injection rate of 1 Bcf/d and a maximum withdrawal rate of 2.5 Bcf/d.
Tres Palacios possesses a gas header pipeline system that spans 62 miles and links to 11 major gas pipelines, including Enbridge's Texas Eastern Pipeline. Nonetheless, Crestwood Equity Partners LP revealed its intention to divest interests in Tres Palacios during the earnings report on February 21. The transaction is slated to be completed in the second quarter.
Expanding Through Non-Core Asset Acquisition
In an effort to streamline its portfolio, Crestwood has been expanding into oil-rich areas like the Williston, Delaware, and Powder River basins, as stated by CEO Robert Phillips in the company's Q4 earnings report. As part of this strategy, Crestwood has been divesting non-core and gas-focused assets in shale formations such as Barnett and Marcellus.
Crestwood owns a 50.1% equity interest in the Tres Palacios joint venture, with Brookfield holding the remaining 49.9%. Crestwood is set to receive approximately $168 million from the sale of its stake in Tres Palacios, which will be used to reduce its debt.
Enbridge has been capitalizing on the trend of companies divesting non-core midstream assets since the summer of 2022. One example of this is Enbridge's acquisition of Diamondback Energy Inc.'s 10% equity interest in the Gray Oak Pipeline in January. This pipeline connects crude oil from the Permian Basin and Eagle Ford Shale to various destinations along the Texas Gulf Coast.
The company has been expanding its stake in the Gray Oak Pipeline since August 2022 when it boosted its interest from 22.8% to 58.5% through a joint venture merger transaction with Phillips 66. Enbridge's stake increased further to 68.5% after it acquired the additional 10% interest from Diamondback.
In the second quarter of 2023, Enbridge will take over the operatorship of the pipeline. The company's recent acquisitions and expanded ownership of the Gray Oak Pipeline demonstrate its strategy of investing in core midstream assets to support its long-term growth.
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U.S. Natural Gas Pipelines Infrastructure Overview by Rextag
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The U.S. natural gas pipeline network is a complex system of pipelines that transport natural gas from production areas to consumers across the country. The pipeline network consists of three main types of pipelines: gathering pipelines, transmission pipelines, and distribution pipelines. Gathering pipelines are small-diameter pipelines that transport natural gas from production wells to processing facilities or larger transmission pipelines. Transmission pipelines are large-diameter pipelines that transport natural gas over long distances, sometimes across multiple states. Distribution pipelines operate at low pressure and are located in or near urban areas. They are often referred to as "utility pipelines" because they are typically owned and operated by local gas utility companies.
From Beginnings to a $7.1 Billion Milestone: Deal-Making Histories of Energy Transfer and Crestwood - Complex Review by Rextag
Energy Transfer's unit prices have surged over 13% this year, bolstered by two significant acquisitions. The company spent nearly $1.5 billion on acquiring Lotus Midstream, a deal that will instantly boost its free and distributable cash flow. A recently inked $7.1 billion deal to acquire Crestwood Equity Partners is also set to immediately enhance the company's distributable cash flow per unit. Energy Transfer aims to unlock commercial opportunities and refinance Crestwood's debt, amplifying the deal's value proposition. These strategic acquisitions provide the company additional avenues for expanding its distribution, which already offers a strong yield of 9.2%. Energized by both organic growth and its midstream consolidation efforts, Energy Transfer aims to uplift its payout by 3% to 5% annually.
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The pipeline industry in the USA faced and still faces a range of regulatory challenges, including permitting delays, environmental requirements, and public opposition to pipeline projects. In recent years, pipeline projects like the Keystone XL and Dakota Access pipelines had legal and regulatory obstacles that delayed or canceled their construction. Keystone XL Pipeline, proposed by TransCanada in 2008, aimed to transport crude oil from Canada (around Calgary and Edmonton) to refineries on the Gulf Coast (Port Arthur). The project faced opposition from environmental groups and indigenous communities, who argued that it would contribute to climate change and pose a risk to water resources. In 2015, President Obama rejected the project, citing concerns about its environmental impact. However, in 2017, President Trump revived the project, leading to further legal challenges. In June 2021, U.S. President Joe Biden officially canceled the project on his first day in office.
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The renewable natural gas (RNG) industry in the United States is showing promising signs of growth. As of 2019, the U.S. consumed 261 billion cubic feet (BCF) of RNG, primarily utilized by independent power producers, electric utilities, and various commercial and industrial entities. However, this figure represents only a small fraction of its potential. Research indicates that the U.S. could theoretically produce up to 2,200 BCF of RNG through anaerobic digestion alone, which would equate to about 11% of daily national natural gas consumption.
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Recently, the progress toward an energy transition is hitting a snag. Sales of electric vehicles are decelerating, and the growth in wind and solar power needs to be keeping pace with expectations. To make matters more challenging, electricity prices are climbing when they were expected to fall. Amidst these setbacks, the oil and gas sectors are proving resilient. According to BP's latest energy outlook, not only are these energy mainstays here to stay, but their demand is expected to remain relatively high even after reaching a peak. Interestingly, BP forecasts that oil demand will reach its zenith next year, marking a critical moment in energy consumption trends. This isn't the first time BP has projected a peak in oil demand. Back in 2019, their review anticipated a decline in demand growth, but the prediction fell flat. Instead, oil demand surged to unprecedented levels following the end of the global pandemic lockdowns, defying previous forecasts and underscoring the enduring dominance of traditional energy sources in the global market.