EUR 850.00 For Business Accounts Only

Morningstar | U.S. Oil Export Terminals Offer a Compelling Growth Opportunity for Midstream

Expanding on our overarching theme of the incremental U.S. hydrocarbons (whether it be gas, oil, or natural gas liquids) being exported, we introduce a differentiated U.S. crude-oil exports forecast of 4 million barrels per day by 2020, sharply higher than consensus estimates of 1.4 million bpd to 2.25 million bpd. We believe consensus underestimates the ability for U.S. oil supply, particularly from the Permian Basin, to increase over the next few years and lacks a clear understanding of the ability for the U.S. to export oil in size, given the country only essentially allowed exports to take place beginning in 2015. Finally, we think that only midstream firms that own all of the assets in the midstream value chain will be able to fully participate in the U.S. crude oil exports opportunity, limiting it to relatively few firms, such as Enterprise Products Partners, Magellan Midstream Partners, and Tallgrass Energy.

We like Enterprise Products Partners as the best way to play our above-consensus U.S. oil exports forecast. Wide-moat Enterprise is the current industry leader in exports and has another major terminal project under consideration. At about a 20% discount to our fair value estimate, the master limited partnership is underappreciated.

Another undervalued midstream firm is Tallgrass Energy. Fresh off a consolidation transaction in 2018, the newly simplified and corporate entity has found another way to leverage the Pony Express pipeline with a new export terminal under consideration. Tallgrass is also underappreciated by investors, with a 16% discount to our fair value.

Wide-moat Magellan Midstream Partners is another undervalued midstream partnership. While it lacks a marketing operation which benefit both Tallgrass and Enterprise Products Partners, it has two crude-oil export projects under consideration.

Please see our recently published special "The U.S. Crude Export Boom and the Midstream Opportunity" for more on our U.S. oil exports forecast.