EUR 850.00 For Business Accounts Only

Morningstar | Targa Add New Fractionation Capacity to Address Mont Belvieu Constraints

Targa Resources is primarily a gatherer and processor of natural gas with an attractive position in the Permian Basin and other key U.S. shale plays where we expect production growth over the next few years. The main drivers for Targa over the next few years will be its Permian G&P position, liquefied petroleum gas exports, and in the latter stages, the startup and ramp-up of the Grand Prix natural gas liquids pipeline. Targa’s Permian results are expected to be driven by planned capacity expansions and a doubling of Permian production over the next five years. We expect Targa’s Permian processing volumes to more than double from 2017 levels to more than 2.6 bcf/d by 2020. We harbor long-term concerns about the G&P business, particularly if Targa does not continue to add more long-haul pipelines to the mix, because the high level of competitive intensity within the Permian will keep returns extremely low, in our view. Despite our concerns around the G&P assets, we’re more optimistic about the future of LPG exports and Grand Prix. LPG exports are largely contracted out to 2022 and sent mainly to Asian and Latin American markets. India remains a potentially attractive option under a government scheme designed to encourage LPG usage. The planned Grand Prix NGL pipeline will be a highly attractive asset that takes advantage of Targa’s position in the Permian Basin to move 300,000 barrels per day of NGLs (expandable to 550,000 bbl/d) to Mont Belvieu, and links Targa assets at both ends of the pipe, giving it more control over the molecule and ability to earn multiple fees. Targa has also added an extension into Oklahoma. The Grand Prix pipeline will reduce Targa’s costs for NGLs, as it will no longer pay third-party tariffs to transport its NGLs to market. Adding more fracationation capacity to Mont Belvieu to address near-term capacity contraints serves to further extend Targa's control over its molecules.