Houston-based Tivoli will look for opportunities along the Houston Ship Channel, the major conduit for US NGL exports, write Chris Baltimore and Matt Scotland
A group of US midstream industry veterans has formed a new company to pursue underutilised logistical assets, with an initial focus on marine facilities along the US Gulf coast and in the midcontinent.
Tivoli Midstream will aim to acquire, build and manage strategic terminals and storage logistics at petroleum hubs. There are significant opportunities to acquire logistical assets for crude, refined products and petrochemicals amid the fall in demand spurred by the Covid-19 pandemic, Tivoli chief executive and former Oiltanking North America president, Rance Fromme, says.
Looking broadly across the midstream space, Tivoli will focus initially on export-capable marine locations, Fromme says. "We are focusing more on the coastal marine space, because it gives you more optionality."
The growth in US crude, oil products and natural gas liquids (NGL) exports has changed the nature of flows for key US infrastructure such as pipelines and terminals over the past decade "in ways that people never thought possible at the time", Fromme says. "Sitting on a marine facility gives you that flexibility essentially, no matter what happens in the market."
Houston-based Tivoli will look for marine opportunities along the Houston Ship Channel, the major conduit for US NGL exports, as well as points to the east, Fromme says. The Houston Ship Channel is prone to vessel delays from fog, congestion and industrial accidents, but "it is hard to be able to step away from it", Fromme says. "It is good to have a lot of opportunities, and sitting on the Houston Ship Channel provides you with that."
The company has yet to announce any firm plans for the US NGL market, but says it is interested in the space. "US NGL production cannot be ignored, and solutions will be needed to deal with increased volumes that are expected once production resumes to pre-Covid levels," Fromme says.
Fractionation action stations
The rapid increase in US NGL production over the past 10 years has led to midstream firms playing catch-up in terms of making expansions to NGL fractionation and export capacity to clear the glut. The Covid-19 pandemic has tempered the growth of NGL production and investment in midstream infrastructure projects, with companies shelving plans and reining in capital expenditure. But Fromme expects the market to return to pre-pandemic levels, which will require further investment to process and ship the additional US NGL output.
"Prior to Covid-19 there were around 2mn b/d of new fractionation capacity projects on the Gulf coast and a few new docks planned to absorb these barrels, yet a shortage [of export capacity] was still anticipated," Fromme says.
Production cuts as a result of falling demand relieved some of this midstream pressure, as did the postponement or cancellation of upstream projects and the opening of Canadian LPG export capacity, which reduced rail shipments to the US. But "once demand begins returning to normal pre-Covid levels there will be a need for additional outlets for NGLs. How long will that take? We will have to wait and see," Fromme says.
Tivoli will be funded by its partner Energy Spectrum Capital, a Dallas-based private equity firm that invests in midstream assets.
The company will be joined by another new entry to the US midstream arena, after eastern US-focused operator MPLX formed a joint venture with peers WhiteWater Midstream and West Texas Gas to transport NGLs from the Permian basin to the Gulf coast this month. The venture will use Epic Midstream's 440,000 b/d pipeline to ship unprocessed NGLs to fractionators at Sweeny, Texas, and then on for export from the Gulf coast.
