Sunoco raises capex despite bearish outlook

OREANDA-NEWS. Sunoco Logistics will increase its 2015 spending by \\$500mn to \\$2.5bn despite the company's negative outlook on NGLs and crude prices.

Sunoco increased the capital guidance as it announced it will take a 30pc share of a planned Bakken pipeline project, a joint venture with Energy Transfer Partners and Phillips 66. Sunoco also ramped up capacity on its Mariner East I pipeline to 20,000 b/d in the second quarter, and is looking to add ethane capabilities by the end of the third quarter, bringing ultimate capacity to 70,000 b/d.

"We continue to believe in a manufacturing renaissance," that will support midstream expansion projects, chief executive Michael Hennigan said today in the logistics company's first quarter earnings call.

The Mariner East II pipeline project, which was recently expanded to a 275,000 b/d capacity, is in the engineering and permitting phases with an end of 2016 startup planned, bringing total Mariner East takeaway capacity to 400,000 b/d. But Sunoco will continue to eye expansion as local and domestic demand dictates, noting that Mariner East could be scaled to 450,000 b/d.

Sunoco's interest in developing a propane dehydrogenation (PDH) unit in its industrial complex in Marcus Hook, Pennsylvania, has not subsided, but price uncertainty throughout the first quarter inevitably slowed some conversations with potential customers, though other talks have moved to detail negotiation.

Hennigan reiterated his bearish view on northeast propane pricing, particularly this summer.

"I think the market is going to see, unfortunately, some really tough propane pricing this summer … it's going to show a little bit more the power of converting this molecule into propylene, because the world, in our view needs propylene. It doesn't need propane at the moment."

Butane blending margins contributed to softened earnings last quarter.

As higher-priced gasoline markets formed a contango in the first quarter, Sunoco practiced so-called LIFO or last in, first out accounting as it built up stocks of higher-priced gasoline and drew on lower-priced butane at a cost of \\$25mn.

Sunoco's first quarter profits dropped \\$73mn year-on-year to \\$36mn.