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Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments

As of December 31, 2019, MPLX had no outstanding commodity contracts.

Embedded Derivative - MPLX has a natural gas purchase commitment embedded in a keep-whole processing agreement with a producer customer in the Southern Appalachian region expiring in December 2022. The customer has the unilateral option to extend the agreement for two consecutive five-year terms through December 2032. For accounting purposes, the natural gas purchase commitment and term extending options have been aggregated into a single compound embedded derivative. The probability of
the customer exercising its options is determined based on assumptions about the customer’s potential business strategy decision points that may exist at the time they would elect whether to renew the contract. The changes in fair value of this compound embedded derivative are based on the difference between the contractual and index pricing, the probability of the producer customer exercising its option to extend and the estimated favorability of these contracts compared to current market conditions. The changes in fair value are recorded in earnings through “Purchased product costs” on the Consolidated Statements of Income. As of December 31, 2019 and 2018, the estimated fair value of this contract was a liability of $60 million and $61 million, respectively.
 
Certain derivative positions are subject to master netting agreements; therefore, MPLX has elected to offset derivative assets and liabilities that are legally permissible to be offset. As of December 31, 2019 and 2018, there were no derivative assets or liabilities that were offset on the Consolidated Balance Sheets. The impact of MPLX’s derivative instruments on its Consolidated Balance Sheets is summarized below:
 
December 31,
(In millions)
2019
 
2018
Derivative contracts not designated as hedging instruments and their balance sheet location
Asset
 
Liability
 
Asset
 
Liability
Commodity contracts(1)
 
 
 
 
 
 
 
Other current assets /Other current liabilities
$
—

 
$
(5
)
 
$
—

 
$
(7
)
Other noncurrent assets /Deferred credits and other liabilities
—

 
(55
)
 
—

 
(54
)
Total
$
—

 
$
(60
)
 
$
—

 
$
(61
)
(1)
Includes embedded derivatives in commodity contracts as discussed above.

For further information regarding the fair value measurement of derivative instruments, including the effect of master netting arrangements or collateral, see Note 15. See Note 2 for a discussion of derivatives MPLX may use and the reasons for them.

The impact of MPLX’s derivative contracts not designated as hedging instruments and the location of gains and losses recognized on the Consolidated Statements of Income is summarized below:
(In millions)
2019
 
2018
 
2017
Product sales
 
 
 
 
 
Realized gains/(losses)
$
—

 
$
4

 
$
(9
)
Unrealized gains
—

 
2

 
4

Total derivative gains/(losses) related to product sales
—

 
6

 
(5
)
Purchased product costs
 
 
 
 
 
Realized losses
(6
)
 
(12
)
 
(9
)
Unrealized gains/(losses)
1

 
3

 
(10
)
Total derivative loss related to purchased product costs
(5
)
 
(9
)
 
(19
)
Cost of revenues
 
 
 
 
 
Realized gains/(losses)
—

 
—

 
—

Unrealized gains/(losses)
—

 
—

 
—

Total derivative losses related to cost of revenues
—

 
—

 
—

Total derivative losses
$
(5
)
 
$
(3
)
 
$
(24
)