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Derivative Financial Instruments
 3 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block] Derivative Financial Instruments

As of March 31, 2020, MPLX had no outstanding commodity contracts beyond the embedded derivative discussed below.

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 the 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 March 31, 2020 and December 31, 2019, the estimated fair value of this contract was a liability of $45 million and $60 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 March 31, 2020 and December 31, 2019, 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:
(In millions)
March 31, 2020
 
December 31, 2019
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
$
—

 
$
(2
)
 
$
—

 
$
(5
)
Other noncurrent assets / Deferred credits and other liabilities
—

 
(43
)
 
—

 
(55
)
Total
$
—

 
$
(45
)
 
$
—

 
$
(60
)
(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 13. There were no material changes to MPLX’s policy regarding the accounting for Level 2 and Level 3 instruments as previously disclosed in MPLX’s Annual Report on Form 10-K for the year ended December 31, 2019. MPLX does not designate any of its commodity derivative positions as hedges for accounting purposes.

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:
 
Three Months Ended March 31,
(In millions)
2020
 
2019
Product sales
 
 
 
Realized (loss)/gain
$
—

 
$
—

Unrealized (loss)/gain
—

 
—

Product sales derivative (loss)/gain
—

 
—

Purchased product costs
 
 
 
Realized (loss)/gain
(1
)
 
(2
)
Unrealized gain/(loss)
15

 
(4
)
Purchased product costs derivative gain/(loss)
14

 
(6
)
Cost of revenues
 
 
 
Realized (loss)/gain
—

 
—

Unrealized (loss)/gain
—

 
—

Cost of revenues derivative (loss)/gain
—

 
—

Total derivative gain/(loss)
$
14

 
$
(6
)