Analysts will be listening for updates on natural gas pipeline expansions from midstream companies during second-quarter earnings calls, with attention potentially shifting from the traditional growth markets in Texas and the Southeast to markets in the West and Northeast.
Kinder Morgan will kick off the season for midstream companies after the market closes on July 16.
“I think investors want to hear about additional projects that may target Southwest US natural gas demand, given that Kinder Morgan’s got one of two major pipelines that serve those markets,” Gabriel Moreen, managing director at Mizuho Securities USA, said July 15.
The interest in the Southwest comes from “a combination of not only data centers, but also additional latent power demand and supplying growing markets,” Moreen told Platts, part of S&P Global Commodity Insights. “Utilities out there need additional power generation, and natural gas is just the likeliest choice, I think, to supply a lot of this incremental demand.”
In recent calls, Kinder Morgan has announced large projects including Project Bridge, Mississippi Crossing and South System Expansion 4, aimed at serving power demand in the Southeast, and the Trident Intrastate Pipeline Project in Texas to serve LNG feedgas demand from the Golden Pass terminal. The string of announcements is emblematic of how investor priorities have shifted away from strict capital discipline.
“I think the pivot to growth mode for the gas pipeline companies is still readily apparent, and investor wish lists still have growth at the top,” Moreen said.
It helps that companies are “playing off their own systems,” said Henry Hoffman, a partner at SL Advisors. “You’re not seeing these greenfield projects where people want to take massive amounts of risk out there.”
It also helps that customers for power projects are either “investment grade utilities … or some of the deepest pockets in the world with the mega cap tech companies, and that’s as good as a regulated utility, or better,” Hoffman told Platts July 10.
Williams
Analysts will be looking for updates on potential projects in the Northeast on the Williams call, which will be the first with new CEO Chad Zamarin at the helm. The company recently requested the US Federal Energy Regulatory Commission to reinstate its certificate for the Northeast Supply Enhancement project on the Transcontinental Pipeline, while there have also been discussions about reviving the greenfield Constitution Pipeline.
“We’re looking at how much risk they’re willing to take on the regulatory side,” Hoffman said. “And I think what you’re going to see from them is they’re saying ‘we’re willing to take almost none, we want these permits in hand, we’re not doing this whole thing again.'”
Both projects were approved by FERC, but were held up with difficulties in acquiring state-level permits. But Williams is “seeing new support from states like New York that might not have been there five, seven years ago.” Zamarin said July 1 in a discussion with Artisan Partners.
Analysts may be looking for more details from DT Midstream or TC Energy about a proposed Millennium Pipeline expansion to take gas from Pennsylvania to upstate New York, which could place it in competition with Constitution. Millennium said June 4 it had moved on to binding negotiations with potential shippers on the project.
“I think Constitution is a little bit more uncertain [than NESE], just under the view that this Millennium Pipeline open season seems to be paralleling a lot of what Constitution has been trying to accomplish, but in a less regulatory burdensome way,” Moreen said. “From that perspective, I think investors would be surprised if Williams gave a full-throated endorsement of Constitution proceeding.”
Analysts will also be listening for updates on Williams’ expansion plans in the Northwest.
“There’s a lot of news percolating about [Williams] targeting additional growth projects out west, right off the Northwest Pipeline and other areas where I don’t think investors have been as focused on,” Moreen said. “We’re expecting they could potentially be pretty material.”
Williams launched June 25 an open season for a 650 MMcf/d expansion of Northwest Pipeline, targeting Pacific Northwest demand.
Source: Reuters