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Year in Pipelines: 2018 was banner year for big projects but a repeat unlikely

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Year in Pipelines: 2018 was banner year for big projects but a repeat unlikely

The value of U.S. interstate natural gas transportation and storage assets in 2018 saw its largest increase in years, but with pipe infrastructure beginning to catch up to production and fewer pipe projects moving through the federal regulator, the uptick is unlikely to be sustained.

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Contributing to 2018's significant increase in gas transmission and storage asset values were a few particularly sizable projects, especially those that opened new paths for gas production from the Marcellus Shale in the Northeast. For instance, Williams' Transcontinental Gas Pipe Line Co. LLC completed the 1.7-Bcf/d Atlantic Sunrise pipeline project that allowed gas to flow east from Pennsylvania to the Transco mainline for transport to major markets up and down the East Coast, among other projects.

"It is fair to say that the rapid growth that Transco experienced in 2018 was extraordinary," Williams Cos. Inc. spokesman Christopher Stockton said. "Atlantic Sunrise was a special project that doesn't come along very often, although the advantage that Transco has over other pipelines is that it has been in place for decades, connecting some of the best supply areas with the best natural gas markets."

Also in 2018, Energy Transfer LP's Rover Pipeline LLC Rover put in service the largest part of its 3.25-Bcf/d pipeline from the west side of the Marcellus Shale in West Virginia and Pennsylvania across Ohio to Midwest and Canadian markets. TC Energy Corp. pipeline company Columbia Gas Transmission LLC put the 1.5-Bcf/d Leach XPress project in service in January 2018.

An S&P Global Market Intelligence analysis of data from the Federal Energy Regulatory Commission Form 2 showed that U.S. gas transmission plant assets went from just under $153.0 billion in 2017 to about $171.6 billion in 2018, an increase of about 12.1% year over year. That compared to year-over-year growth of 8.46% from 2016 to 2017 and growth of about 4% or less in the previous four years. Form 2 collects financial and operational information from major interstate gas pipeline companies under FERC jurisdiction.

U.S. gas storage and processing assets for these companies went from almost $12.9 billion in 2017 to $17.3 billion in 2018, a huge increase of 34.6%, compared to the five years before, during which year-over-year changes once made it to 5.8% but were otherwise in the 1.8%-3.4% range.

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With Atlantic Sunrise, Rover and other major projects in the rear-view mirror for the sector, the year-over-year spike in asset values is unlikely to be a sustained trend, especially if projects approvals at the Federal Energy Regulatory Commission are any indication. Whereas FERC approved 39 gas pipeline projects covering 26,590 miles and costing an estimated $26.3 billion in 2017, the regulator in 2018 approved 27 projects spanning only 649 miles and costing an estimated $3.8 billion, according to an analysis by S&P Global Market Intelligence's group Regulatory Research Associates. FERC itself has forecast pipeline activity to slacken: In its budget request for fiscal 2020, the commission said it expected the number of gas pipeline project applications to fall in 2019 and 2020.

Some of the bigger U.S. gas transportation projects underway currently — include the 2-Bcf/d Mountain Valley pipeline and the 1.5-Bcf/d Atlantic Coast pipeline — have stalled with legal and permitting challenges. While booming production basins in Appalachia and West Texas and around LNG export terminals in the Gulf of Mexico continue to draw developer interest, natural gas pipelines are showing signs of catching up to shale production and other regions are quiet in terms of pipeline building. Meanwhile, not many gas storage projects have entered the development cycle in the last few years.

Sector participants and observers also have noted that the fuel faces increased competition from low-carbon energy sources, which the world has turned to in an attempt to offset global warming. The trend has created uncertainty in the future of large, long-term gas transportation infrastructure projects. Still, U.S. pipeline companies have said there are opportunities for gas alongside renewable energy.

"While it is clear renewable energy sources are on the rise, natural gas will continue to play a very important role in meeting domestic and global energy needs, specifically when it comes to power generation," Williams' Stockton said. "It is noteworthy that capacity added by natural gas-fired power generation projects has been greater than all other sources combined. As states make strides toward renewable power, it is vital for natural gas-fired generation to follow as a backup fuel to ensure grid reliability."

Even in a boom year, some companies saw asset value drop-offs. The biggest decrease in pipeline asset value came at Alliance Pipeline LP and Kinetica Partners LLC's Kinetica Energy Express LLC. Alliance also showed a large decrease in asset value the year before. A spokeswoman for Enbridge Inc., which share ownership of Alliance with Pembina Pipeline Corp., said the decrease in the book value of Alliance assets reflected the fact that capital expenditures during the period did not offset standard annual depreciation.

"We believe there is an excellent opportunity for expansion on Alliance all through the system longer term," Enbridge spokeswoman Tracie Kenyon wrote in an email. "Presently, we are working towards meeting the needs of the U.S. segment (Bakken production) given the projected growth of gas and associated NGLs and that current gas egress from the basin is full."

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Williams President, CEO and Director Alan Armstrong earlier in 2019 illustrated what an increase in pipeline assets can do for a company's bottom line. In an investor presentation in May, he said his company expects Transco expansion projects to help push total contracted year-end deliverability capacity up to 17.3 million Dth/d for 2019 and up to 18.9 million Dth/d in 2022. The company has targeted $2.5 billion in fully contracted fee revenue by 2022.

Transco — with projects that expand a large, bidirectional pipeline network connecting the Gulf Coast to the Northeast — is different from companies such as Rover Pipeline that are created to develop a single project. "We aren't just connecting one supply and demand point — we are transporting roughly 15% of the natural gas consumed in the U.S. on a daily basis," Stockton said.

Rover, with its system effectively coming into being in 2018, saw the largest change from 2017 to 2018, going from about 94.6 million Dth to over 805.2 million Dth, a change of about 710.6 million Dth.

Other pipeline companies had big increases in transportation quantity across more projects and a much larger portfolios of assets. The transportation quantity on Enbridge's Texas Eastern Transmission LP system rose 436.6 million Dth, going from about 3.8 billion Dth in 2017 to about 4.3 billion Dth in 2018. Transco picked up by 385.9 million Dth, going from about 5.1 billion Dth to about 5.5 billion Dth. TC Energy's Columbia Gas and Columbia Gulf Transmission LLC rounded out the list of largest increases in transportation quantity, showing up right behind Transco.

But another TC Energy system ANR Pipeline Co. — actually saw the greatest decrease in transportation volumes, dropping about 1.3 billion Dth. Williams' Discovery Gas Transmission LLC, which operates a pipeline system that largely sits offshore of Louisiana, lost about 154.6 million Dth. The drop-off coming on the heels of another big decrease the year before.

Dominion Energy Inc.'s Dominion Energy Cove Point LNG LP, Columbia Gas and Berkshire Hathaway Inc.'s Northern Natural Gas Co. had the largest increases in storage and processing assets. The Dominion subsidiary started commercial service on a $4 billion liquefied natural gas export facility in Maryland in April 2018. The export facility can draw on gas supply from the nearby Marcellus Shale.

Kinder Morgan Inc.'s Tennessee Gas Pipeline Co. had the biggest decrease in value for storage and processing assets, falling about $10.3 million from about $141.4 million in 2017 to about $131.1 million in 2018.

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