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North American midstream companies to update outlooks amid construction boom

Houston — The North American natural gas industry is eager to see whether last year's robust midstream activity will continue this year, as operators of pipelines, gathering systems and processing plants begin releasing their latest financial results.

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Kinder Morgan, which transports more than one-third of the gas consumed in the US, is scheduled to kick off the earnings season for the sector on Wednesday with its outlook for the future and how it performed during the final three months of 2017. Dominion Energy reports its fourth-quarter results on January 29.

In the following days and weeks, Williams, Enbridge, Enterprise Products Partners, TransCanada and Energy Transfer Partners also will issue their financial report cards.

Analysts expect a healthy appetite among developers for more infrastructure building, especially in prolific plays such as the Appalachian Basin in the Northeast and the Permian Basin in Texas and New Mexico. Demand from existing US LNG exporters as well as final investment decisions by others will be key drivers.

"We see fundamentals continuing to improve in 2018 and have noted a growing generalist interest in the space," Jefferies analyst Christopher Sighinolfi said in a recent note to clients.

Established operators and deep-pocketed private equity firms are pumping billions of dollars into projects.

In the Northeast, the remaining Phase 1 facilities associated with Energy Transfer's Rover Pipeline as well as Columbia Gas Transmission's Leach XPress entered service over the past month, adding around 2 Bcf/d of new production takeaway capacity to the Northeast.

Leach XPress has averaged flows of 700 MMcf/d since entering service January 1 and has mainly consisted of supply volumes that were pulled from Texas Eastern Transmission and Dominion Energy Transmission's existing systems. The remaining Rover Phase 1 facilities entered service December 15 and although flows on the pipeline did not increase immediately, beginning January 1 Rover flow volumes jumped up about 500 MMcf/d to average 1.23 Bcf/d on the year, data compiled by Platts Analytics' Bentek Energy show.

The next project that is set to enter service is Rover Phase 2, which would include four more supply laterals as well as the market zone north section, allowing access to Vector Pipeline and Dawn Hub in Ontario. According to Energy Transfer, the remaining facilities will be in full service by the end of March this year and allow the entire 3.25 Bcf/d of capacity to be in operation.

The project will allow for more Northeast gas to leave the region and will place upward pricing pressure on regional supply hubs such as Dominion South.

Outside of Rover, 2018 is scheduled to bring seven new production takeaway projects totaling 10.5 Bcf/d. Of the seven projects, six have been approved and four of those are currently under construction.

Atlantic Sunrise (1.7 Bcf/d), which began construction in March of last year and scheduled to enter service in the middle of this year, is set to move production out of Northeast Pennsylvania and deliver into Cove Point Pipeline and markets further south along Transcontinental Gas Pipe Line. By allowing the region a more extensive downstream market, Atlantic Sunrise is expected to place upward pressure for the Northeast Pennsylvania supply hubs such as Transco Leidy Line.

The other main projects, WB XPress (1.3 Bcf/d), Mountain Valley Pipeline (2 Bcf/d), Nexus (1.5 Bcf/d) and the recently approved Mountaineer XPress (2.7 Bcf/d) are all scheduled to enter into service during the fourth quarter of this year. These projects mainly target the same tristate producing area of Ohio, West Virginia and Southwest Pennsylvania and therefore are expected to place upward pressure on the associated supply hubs.

The influx of supply to each project's downstream destination can also expect to bring some bearish pressure as more gas enters those downstream markets.

The 1.1 Bcf/d PennEast expansion project remains the only project still scheduled to come online this year that has not yet received approval.

The 120-mile greenfield pipeline is planned to pull gas from the Northeast Pennsylvania producing region and move southeast through Pennsylvania before terminating at an interconnect with Transco in Mercer County, New Jersey.

The project is subscribed by multiple local distribution companies and power companies and would deliver gas to end-users along the route.

As for the Permian, Kinder Morgan is planning to build a 1.9 Bcf/d pipeline that would allow more shale gas to move from the Permian to the Texas Gulf Coast. The company, along with joint venture partners DCP Midstream and Targa Resources, made a final investment decision last month to proceed with the Gulf Coast Express Pipeline, which is targeted to be in service in October 2019.

That projects comes as increasing associated gas volumes are being lifted from the Permian amid heavy investment in the oil-rich play. Rising NGL prices tend to drive increasing exports, a dynamic that operators such as Enterprise are trying to tap into with new infrastructure and expansion of existing facilities in the region.

Sighinolfi said midstream companies' outlooks will be tied in part to the economic opportunities that the Permian presents.

"Permian midstream assets continue to gather interest as sponsors and strategics look to consolidate assets that will benefit volume-levered oil, natural gas, and NGL production growth in West Texas," Sighinolfi said.

-- Harry Weber,
-- Jack Winters,
-- Edited by James Magill,