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Pipeline opposition, hurdles sharpen focus on existing assets: Energy Transfer

Highlights

Pause in drive for new long-haul gas projects

NGL exports seen as main growth area

Washington — With new long-haul natural gas pipelines facing substantial opposition, Energy Transfer is focusing on optimizing existing assets, and seeing growth opportunities mostly in its natural gas liquids segment, according to a company senior executive.

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Speaking at the virtual LDC Gas Forum's 2020 conference, Adam Arthur, Energy Transfer's senior vice president-business development, said Nov. 9 that while one day new gas cross-haul pipelines will be needed again, "right now there's a lot of capacity running west to east and right now, we're staying full. We've very happy with that, but when we start thinking about how can we allocate capital, how can we do projects in this environment, what's the best way to execute on these projects, given the difficulties, we really think asset optimization is key," he said.

Elaborating on that notion, Arthur pointed to the company's 90,000 miles of varied pipeline assets across the country.

"We're plumbed up across all basins, we run all directions, we've got all product mixes, but the question to our commercial teams is are those products are those pipelines in the right product service, are they flowing in the right direction," he said. For example, the company could be looking for opportunities to combine pipelines or introduce new product on lines that are 50%-60% utilized, he said.

Such opportunities "have a much, much lower hurdle given the difficulty in completing projects in the current environment," he said.

Step down in project spending

In its third quarter earnings call Nov. 4, Energy Transfer again it was reducing its spending plans for growth projects. It expected to invest less than $3.3 billion this year, more than $100 million below previous estimates. Next year, Arthur said Energy Transfer anticipated a bigger step down to $1.3 billion.

As one example of an asset optimization project under way, Arthur described plans to repurpose one of the Mariner pipelines.

"Now that the Mariner 2 and 2X pipelines are coming on, it makes a lot of sense to convert the Mariner 1 back to refined product service," he said.

Asked what would need to change for new gas projects to be required, Arthur offered that more drilling would need to resume.

"Most of these projects are push-related and without an increase in production, there's lots of pipeline capacity," he said.

Weaker production

In April, the US saw a steep decline in gas production amid historic volatility in the gas and oil markets. As WTI crude prices traded into negative territory, producers curtailed output and slashed drilling and completions budgets. By May, US gas production tumbled below 85 Bcf/d, down from a record-high monthly averaged at 95 Bcf/d in late 2019, S&P Global Platts Analytics data shows. Production has remained sharply lower in the months since, averaging about 87 Bcf/d in October, with no clear sign of a rapid recovery coming in the months ahead.

While there's not much need for new projects out of the Haynesville Shale, there's a need for those projects to be "optimized and give customers and producers and these LNG facilities access to the right markets at the tail end of those pipes," Arthur said.

As for areas where growth projects are likely to be completed, Arthur said "it's NGL exports." He mentioned Energy Transfer's deal with China-based Satellite Petrochemical, which is developing the first 100% ethane-to-ethylene cracker in China, with exports from Energy Transfer's terminal in Nederland, Texas.