NiSource Inc. and its Columbia Pipeline Group (CPG) are on track to split into two separately traded companies by July, management said Thursday, in a move that sets the stage for billions of dollars of infrastructure, interstate pipeline and midstream upgrades at both companies over the next two decades.
While NiSource has plans to spend up to $30 billion in the next 20 years to make upgrades at the utilities level, including the modernization of its electric generation and natural gas distribution systems, CPG expects to hit the ground running this year. CPG plans to take advantage of a "once in a generation opportunity" with the nation's shale boom and related growth in the midstream sector, said post-separation President Glen Kettering.
On Thursday, CPG's new management team discussed plans for at least 15 liquified natural gas (LNG), midstream and interstate pipeline expansion/newbuild projects that are expected to cost more than $10 billion in the next five years.
Anchoring those plans would be the company's core assets: the Columbia Transmission System (TCO), which sits directly on top of the Marcellus and Utica shale plays, and the Columbia Gulf Transmission System, another strategic asset that provides producers access to lucrative trading points and growing markets on the Gulf Coast.
"Our proximity to this prolific and growing supply source sets the stage for much of the growth that the team is capitalizing on," Kettering said of the Appalachian Basin, where most of CPG's growth is planned. The company's project inventory is expected to grow CPG by an average annual rate of 20% through 2020. In all, net investments in pipeline, storage and midstream assets are expected to grow from $4.6 billion this year to $13.5 billion at the end of 2020.
Under the separation plan, which was announced last year, CPG would own nearly all of NiSource's natural gas transmission, midstream and storage assets, or 15,000 miles of interstate natural gas pipeline, 300 Bcf of natural gas storage capacity and the growth-related projects (see Daily GPI, Sept. 29, 2014). A master limited partnership that went public in a record-shattering debut earlier this year, Columbia Pipeline Partners LP (CPPL), would also be spun off with CPG and own a 14.6% interest in the company's assets (see Shale Daily, Feb. 9).
"If you rewind seven years back to 2008, Marcellus production was barely 1 Bcf/d. Today, Marcellus and Utica production combined is about 18 Bcf/d, almost a quarter of total U.S. supplies, and the growth is expected to continue," Kettering said. "If you fast-forward five years to the end of the decade, the consensus is that this region will be in excess of 25 Bcf/d. Not surprisingly, this supply growth has fundamentally changed the physical flow and commercial dynamics of the pipeline grid and it's the catalyst for the very significant investment cycle we're currently participating in.
"By the fourth quarter of 2017, all three of Columbia Gulf's high-pressure, large-diameter trunk lines will have become bidirectional, providing almost 2 Bcf/d of outlet capacity to the south," he added. "By the same time in 2018, with the addition of midpoint compression along the Columbia Gulf system, we expect to create nearly another 1 Bcf/d of north-to-south capacity."
Most of CPG's natural gas gathering systems in West Virginia, Pennsylvania and Ohio are expected to be expanded. The company also plans to build a 1 Bcf header system in southwest Pennsylvania to move dry Marcellus and Utica gas into the region's interstate pipeline grid. That project is expected to cost $275-300 million. The company's current inventory of interstate and midstream growth projects alone exceeds $7 billion.
CPG would also take advantage of demand opportunities to serve utilities, power generators and the LNG export markets in excess of 1.5 Bcf/d, management said.
After the split, NiSource would retain its regulated gas utilities, which serve more than 3.4 million customers in seven states, and continue providing electric distribution, generation and transmission services in northern Indiana. The move is also expected to boost NiSource's investment grade rating, which Standard & Poor's has at the lowest possible level. The rating is expected to be addressed just before or after the separation occurs.
To fund the split, NiSource has issued $750 million in long-term debt and CPG is expected to issue $2.75 billion in debt prior to the separation. CPPL, meanwhile, is expected to raise $4 billion in equity to help fund part of the capital expenditures for pipeline, storage and midstream investments through 2020.