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Midstream Execs See Rebound Gaining Steam on Demand Growth, Trump Presidency

The pendulum was seen swinging back in a more prosperous direction for the country's midstream and upstream operators during presentations and discussions at an industry conference in Pittsburgh on Wednesday and Thursday.

The mood at Hart Energy's Marcellus-Utica Midstream conference this year was decidedly more upbeat and stood in stark contrast to the grim views shared at the conference over the last two years. During those events, natural gas demand was seen lagging in the near term with little relief expected before 2017, while growing social opposition and declining value in the midstream dampened the outlook.

At this year's conference, however, a confluence of factors, including palpable enthusiasm for a friendlier president and stronger market pull from all four corners of the Appalachian Basin, had midstream executives beaming about pro-growth prospects in the coming years.

"Demand is building up on the backside of all this low-cost natural gas, and I think that could really catch us by surprise," Williams CEO Alan Armstrong told the audience. "You can look at whoever you want to in terms of the forecasters, but it's pretty much all the same story, it's all going to have to come from the [Appalachian Basin]. This is really the only area that has the ability and the scale to meet that kind of demand."

Armstrong was referring to all the natural gas necessary to meet anticipated power demand, liquefied natural gas and natural gas liquids exports growth and increasing industrial demand. Since mid-2016, many Appalachian producers have said the same. They've slowly been planning more activity and offering rosier outlooks for this year and next. The midstream, Armstrong said, is going to be very busy.

"If we really look at how much we're actually drilling to keep up, we are not drilling enough to keep the volumes flat right now, much less growing," he said. "I think this group right here is really going to be busy, is really going to be called on to overcome some of these bottlenecks and keep up with this demand."

Armstrong said natural gas demand would grow by 18.2 Bcf/d between this year and 2021. Production from the Marcellus and Utica shales, he added, should grow from 23 to 38 Bcf/d during that time. Marc Halbritter, senior vice president of business development at Blue Racer Midstream LLC, went further, saying the Appalachian Basin would account for 70% of the nation's natural gas production growth between 2015 and 2021.

Armstrong said the growth is already evident at his company, with 15-25 year contract commitments on the Transcontinental Gas Pipe Line Co. growing noticeably and work to connect gas-fired power plants increasing, among other things.

"At Williams, we really don't have much doubt about this demand," he said. "We can see where it's coming from, we can see it being contracted on our systems. What we're really uncomfortable about is whether this area is going to be able to respond fast enough to the demand growth that we have coming."

In years past, companies presenting at the conference have talked about one particular area being the next center for demand growth. But Robert Huffman, director of U.S. transmission business development for Spectra Energy Corp., said his company has been working on projects that would expand Appalachian takeaway North, South, East and West to New England, Canada, the Southwest and Southeast.

"One thing I guess we've noticed is the producers out of Appalachia have certainly stepped-up to do their part in building out the infrastructure from the supply basin," Huffman said. "But we've seen, in all four of those areas, the market doing the same and reaching back. In all four of those areas, we've had strong market pull subscriptions."

Take the Great Lakes region for example. Gregg Russell, senior vice president of commercial development at DTE Gas Storage and Pipelines, said his company expects incremental demand in the region to increase to 17 Bcf/d by 2030. He said the region is an "underrated and misunderstood market." DTE Energy Co. serves millions of electric and gas customers in Michigan. Its subsidiary operates nearly 800 miles of pipeline in the Upper Midwest and the Northeast.

"This basin is going to permeate the Great Lakes region," he said of the Marcellus and Utica, which according to DTE are going to account for nearly 80% of the supply needed to meet incremental demand in the coming years.

There was another reason executives seemed bullish about their growth prospects: President Donald Trump. Trump signed two presidential memorandumson Tuesday to advance construction of the controversial Keystone XL and Dakota Access (DAPL) oil pipelines, projects that had been thwarted or delayed by the Obama administration.

"What a change -- the past four months -- it's hard for me to believe," said Steve Woodward, Antero Resources Corp. senior vice president of business development. "In September, I was up here on this very stage at the Shale Insight conference and a guy followed up after my speech -- a guy named Donald Trump. I would have never guessed that he would have been our next president.

"I know statistically that most of us are amazed, but I'll tell you, the day he got up here on the stage, he delivered the message we all needed to hear in this industry."

Trump unveiled parts of his pro-energy policy in September to applause from a crowd at the Marcellus Shale Coalition's Shale Insight conference. While Huffman said he doesn't expect pipeline construction and permitting to get any easier, he did say that Spectra is "as optimistic as we've ever been about pipeline infrastructure and the industry."

Not everyone shared the excitement that was evident inside the conference center. About 20 protesters gathered outside on Wednesday to protest Trump's Keystone and DAPL actions and the conference agenda. They held signs that read "honor the treaties, water is life and no fracking."

"Investing in natural, renewable sources is important. I also think it's important to put things like water, human life, safety and the environment ahead of money and profits," said one protester from Pittsburgh named Becky, who declined to give her last name. "I'm concerned with the automatic relaxation of rules and regulations with the path being given to industry to do as they wish. The purpose of regulations is to protect all of us."

Becky, who worked as a caterer but recently sold her business, was standing at an intersection outside the conference with fellow protester Beth Johnson, a speech therapist who lives in Pittsburgh. Neither said they have hope for the Trump presidency, but they added that they're glad to see more people getting involved in anti-fossil fuel protests.

Armstrong added a caveat and reminded the audience that things could actually get more challenging for the industry, which he said needs to consider all stakeholders' concerns.

"We can all sit here and be excited that we've got an administration that's supportive of our business today; we can be very thankful about the announcements we saw [on Tuesday] about DAPL and Keystone," he said. "But I will tell you that is not changing the opposition that we have at the local level, and we're going to continue seeing that.

"I will tell you it may even enhance, and so we have got to bring a voice. We can't be heavy-handed about that voice, we have to listen and really think about what the concerns are and how we address those."

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