Williams is seeing "a lot of demand for increased growth" in the Northeast and is ready "to take advantage" with a bevy of major infrastructure expansion projects, CEO Alan Armstrong told investors on Thursday.
Williams Partners LP, of which Williams owns 72%, "is well on its way to creating a 3 Bcf/d natural gas supply hub in northeast Pennsylvania," Armstrong said during a conference call to discuss quarterly and year-end performance. The Susquehanna Supply Hub is expected to be in full operation by 2015, he said, delivering gas into four major interstate pipeline systems along the Transcontinental Gas Pipe Line (Transco).
A big piece of the hub plans were unveiled last Tuesday. Williams Partners is partnering with Cabot Oil & Gas Corp. to build the Constitution Pipeline, which would run 120 miles from the partnership's gathering system in Susquehanna County, PA, to the Iroquois Gas Transmission and Tennessee Gas Pipeline systems in Schoharie County, NY (see Shale Daily, Feb. 22).
As envisioned, the pipeline is set to be in service in early 2015, initially transporting at least 500,000 Dth/d of Cabot's Marcellus Shale output. It also would be expandable to meet future demand for takeaway capacity in northeastern Pennsylvania, said pipeline chief Randy Bernard. Even if Cabot were the only shipper, gas supplies would be sufficient to build a 24-inch diameter pipeline, Bernard said.
"The stated investment is around $701 million," Bernard told analysts. "We have an open season on now, and that may lead to upsizing on that project to a 30-inch [diameter pipe] from 24, which would raise the capital by another $22 million or so...We haven't negotiated rates on the pipeline but they would be consistent with regulated pipeline returns."
Williams Partners also now controls the former Laser Gathering System in Pennsylvania, which it bought last year from Delphi Midstream Partners LLC (see Shale Daily, Dec. 23, 2011). Delphi began expanding its Pennsylvania system in early 2011 and it held the rights to construct and operate midstream infrastructure for acreage leased by Carrizo Oil & Gas Inc. in northeastern Pennsylvania, rights that Williams now controls.
The Cabot JV and Laser system are "milestones" in the partnership's strategy to create the Susquehanna Supply Hub, said Armstrong.
Midstream operations chief Rory Miller said there were "a lot of moving parts" in building the infrastructure hub, which also includes the company's new 33-mile, 24-inch diameter Springville gathering pipeline, which connects to Transco.
"With Springville, there is 300 MMcf/d in takeaway, which would be up to 625-650 MMcf/d over the course of the year. Laser now has 1.3 Bcf/d of capacity...and that's going up...Constitution also has 500 MMcf/d...That will eventually add up to 3 Bcf/d of takeaway capacity," said Miller. "Keep in mind one of the limitations out there. Producers are scrambling for takeaway capacity to fulfill that.
"It will take time to build. We exited the year on Springville at around 600 MMcf/d...The Laser story is one that's unfolding. We just started volumes building up there...The earnings potential in 2012, 2013, are a shadow of what it's going to be. We have a strong producer group behind those assets and they are ramping up quickly."
Cabot's management team, said Miller, "has been pretty transparent about their plans" to focus on the Marcellus, said Miller (see Shale Daily, Feb. 22b).
Armstrong said in the Susquehanna County area, "continued strong drilling and the performance that Cabot in particular is getting out of their drilling there has got them spurred on and I think they are very confident of their ability to continue to make cash flow and returns on their drilling acreage." Northeastern Pennsylvania "happens to be a really sweet spot...even though it's dry gas."
The region also has been one of WPX Energy Inc.'s "key areas," he said. WPX was spun off from Williams at the end of 2011 as an independent explorer. In addition, Carrizo's volumes are backed financially through a joint venture with India's Reliance Industries Ltd., he noted.
Williams remains "very conservative" relative to the company's peers regarding natural gas liquids (NGL), Armstrong said. "In terms of our pricing forecast, we are going to be a very high crude-to-gas ratio, but a very low NGL-to-crude ratio. The result of that is a slight increase in NGL margins in 2012 just because we had such low crude oil earlier but a slightly lower NGL margin expectation in 2013."
The NGL-to-crude ratio "is all the way down to 45% at midpoint and I would just say that we certainly are impacted by kind of what we are seeing in the current market, but as well, when you do have very high crude-to-gas ratios, you do tend to see that NGL-to-crude ratio is slipping..."
Current prices, Armstrong said, "are being impacted by continued cracker outages and we certainly expect to see that rebound some in the last half of 2012. On the propane side though it's kind of hard to get away from the warm winter and the impact that's had on natural gas. It's kind of hard to get away from that end of the propane side and certainly a lot propane still in storage as we go into the shoulder months...I think what we're trying to convey is that even with a conservative viewpoint toward NGL margins we are very comfortable with continuing to generate kind of cash flows and distributions and with plenty of adequate coverage with that more moderate picture."
Next year "is much harder to call at this point," said the CEO. "I would just [say] there are a lot of new projects coming on, particularly in the last half of '13 and there are a lot of new projects coming on that will unlock a lot of NGL product that's going to be working hard to find its way in the new markets. And so we think [2013 is] maybe a bit of a transitional year there as we have a lot of new NGL supplies coming on in the market."