The Marcellus Shale continues to make its presence felt, not just in the Northeast but also down south in the Gulf Coast region where Boardwalk Pipeline Partners LP continues to see its pipeline capacity discounted by a market awash in gas.
The company has been saying that this year will see a $40 million annualized reduction in firm transportation revenues (see Daily GPI,Aug. 1;Feb. 12). The same is true for 2014, executives said during an earnings conference call Monday.
"The development of relatively new unconventional shale basins, especially the Marcellus, has and continues to reorder traditional flows of gas in interstate commerce, resulting in declining basis differentials across our pipeline system," said Boardwalk CEO Stan Horton. "These declining basis differentials have put pressure on the value of transporting natural gas, which we have seen negatively impact our transportation revenues.
"In fact, when contracting this year as in the previous two years, we have seen reductions in both the rates we have been able to obtain under firm and interruptible transportation agreements, and in the total amount of capacity that we've been able to contract. We expect this trend to continue in 2014 for the cumulative effect to put pressure on our transportation revenues in the remainder of 2013 and 2014."
Additionally, the value of gas storage has been compromised by both reduced seasonal natural gas price volatility and in the forward spread, Horton said. This is expected to continue as well.
"That being said, we believe that long-term outlook for natural gas demand growth is strong," Horton said. "Demand growth from electric generation, industrial users and LNG [liquefied natural gas] exports is forecast to add 20 Bcf/d of new market demand in North America over the next decade."
About two and a half years ago when Horton joined the company, about 60% of the deliveries on Boardwalk's Gulf South system were from producers and into interconnecting pipelines. Capacity that delivers into interconnecting pipes is more susceptible to the effects of collapsed basis spreads than capacity going directly to end-use markets, he said.
Going forward, Boardwalk is striving to connect with as much end-use load as possible while it waits for gas markets to turn around on the strength of growing demand. "It takes time for the load to materialize, but that's what we're trying to do," he said.
Boardwalk reported third quarter operating revenues of $275.5 million, a 2% increase from $270.6 million a year ago. Net income of $62.3 million for the quarter represented a 7% increase from $58.2 million one year ago. Adjusted earnings before interest, taxes, depreciation and amortization of $171.9 million was a 6% increase from $162 million a year ago. And distributable cash flow of $116.6 million was a 17% increase from $99.7 million in the year-ago period.