As producers respond to weak natural gas prices, Williams Inc. is reducing its projections for gathering and processing (G&P) volumes in the Northeast in 2020, but management sees a brighter long-term outlook as affordable supply lays the groundwork for future demand.
During a conference call to discuss 3Q2019 results, CEO Alan Armstrong acknowledged that weak commodity prices for natural gas and natural gas liquids (NGL) are having an impact in the near-term. The Tulsa-based midstreamer expects its gathering and processing (G&P) business to reflect a pullback in producer activity in the Northeast in 2020.
“Although we have great confidence in the long-term sustainability of our business strategy, the current low natural gas and NGL prices, which are seeding the long-term growth of natural gas demand, have had a pretty significant impact on the forecasted near-term growth for our G&P business, particularly in the Northeast,” Armstrong said. Cash flow available to producers for drilling “has been heavily impacted by much lower strip prices for gas and NGLs, and as a result, our 2020 Northeast gathering volume growth forecast has steadily drifted downward.”
However, “confidence in low-cost U.S. natural gas reserves will continue and is continuing to drive strong natural gas demand growth over the long term, and there will have to be a call on natural gas-focused supply areas...we will be extremely well-positioned -- and are well-positioned -- for the upside associated with that.”
Low-cost supplies of natural gas will help make it “the fuel of choice” for a world in need of more energy and lower carbon dioxide emissions, Armstrong said.
“Williams benefits from having ideally-situated existing pipes in the ground, and we continue to see demand for expansion for both the near-term and long-term. Despite a pretty tough current commodity price and regulatory permitting environment, the future remains very bright for Williams.”
One expansion currently in the works is the Northeast Supply Enhancement, a 400,000 Dth/d addition to the company’s flagship Transcontinental Gas Pipe Line (aka Transco) designed to serve National Grid. That project has received an icy reception from regulators, despite evidence that the Northeast lacks sufficient pipeline infrastructure to accommodate demand.
Armstrong noted that the project still lacks the necessary water quality permits from New York and New Jersey.
“At this point, the risk” of a delay “is increasing, although we are going to do everything we can to meet our targeted in-service date for 4Q2020,” Armstrong said. It would be “quite challenging” to get the project up and running in a year, “and that is the current critical path that we’ll be up against, but currently we still feel that we can help support the peak load for the 2020/21 winter.”
In the Atlantic-Gulf segment, which includes Transco, daily transportation volumes averaged 13.2 trillion Btu in the third quarter, versus 11.9 trillion Btu in the year-ago period. In the company’s West segment, daily transportation volumes averaged 1.9 trillion Btu, versus 2.1 trillion Btu in 3Q2018.
The Northeast G&P segment recorded 17% higher gathering volumes (up about 1.3 Bcf/d) for the quarter compared to the prior year. Consolidated gathering volumes totaled 4.33 Bcf/d, versus 3.67 Bcf/d a year earlier; non-consolidated gathering volumes were 4.35 Bcf/d, versus 3.73 Bcf/d in 3Q2018.
Quarterly revenues totaled $1.999 billion, versus $2.303 billion in 3Q2018.
Williams reported net income for the quarter of $220 million (18 cents/share), versus a year-ago net income of $129 million (13 cents/share).
The increase in net income was due to higher service revenues from the Atlantic-Gulf segment, attributable mainly to Transco expansion projects, and from the Northeast G&P segment due to growth in gathering volumes, management said. This was partially offset by lower commodity margins in its West segment, lower “deferred revenue recognition” in the Barnett Shale and the absence of its Four Courners Area business following its sale in 2018.