An influx of liquefied natural gas (LNG) that will reveal the true value of natural gas storage is about three years away, according to the CEO of Spectra Energy Corp., but nearer on the horizon is consolidation of numerous master limited partnerships (MLP).
"We've created a tremendous amount of master limited partnerships. In our opinion there's more of them than there really are assets to grow them, and we think there will probably be a consolidation in that sector coming fairly soon," Spectra CEO Fred Fowler told financial analysts during a conference call last week. "A lot of these newer MLPs have been backed by private equity and those guys are typically pretty smart and savvy in knowing when it's time to harvest."
Spectra is a 50-50 joint venture partner with ConocoPhillips in MLP DCP Midstream Partners LP.
Also during the call Fowler said the true value of the substantial gas storage development taking place, particularly in the Gulf Coast region, has yet to be realized.
"I think when it will really hit big-time will be when LNG really starts coming in in larger volumes, which in our opinion looks like it's probably going to be in the 2011-2012 range," he said. "I think that's when the market's going to fully appreciate the need and the value of storage. It's one of the reasons we continue to be very bullish on storage, but at the same time trying to temper how much risk we're willing to take to build it."
The company's storage projects include Copiah Storage, by an indirect, wholly owned subsidiary of Spectra, that is a proposed high-deliverability salt cavern facility in Copiah County, MS. Recently Copiah was recently granted authorization by the Federal Energy Regulatory Commission to expand its working gas capacity to 15.5 Bcf (see NGI, Dec. 24, 2007). Another project is Steckman Ridge LP, which is owned equally by subsidiaries of Spectra and New Jersey Resources and is proposing to develop and operate a storage facility with 12 Bcf of working capacity in Bedford County, PA. Steckman submitted an application to FERC for its project late last year (see NGI, Nov. 5, 2007).
Fowler reiterated Spectra's plans to spend about $1 billion a year on expansions. "We'll finance this capex [capital expenditure] from cash flow from operations and debt, and we'll harvest the 10-12% EBIT [earnings before interest and taxes] returns from those projects as we place them into service," he said, noting that earnings growth is still projected to be 5-7% as promised when Spectra was spun off from Duke Energy Corp. at the start of last year (see NGI, Jan. 8, 2007).
For 2007 Spectra reported net income of $957 million, down from about $1.24 billion in 2006 due to discontinued operations that were transferred back to Duke Energy prior to the spin-off of Spectra. Ongoing net income was $969 million in 2007, up from $919 million in 2006. For the fourth quarter of 2007 Spectra reported net income of $291 million, up from $255 million. Ongoing net income was $297 million, up from $253 million in 4Q2006. Higher demand and commodity prices were credited for the improvement in the fourth quarter.
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