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Northeast in World of Pain Without NGL Takeaway Solution, Says Williams CEO

Williams has enough natural gas pipeline projects in the queue to keep it profitable and busy in the long term, both in North America's onshore and in the Gulf of Mexico, but it's not willing to gamble on a liquids takeaway solution for Appalachia until shippers step up, CEO Alan Armstrong said Thursday.

The news that Williams and Boardwalk Pipeline Partners LP would stop funding the Bluegrass Pipeline project earlier this week (see Shale Daily, April 28) was not surprising. Williams in February said it paused the project to better align with producer interests (see Shale Daily, Feb. 20).

According to Williams, Bluegrass remains the best solution to carry mixed natural gas liquids (NGL) to Gulf Coast markets and for possible export, but as Armstrong said in February, Williams isn’t going alone.

"We're not going to stick our necks out for the sake of the industry on that," Armstrong said during a conference call. "We've got great projects in the wheelhouse and a lot of tremendous opportunity," which "put us in a very envious position of not having to stretch for that project...We certainly hope that Bluegrass or something like it gets built for the sake of the space, but that's really going to be up to the shippers and producers...We remain ready and able to push ahead on that project but are plenty happy with all the great long-term contracted business we're getting in the other sectors of our business."

Because of the decision to table Bluegrass, Williams took a writedown of $86 million in the first quarter. The Tulsa-based operator earned $140 million (20 cents/share) net in the period, versus $162 million (23 cents) in 1Q2013. Minus the writedown and lower liquids margins, net earnings totaled $190 million (28 cents/share) from $152 million (22 cents). Williams Partners LP, which operates and owns most of the pipe systems, reported a profit of $352 million, up from $344 million. Fee-based revenues rose 9% to $748 million.

Bluegrass has had trouble from the start. At last month's Gas Processors Association annual meeting in Dallas, sources told NGI's Shale Daily that Williams hadn't been able to drum up enough support and was close to putting it aside for as long as it takes.

One issue that may have scared investors is the route, which includes about 200 miles of newbuild through Kentucky. State legislators, backed by Gov. Steve Beshere, are attempting to strip the rights of liquids pipelines to use eminent domain, allowed for necessary gas and oil pipes (see Shale Daily, March 24). For those landowners that did not approve of the right-of-way for the pipe, Williams had said it might invoke eminent domain rights. Company offices used by land agents along the Kentucky pipeline route already are being closed.

Armstrong was asked to offer some color about the options for NGL takeaway from Appalachia. If Bluegrass isn't built, and alternate pipe offerings weren't able to secure long-term contracts, including one by Kinder Morgan Energy Partners LP and MarkWest Energy Partners LP, what could happen to NGL options in the Northeast?

"Certainly, I think that there's a lot of people kind of counting on somebody else solving the problem as it relates to Bluegrass. Frankly, we're not going to be the ones that do that for the whole industry without adequate expressions of support. But yet, we still believe that something needs to be done.

"We're very interested in bringing the very best project to the market, for one to come forward and get subscribed, whether it’s Bluegrass or whether it’s a combination of projects…We're not all that jealous of the opportunities, frankly, just because we have so many other great investment opportunities, well contracted opportunities. But we certainly think a solution does need to get resolved...That is going to be the issue.

"People are going to understand in the not too distant future that rail and all this product out in the area is not going to be a sustainable solution. I think that's what's gotten the market thinking it can continue to work the longer-term issue."

Williams remains "very engaged" in gas pipeline and midstream options, both ongoing and potential projects, said Armstrong. Bluegrass isn't dead, it's just not going to be resuscitated -- for now. The market isn't ready and hasn't felt the "pain quite enough yet...

"And I do think that as we get into this summer and in the next winter, when a lot of this new production...starts to ramp up, as per our forecast," which Williams sees through data from northeastern-based Access Midstream Partners, which it owns, and through the operated Blue Racer system. "We see a lot of liquids coming into the market, and we're certainly hopeful that we can get a project supported that will not deter drilling in 2016 because there is some tremendous resource out here. We're going to have to work as an industry to come up with the right market access, and we certainly look forward to being a part of that."

Williams is forecasting "pretty big improvement" in NGL volumes over the next year. However, there's a chance that if Bluegrass were to proceed in some form or fashion, Boardwalk might not have the capacity to assist.

"We have a great relationship with Boardwalk, and I would tell you that we're working to make sure that if there is a project there that makes sense, we've got the ability to move forward with the project. And at the same time, Boardwalk's got the rights -- under certain conditions -- to utilize that capacity for gas if they see a demand or higher value in that direction after a certain period of time here. And so I think we've struck the right balance between us in terms of how to move forward on the project.

"I think it's really kind of a matter of time. I think for the meantime, there is plenty of alternative uses or alternative ways to move gas south and quite a bit of capacity to do that on various lines, including the existing -- two other existing Texas Gas lines that would still be in gas service or on Boardwalk's system...But from our vantage point, we've struck the right balance that allows us to keep Bluegrass on the table and also under certain conditions, allows them to move forward with something that makes sense for Boardwalk."

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