Leticia Gonzales

Federal regulators, unsatisfied with Cheniere Energy Inc.’s progress in completing a list of corrective measures following the mandated shutdown of two liquefied natural gas (LNG) storage tanks in early 2018, told the leading U.S. exporter that neither tank would be allowed to return to service until the previously agreed upon actions were completed.

Sticking to its commitment to a disciplined growth strategy, newly formed Appalachia-focused Montage Resources Corp. plans to scale back its drilling program amid expected lower commodity prices for the second half of 2019.

Cheniere Energy Inc. continues to dominate the U.S. liquefied natural gas (LNG) export market, completing the first commissioning cargo from the second train at the Corpus Christi LNG terminal in South Texas.

There weren’t enough sparklers and bottle rockets to ignite natural gas forward prices for the June 27-July 2 period as cooler long-range weather forecasts doused any hopes for an extension of last week’s gains.

The oil and natural gas midstream sector offers attractive opportunities as production is set to continue growing, particularly in the Permian Basin, even as exploration and production (E&P) capital spending is expected to fall as much as 5% in 2019, according to Moody’s Investors Service Inc.The slowdown in spending comes as oil and gas production companies continue to reassess their capital budgets while balancing shareholder demands for share buybacks and higher dividends, Moody’s said in its latest Global Midstream Outlook. “We expect that E&P capital spending will fall by 3-5% in 2019 after two consecutive years of strong growth.”Yet production growth will remain robust and jump again by 8-12% in 2019, with volumes increasing in most North American basins, including the Permian, South Central Oklahoma Oil Province/Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties (aka SCOOP/STACK), the Western Canadian Sedimentary and Appalachia, the firm said.Steeper cuts are seen in the midstream sector, where new projects will slow as spending is set to decline by 15-20% in 2019 and 2020 as companies focus on completing large existing projects and delivering earnings growth to help strengthen their credit quality, according to Moody’s.Additional project completions will address existing shortages in transportation capacity, and will pick up volumes, based on E&P investments already made, the investment firm said. But a greater focus on balance-sheet strength by midstream companies and investors, rising regulatory scrutiny and increasing difficulties in gaining social license to build large projects such as interstate pipelines will all contribute to the slowing pace of midstream investment.Nevertheless, the midstream sector offers an attractive medium-term growth opportunity.“Rising U.S. production of oil, natural gas and natural gas liquids (NGL) will require additional infrastructure to support exports of products and to open new markets for U.S. producers, including connecting the key producing basins to the export centers of the Gulf Coast,” Moody’s said.Indeed, Plains All-American Pipeline is nearing completion of its 300,000 b/d Cactus II oil pipeline connecting West Texas Permian crude and condensate output to the Port of Corpus Christi on the Texas coast. The system, which is comprised of existing pipelines and two new pipelines, is scheduled to enter service in the third quarter.The first new pipeline would extend from Wink South to McCamey in Upton County. The second new pipeline would extend to the southeast from McCamey to the area of Corpus Christi and Ingleside.Plains is also a partner in the Red Oak Pipeline system, a 50/50 joint venture with Phillips 66 to provide crude transportation service from Cushing, OK, and the West Texas Permian to the Texas coastal cities of Corpus, Ingleside, Houston and Beaumont.“The pipeline provides a competitive outlet for shippers to access the key market centers along the Texas Gulf Coast from Cushing and the Permian,” Phillips 66 CEO Greg Garland said. “This investment aligns with our long-term strategy to grow our midstream business with projects generating stable, fee-based earnings while further enhancing integration across our value chain.”With such a heavy focus on the Permian, where production in West Texas and southeastern New Mexico drove Gulf Coast growth to 7.1 million b/d in 2018 versus 5.2 million b/d in 2014, the basin’s shortfall in transportation capacity has restricted growth there in 2018-19, according to Moody’s. Furthermore, the lack of takeaway capacity has forced producers to manage significant price discounts that reduce their returns on investment, and in turn, slow growth in production.“Oil pipelines going into service in the 2H2019 will alleviate the oil bottleneck and spur further oil production and production of the associated natural gas, thereby aggravating the shortfall in natural gas takeaway capacity,” Moody’s said.However, some relief is expected on the gas side later this year when Kinder Morgan Inc.’s Gulf Coast Express enters service. A year later, KMI’s Permian Highway Pipeline (PHP) is set to begin commercial operations, and the recently sanctioned Whistler pipeline is set for a 3Q2021 in-service.In late June Summit Midstream Partners LP opted to move forward with the 1.35 Bcf/d Double E pipeline project after securing “sufficient” binding commitments for long-term, firm transportation service. The system is designed to move natural gas from the Permian’s Delaware sub-basin to the Waha hub and beyond. The target in-service date was set at 2Q2021, pending regulatory approvals.“As takeaway capacity comes on stream, wide natural gas basis differentials will also likely ease by late 2020 to levels closer to the transportation costs at established market hubs,” Moody’s said.Meanwhile, the rapid growth in NGL production offers further growth opportunities for midstream companies, particularly in the SCOOP/STACK and Permian, according to the firm. It sees midstream companies making significant investments in additional fractionation capacity at major NGL hub Mont Belvieu.Momentum in midstream growth will depend on the availability of capital, the investment firm said. “The midstream energy sector today is transforming its growth-orientated business model.”Structural simplifications and resets of costly incentive distribution rights to general partners are making the midstream business model more investor-friendly, according to Moody’s. Companies are increasingly striving to finance new projects with their own cash flow, rather than first distributing cash flow to investors, only to later depend on the capital markets for funding.However, the high cost of equity capital required to fund growth projects is squeezing the master limited partnership (MLP) organizational structure, especially as increasing competition for new projects from private capital reduces project returns. “MLPs are taking different approaches to help improve their weak distribution coverage or relieve high debt leverage,” Moody’s said.The low valuations of midstream companies compared to refining or stronger E&P companies have also largely reduced the financial benefits of using a sponsored MLP structure to raise funding for a sponsor’s new investment projects or share repurchases.Valero Energy repurchased the remaining stake of its sponsored Valero Refining MLP in 1Q2019 and consolidated the subsidiary to begin raising capital on a centralized basis. Other MLP sponsors such as EQT Corp. and Antero Resources divested their sponsored midstream operations, including essential supporting infrastructure, to attract new capital and reinvest proceeds in the development of core operations.Moody’s expects private equity groups to remain the driving force behind consolidation and mergers and acquisitions activity among the smaller midstream companies, with deals likely to percolate during 2019-20. “The trend is particularly visible in the highly competitive and fragmented Permian segment, where smaller gathering and processing companies, often backed by private equity, still struggle to keep pace with the growth in production.”The investment firm expects to see more ambitious deal making among smaller operators in 2019-20, such as BCP Raptor Holdco’s investment in the KMI-led PHP.“Such equity-backed acquisitions have broadly supported credit quality to date for midstream companies that aim to accelerate project completions and to scale up and bring additional volumes to their systems to add to earnings growth,” Moody’s said.Still, private equity investors will actively participate in funding new growth projects, including with large midstream companies, according to the firm. Meanwhile, relatively low valuations and improving cash flow generation and leverage can make midstream companies more attractive for takeovers, as with Australian private infrastructure investment firm IFM Investors’ recent all-cash acquisition of Buckeye Partners LP.

After a solid run following supportive storage data, natural gas futures prices fluctuated in and out of positive territory Friday as traders digested slightly cooler long-range weather outlooks. The August Nymex gas futures contract rose as much as $2.364 before going on to settle at $2.308, down 1.6 cents on the day. September also slipped 1.6 cents to $2.282.

Driven by increasingly warmer weather outlooks that have since trended cooler for later this month, natural gas forward prices posted nearly 10-cent gains across the front of the curve for the June 20-26 period, according to NGI’s Forward Look.

Despite scorching temperatures in store for the first week of July, a cooler long-term outlook squashed any hopes for a rally for natural gas bidweek prices, which posted steep 20- to 30-cent losses at the majority of market hubs. Hefty gains out West were no match for the overall weakness seen across the rest of the country, with the NGI July bidweek National Avg. tumbling 12.5 cents to $1.980.

After a solid run following supportive storage data, natural gas futures prices fluctuated in and out of positive territory Friday as traders digested slightly cooler long-range weather outlooks. The August Nymex gas futures contract rose as much as $2.364 before going on to settle at $2.308, down 1.6 cents on the day. September also slipped 1.6 cents to $2.282.