Williams continues to see strong demand for natural gas services on its midstream assets despite the higher price environment, with another record quarter of gathering and transmission volumes driving an increase in earnings guidance for 2021.
CEO Alan Armstrong said he was surprised at how inelastic demand for natural gas was during the third quarter, even as gas prices escalated. Benchmark Henry Hub prices rose from sub-$4.00/MMBtu levels in July to a peak of $5.93 in late September, according to NGI’s Daily Gas Price Index.
Discussing the quarterly results on a call with investors on Tuesday, Armstrong said the Tulsa-based midstream operator would prefer “more moderate” gas prices over the long haul. However, “the recent demand resilience highlights the near- and long-term role that natural gas will play as a complement to growing demand for renewable energy and emission reduction in general.”
Williams reported record quarterly gathering volumes of 14 Bcf/d and record quarterly contracted transmission capacity of 23.8 Bcf/d.
Armstrong touted the benefits of the portfolio of contracts, which were built to be “durable in the down cycles, but exposed to upside potential when it is available.” Additional upside is expected in the gathering and processing business because of the contract terms.
Production moving on the company’s assets totaled 232 MMcfe/d during the third quarter, largely from a joint venture with Crowheart Energy in the Wamsutter field of Wyoming’s Greater Green River Basin. Northeast gathering volumes rose 8% year/year to 470 MMcfe/d, with processing volumes up 22%.
Transcontinental Gas Pipe Line Co., or Transco, recorded 13.8 trillion Btu (TBtu) in average daily transportation volumes during 3Q2021, a gain of 1.0 TBtu/d from 3Q2020. Reserved capacity on the legacy long-haul pipeline ticked up 0.7 TBtu/d over the same period.
Before winter, the Leidy South expansion in Pennsylvania is set to come online, carrying about 600 MMcf/d to Atlantic Seaboard markets. The pipeline brought 125 MMcf/d of capacity online in November. The Transco Regional Energy Access (REA) pipeline also is under development.
More Expansions On The Way
In another show of the continued strong demand, Williams is set to announce in the coming weeks a third expansion of the Transco system.
Armstrong said the gathering volumes are growing at a rate of nearly 10 times the Lower 48 gas production volumes. In the Marcellus Shale, for example, Williams is “running a rate that is almost double that of our competitors. With projects like Leidy South and REA providing takeaway out of the basin, we expect our gathering volumes in the Northeast to remain resilient,” he said.
The expansions underscore management’s view that takeaway constraints in the region are not likely to develop in the near term. Armstrong said the difficulty of building pipeline projects has been a double-edged sword for the oil and gas industry, but for incumbent operators like Williams, it effectively expands the returns opportunities.
“Our customers certainly understand that it takes time to build these projects and that it takes long-term commitments to be built, and that’s what we’re continuing to see,” he said.
In total, Williams is planning 1.5 Bcf/d of expansions along the existing Transco and Gulfstream corridors.
Asked whether Williams may revisit building the Bluebonnet Market Express pipeline from the Permian Basin, Armstrong said the focus is on projects built for the long term. Some projects, he said, have been built in response to basis price differentials. When prices weaken, the project is out of the money.
Midstream peer Kinder Morgan Inc. indicated last month that it could see another Permian conduit needed by 2024, with commercial discussions still in the early stages.
Crawling Before Walking
Williams is banking on its natural gas infrastructure to bridge the gap between the energy needs of today and the lower carbon future of the future.
Williams recently announced a partnership with Denmark’s Ørsted A/S to co-develop hydrogen or synthetic natural gas facilities powered by renewable energy. The companies pledged to explore a large-scale wind energy, electrolysis and synthetic gas-via-methanation project in western Wyoming, where Williams owns land and natural gas infrastructure.
“Those are big ambitions” that are in the earnings innings, according to Armstrong. The “pieces are coming together, and we’re going to start by crawling before we walk.”
The midstream also is looking at expanding renewable natural gas (RNG) and is incorporating solar capacity into its queue of projects. Williams recently signed an inconnect agreement that should enable up to 10 MMcf/d of RNG to be transported on its systems. In-service is expected by 2023.
“Williams’ transmission and storage networks are extremely well positioned to aggregate and bring scale to multiple emission reduction opportunities, taking out higher carbon fuels, while supporting renewable energy and emerging opportunities, like hydrogen and carbon capture,” Armstrong said.
Williams reported 3Q2021 net income of $164 million (13 cents/share), down from $308 million (25 cents) in the year-ago period.
The company has raised the midpoint of 2021 earnings guidance to $5.5 billion, which is $325 million higher than guidance issued in February and 8% higher than last year.
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