An incremental 10-15 Bcf/d of U.S. natural gas supply over the next 10-15 years creates “abundant” opportunities, and Williams’ goal is to be the No. 1 or No. 2 player in every U.S. gas basin in which it operates, CEO Steve Malcolm said Tuesday.
Malcolm and his management team presented their outlook for the company on Tuesday in an all-day analyst conference. Looking to the long term, Malcolm said the future looks bright for both natural gas and natural gas liquids (NGL), but “the fundamentals are driving a very weak 2009,” echoing comments he made during a first quarter earnings conference call in April (see Daily GPI, May 1).
To maintain its strong balance sheet and liquidity, the Tulsa-based company added $600 million in March through a debt offering. Credit ratings agencies have removed a “negative” watch on the company, and it maintains an investment-grade credit rating, Malcolm noted. However, the company is doing more to drive down costs “through rigorous execution and expense discipline,” enabled by a “rapid drop” in many of the company’s service costs.
The CEO mirrored comments by other energy analysts and executives this year: there’s a 2-3 Bcf/d production overhang in the United States and “storage inventories are at historical highs.” The drilling cutbacks by the industry will help reduce the inventory “later this year and in 2010,” but Williams also sees other market factors coming into play.
By this summer, “fuel substitution will help absorb the gas supply imbalance,” Malcolm told analysts. Williams “expects hydroelectric generation to be 0.4 Bcf/d lower than in 2008.” If gas prices remain below $4.50/Mcf, there also should be a “coal-to-gas substitution of 1.5-2 Bcf/d” this summer.
Still, the company is forecasting weak prices through 2009 because of the lag between rig count reductions and resulting production cuts, Malcolm said. The company is forecasting 2009 domestic gas production exit rates to be down 2-4 Bcf/d versus 2008 exit rates. 2010 domestic gas supplies are seen declining from 2008-2009 levels by 3 Bcf/d to 60.5-61.5 Bcf/d. Demand next year is seen up 1 Bcf/d over 2009, but still down 1 Bcf/d from 2008 levels because of the economic slowdown.
“We think 2010 demand will increase over 2009 levels, but it will lag 2008,” said Malcolm. “The pace of the economic recovery, weather events and production levels all could alter equilibrium timing.”
Already U.S. gas producers have shifted “dramatically” to unconventional supply sources, especially shale and tight sands, he noted. Because of that, Williams stands to benefit because new infrastructure will be needed to link the growth markets, which increases opportunities for the company’s midstream and gas pipeline units.
Through 2010, Williams has several key infrastructure projects scheduled to begin operations. In its midstream business operations are scheduled to ramp up at the Willow Creek gas processing plant and at its Paradox operations, which are both in Colorado’s Piceance Basin (see Daily GPI, May 9, 2008). In the Gulf of Mexico Williams is readying the launch of gas processing facilities at the Blind Faith facility and the Perdido Norte hub (see Daily GPI, Jan. 30; July 31, 2007).
The gas pipeline unit also has two projects scheduled to ramp up over the coming year. Williams’ Transcontinental Gas Pipe Line (Transco) placed the first phase of its Sentinel expansion to service last December (see Daily GPI, Dec. 24, 2008). The second phase of the Transco expansion is scheduled to be in service this November. In addition, Williams’ Colorado Hub Connection is scheduled to begin carrying gas from the Piceance Basin to Northwest Pipeline’s on-system and off-system markets later this year (see Daily GPI, April 7).
Williams also announced Tuesday that it has increased its total proved, probable and possible reserves to an estimated 13 Tcfe at year-end 2008, which is 14% higher than year-end 2007’s 11.4 Tcfe. The company said it produced 0.406 Tcfe in 2008.
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