Williams Plans Pipeline Projects to Deliver Appalachian Gas

Jim Willis on NGL Pipelines
Editor & Publisher, Marcellus Drilling News (MDN)

[Editor’s Note: Williams is planning several pipeline projects that, if and when completed, will transport large volumes of Marcellus-Utica Shale gas to LNG ports and markets.]

Pipeline giant Williams issued its first quarter 2022 update earlier this week. Among the bits of news coming from the update is that Williams has reached an agreement on two new gathering expansions for the “rich” Utica and Marcellus regions. Also newsworthy: the company has signed customers on the dotted line for its Texas to Louisiana Energy Pathway Project, a 364 MMcf/d Transco expansion project to serve the growing LNG export market along the Gulf Coast.

Williams CEO Alan Armstrong said the company increased “transmission contracted capacity” (amount of gas that can flow through the company’s pipelines) by 3% in 1Q over the same period a year earlier thanks to more Marcellus molecules flowing through the mighty Transco pipeline. Marcellus flows are up as a result of bringing the Leidy South Transco expansion project online late last year.

Williams divides its operations into several units. The two leading units are Transmission & Gulf of Mexico, which are the big interstate pipelines (like Transco) that flow natural gas across long distances, and Northeast G&P, which stands for gathering and processing in the M-U region.

The Northeast G&P unit is the company’s second-largest unit by revenues generated. Gathering and processing is the small-in-diameter gathering pipelines that connect to shale wells in places like northeastern Pennsylvania and flow the gas to processing facilities, and from those facilities connect to pipelines like Transco.

Here’s how much revenue each Williams unit generated in 1Q:

With that as background and context, Armstrong’s opening statements on the conference call held yesterday will make sense:

In the Northeast, we’ve reached agreements with our producing customers for significant gathering expansions in both the rich Utica and the rich Marcellus.

There is no further elucidation of his statement. We don’t know which driller(s) are expanding, and how much, and where. But we do know it’s in the M-U and it is “significant.”

During the Q&A portion of the call, a questioner asks if Williams is planning any new Transco expansion projects. CEO Armstrong responded that the six expansion projects already underway will increase Transco’s capacity another 1.9 Bcf/d.

Brian Reynolds

Great, appreciate that color. And then maybe as a follow up on just the evolving regulatory environment, it appears that there’s some near-term tailwinds and support natural gas and LNG infrastructure permitting. I was curious if you could comment on this evolving environment and curious if Williams is considering adding new Transco growth projects for FERC approval for the docket that may not have been pursued in the last year, the beginning of this year? Thanks.

Alan Armstrong

Well, I would just say, first of all, we have a long list within that six projects that are under execution. And we are encouraged in our discussion with the FERC. And their clear desire to see good projects that reduce emissions in the markets they serve. And so I would say we’re very fortunate to have a number of projects that actually reduce emissions in the markets they serve. And so we certainly are seeing support out of the FERC and obviously, they’ve been moving projects through pretty quickly. On the increment, I would say nothing really changed that much for us, it’s just kind of a steady beat, right now of continued demand from customers and RFPs that we’re responding to and working with customers on. So I will say that, I think on the one hand, you kind of have this popular notion that gas demand is not increasing. And on the other hand, the reality is it is increasing. And we’re certainly seeing that through RFPs coming from our various customers on the demand side. So we’re pretty excited about the way the future is shaping up on that front. And we do think particularly at FERC level, that they are being supportive, particularly of projects that we can demonstrate reduce emissions in the markets we serve. And we have a great track record of working with the FERC in a constructive manner. And we expect that to continue.

From earlier in the call, prepared comments by Armstrong referring to the six expansion projects:

Our natural gas focused strategy continued to deliver steady, predictable growth and this past quarter was certainly no exception. In fact, we posted yet another quarter of record EBITDA driven by growth across all four of our core business segments as well as our Upstream JV operations. We continue to set new records for contracted transmission capacity, and expect this record breaking performance to continue for many years to come as we execute on the six unique transmission expansion projects totaling 1.9 Bcf per day, and our GMP business remain strong with modest growth during the quarter expected to ramp up over the balance of the year. We continue to further advance our clean energy strategy through tightly aligned deals announced this quarter, including our acquisition of the Trace Midstream assets in the fast growing Haynesville region, which just closed this past Friday, and through our partnership with Context Labs, that I’ll detail more when we get to our key investor focus areas.

Nowhere in the update or transcript of the conference call did we see a list of the expansion projects. However, the Williams website lists the following six expansion projects:

Commonwealth Energy Connector (Virginia) – The proposed project is an expansion of the existing Transco pipeline’s capacity to Virginia and will increase the natural gas delivery to meet growing residential demand for affordable energy in the region.

Hillabee Expansion Project (Alabama) – The Hillabee Expansion Project is an expansion of the existing Transco pipeline’s capacity in Alabama to supply natural gas to the Sabal Trail pipeline.

Leidy South Expansion Project (Pennsylvania) – The Leidy South Project is a proposed expansion of Williams’ existing Pennsylvania energy infrastructure designed to connect robust supplies of natural gas in northern and western Pennsylvania with growing demand centers along the Atlantic Seaboard.

Regional Energy Access (Pennsylvannia, New Jersey) – Williams is developing the Regional Energy Access expansion to enhance existing energy infrastructure and increase Northeast consumer access to clean, affordable natural gas.

Southeast Energy Connector (Alabama) – The proposed project is an expansion of the existing Transco pipeline in Alabama to support the conversion of electric power generation in Alabama from coal to natural gas. The project leverages existing pipeline infrastructure to provide year-round, American produced, natural gas to serve the community’s need for clean energy.

Southside Reliability Enhancement (North Carolina, Virginia) – The proposed project is an expansion and modernization of the existing Transco pipeline’s capacity to North Carolina and will increase the natural gas delivery to meet the growing demand for affordable energy in the region.

Most, if not all, of the projects above, have the ability to flow more Marcellus/Utica gas.

Just a few observations about the list.

• The Leidy South expansion is, to the best of our knowledge, now done.
• The Regional Energy Access project is Williams’ competitor to, and replacement for, the now-aborted PennEast Pipeline.

According to a brief reference in an S&P article (below), four of the expansion projects are located in the “northeast,” implying they will service the M-U region. We would posit that both of the Alabama projects also have the capability of flowing M-U gas too.

S&P’s review of Williams’ 1Q news:

Williams plans to move forward with its Texas to Louisiana Energy Pathway natural gas expansion project after securing sufficient long-term transportation commitments, company executives said in a May 3 earnings call.

The 364 MMcf/d expansion project on the Transcontinental Pipeline will primarily serve burgeoning LNG export demand along the Gulf Coast. Williams is anticipating the expansion to enter service in the fourth quarter of 2025.

The Texas to Louisiana expansion project builds on Williams’ strategy of growth through brownfield capacity expansions, especially on the Transco Pipeline. Expansion projects have surged in popularity in recent years, as midstream operators seek to increase capacity without having to navigate an increasingly tough permitting environment for newbuild pipelines.

“We continue to set new records for contracted transmission capacity and expect this record-breaking performance to continue for many years to come as we execute on the six unique transmission expansion projects totaling 1.9 Bcf per day,” CEO Alan Armstrong said.

Four of the six transmission expansion projects are located on infrastructure in the Northeast, a region that flirted with production exceeding takeaway capacity in late 2021.

Louisiana Energy Gateway

Amid the expansion project announcements, Williams executives indicated that progress was being made toward a final investment decision on a potential greenfield pipeline, the Louisiana Energy Gateway, that would move up to 1.8 Bcf/d of Haynesville gas south to Gulf Coast LNG export terminals.

“We are close to commercializing the Louisiana Energy Gateway project, and given significant interest by various shippers, we do expect to announce the final investment decision on that project soon,” Armstrong said.

Senior Vice President of Corporate Strategic Development Chad Zamarin gave an update on the company’s progress in signing transportation commitments for the project.

“We have over half of that contracted today, and we would expect to achieve a sufficient level of commercial contracts over the next couple of months to FID the project,” Zamarin said. “We see a pretty significant need for volumes that are growing in the Haynesville to get to Gulf Coast markets.”

While production volumes in the Haynesville are still well below takeaway capacity limits, infrastructure has not historically been developed to move natural gas south to LNG export terminals, necessitating new pipelines to serve growing demand from this sector, Zamarin said.

Rising costs for steel and labor have also presented a challenge for midstream companies contemplating new pipelines, but executives said that steps have been taken to mitigate some of those costs.

COO Michael Dunn said that Williams had been able to source surplus steel from cancelled projects to utilize in the Louisiana Energy Gateway project, which will help keep costs down amid the current inflationary environment.

Williams also secured multiple forms of support for the Louisiana Energy Gateway project through its mid-March acquisition of Trace Midstream’s Haynesville assets. As part of the deal, Trace Midstream’s parent company Quantum Energy Partners signed a Memorandum of Understanding to become an equity investor and partner in the Louisiana Energy Gateway project, potentially reducing Williams’ capital expenditure on the project should the joint venture move forward.

For the quarter ended March 31, Williams recorded a net income of $379 million, or 31 cents per share, compared with a net income of $425 million, or 35 cents per share, in the corresponding quarter a year prior.

Here is a copy of the full Williams 1Q22 update, with financials and  a copy of the slide deck used during the conference call may be found here.

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