Even with low natural gas prices throughout 2023, midstream giant Williams plans to aggressively expand its infrastructure and services to accommodate robust production needed to meet mounting global demand for U.S. supplies.
“Shoring up our nation’s and the world's energy foundation with natural gas is going to happen…because we are running out of time and real-world options to meet the growing need for energy while reducing emissions,” CEO Alan Armstrong said during the third quarter earnings call Thursday.
“Natural gas is the most effective nonsubsidized way of reducing emissions and it has become the practical alternative” to coal and other fossil fuels. “Ramping up the production of natural gas has allowed the U.S. to meet our evolving domestic needs as well as provide energy security and support to our global allies,” Armstrong added.
The Tulsa-based company, which operates more than 33,000 miles of pipeline across North America, said it is moving with haste to broaden its reach. The company manages the Transcontinental Pipeline Co. LLC (Transco) system, the largest volume natural gas pipeline in the United States.
Armstrong said Williams completed the first half of Transco's Regional Energy Access project in October, ahead of a year-end target. The project expands capacity from the shale fields of northeastern Pennsylvania to more delivery points in the Northeast region. When complete, the system would move another 830 MMcf/d. Armstrong said the total project would be online by late 2024.
He said the company also had recently completed several other expansion projects, including build-outs of gas gathering systems in the Haynesville and Utica shales.
‘Big News’
In what Armstrong called “really big news,” Williams in the third quarter signed precedent agreements of more than 1.4 Bcf/d for the proposed Southeast Supply Enhancement project, which would provide takeaway capacity from Transco Station 165 to the Mid-Atlantic and Southeast markets.
“Based on the open season results, we have even more demand to be met in the future that would likely result in a follow-on project. So we are proceeding into the permitting process for this initial project due to the urgent demands to be met for this first group of customers,” Armstrong said. “These are 20-year contracts from the time the project starts up, which would be at least through 2047.”
Williams also is growing in the Denver-Julesburg (DJ) Basin. Armstrong noted the company recently sold its Bayou Ethane pipeline system for $348 million. That windfall, along with expected proceeds from a recent legal judgment, will be used to fund the acquisition of Cureton Front Range LLC, whose assets include gas gathering pipelines and two processing plants to serve DJ producers across 225,000 dedicated acres. This land is north of Williams’ existing joint venture system with KKR & Co.
What’s more, Amstrong said Williams also plans to purchase KKR's 50% ownership interest in the Rocky Mountain Midstream to give it full ownership.
These acquisitions, with a combined value of $1.27 billion, are expected to close by the end of this year, he said.
“This is really an exciting expansion of our business out there that will allow us to deliver volumes into our downstream assets…including taking existing gas supplies and feeding them into our Rocky Mountain Midstream,” the CEO said.
Prices, Demand
To be sure, natural gas prices this year have been much lower than in 2022, when Russia invaded Ukraine, shook up global supply patterns and sent prices soaring. Benchmark futures prices in the United States approached $10.00/MMBtu in the summer of 2022. Extreme weather contributed to that bull run. Futures hovered around a third of that level through the summer of this year.
That followed a mild winter and a rapid ramp up in production. Total U.S. output has topped 104 Bcf/d at points this year – record levels – and remains elevated. Armstrong said producers are active in anticipation of enduring global demand, as well as LNG facilities coming online in 2024 and ensuing years to meet calls from Europe, Asia and elsewhere.
American liquefied natural gas exports hovered above 15 Bcf/d and near available capacity earlier this year and are again approaching that level following shoulder season maintenance events. About 24 Bcf of LNG capacity is expected online by 2032.
U.S. prices have stabilized in recent weeks and begun to climb – in part because of LNG demand strength and in part because winter looms.
While still lower than in 2022, NGI’s November Bidweek National Avg., for example, climbed 85.5 cents month/month to $3.135/MMBtu. The year-earlier average was $4.950.
Armstrong said long-term demand and mounting LNG momentum would provide further price support and greater need for Williams’ pipelines.
“The drive for electrification is on and dispatchable power capable of keeping up with the large number of government-incented electrical loads like carbon capture, hydrogen production and data centers is going to be largely served by natural gas. This includes scaling up renewable sources to reduce carbon while backing up those sources with the flexibility, scale and reliability of natural gas,” Armstrong said. “So we are here for the long haul and are committed to leveraging our large-scale natural gas infrastructure network for the benefit of our shareholders for generations to come.”
Williams reported third quarter net income of $654 million (54 cents/share), up from $599 million (49 cents) a year earlier. Cash flow from operations totaled $1.2 billion, down from $1.5 billion in 3Q2022.
