It’s been a busy few years for Alan Armstrong, the new CEO of Williams Co., a position he assumed at the start of this year, after serving as president of the company’s midstream business where he was responsible for Williams’ midstream activities in the United States and Canada. Last year, Williams dropped down most of its midstream and interstate gas pipeline assets to its master limited partnership, Williams Partners L.P. in a $12 billion restructuring. In addition, he is in the midst of finishing his term as president of the Gas Processors Association (GPA), where he presided over that organization’s own restructuring as it has grown to represent the midstream as a whole rather than just focusing on gas processors.

“The transfer of the midstream assets to Williams Partners hasn’t been that big of a deal since about 25-30% of our midstream assets were already in there and we have a common operating strategy,” Armstrong told Midstream Monitor. “What has changed at the Partnership is that the scale of the business gives us tremendous access to capital and enabled us to raise about $1 billion in capital in the fourth quarter alone.”

He added that the Partnership has benefited from the predictable and steady cash flows generated by the inclusion of its pipeline assets, which have helped to dampen a lot of the volatility that comes with being in the processing business.

These pipelines also present tremendous growth opportunities for the company. Williams was able to enter the Marcellus shale earlier than others because of its pipeline infrastructure in place in the region. The company’s Transco pipeline system had the Leidy lateral in the region. Although it wasn’t moving Marcellus gas, it was moving gas in and out of storage in Western Pennsylvania which gave it a foothold.

“We entered into that basin early on before it became quite so popular and started working on a transaction with Atlas Pipeline Partners after looking at all the leaseholds up there. We really liked their position – they were one of the few that had a gathering system up there that was a standalone, non-regulated system,” Armstrong says.

The two companies formed a joint-venture called Laurel Mountain Midstream that owns and operates all of Atlas Pipeline’s assets in northern Appalachia with Williams Partners holding a 51% stake in the company and Atlas Pipeline holding the remaining 49%.

Since the creation of Laurel Mountain, Williams has sought to increase its gathering assets in the play, Armstrong says. “We are developing the Springville lateral in the northeast part of Pennsylvania because we saw the Tennessee system rapidly filling up and needed another outlet.”

The Springville lateral will ship gas from Susquehanna County down to the Transco line with Cabot Oil & Gas serving as the project’s anchor. “Our strategy is to continue to add value to producers by giving them access to premium markets with big infrastructure. Out goal is to aggregate enough supplies to warrant the installation of large infrastructure,” he says.

Williams is also expanding Transco into the Marcellus with the Northeast Supply Link project as well as seeking to develop the Keystone Connector that would transport gas from the Rockies Express as well as the Marcellus to East Coast markets.

While the company’s activities in the Marcellus are getting a lot of attention, Armstrong says that Williams is very active in other regions. “One of the least known areas is in the Canadian oil sands and what we do up there is take the off-gas from the big oil sands upgraders. That gas has a lot of liquids and olefins in it, which we strip out along with the NGLs. It’s a very important business for us both in terms of current profitability as well as growth.”

There is large room for growth as the company is currently only capturing about 20% of the available liquids in the region. These opportunities will not just increase due to improving technology, but also because of the opportunity it represents for producers to reduce their CO2 emissions.

“We reduce CO2 emissions from a full-scale operation like Suncor’s by about 20% by taking this gas with a lot of impurities and products that don’t burn very well and replace that with clean natural gas so they wind up burning the natural gas after we strip out the liquids,” Armstrong says.

Williams also continues to eye expansion in the Rockies, where it has doubled its capacity in the Wamsutter Basin; the Piceance, where it is making additional investments to support its E&P business; and in the Gulf of Mexico, where it hopes permitting begins to take off again.

Armstrong thinks that the natural gas industry will return to strength during the coming years if the regulatory environment doesn’t stand in the way. “Our point of view is that the cost of producing natural gas can’t continue to come down and the U.S. is in a tremendous position if we will get out of our own way from a regulatory standpoint. People are going to stop drilling for gas if they can’t get their gas moved to market because they can’t get air permits for compressors.”

This very issue has been a focal point of Armstrong’s term as president of GPA. Throughout the course of the past year, GPA has been in the midst of extensive discussions with the Environmental Protection Agency (EPA) about air permitting issues.

“The EPA has been very, very aggressive towards the midstream business in terms of new emissions regulations. So we’ve had to be very effective at a federal level to take that on,” he says.

Since negotiations for a comprehensive energy bill from the U.S. Congress that would seek to reduce carbon emissions began to dissolve last spring, EPA officials have begun to state they would seek to regulate carbon emissions on their own.

“There are a lot of discussions about whether the EPA is making the law up as they go along and overstepping their bounds as a regulator. Certainly the House of Representatives has made it clear they think the EPA should get in line with the idea of regulating existing laws rather than creating new laws,” Armstrong says.

He added that even should the natural gas industry comply with any new EPA regulations for air permits, the current wording of these proposals is very ambiguous and would make it impossible to comply with them.

“There’s a lot of time and effort and technical work that needs to go into establishing new emissions rules and we don’t think adequate time has been spent getting the EPA to understand that,” he says.

GPA filed suit against the EPA over air permits and was instructed by the courts to try to negotiate a settlement, the discussions of which are still ongoing. He also noted that GPA is active in Texas where the state and the EPA are in the midst of a feud over state permitting rights.

Last year, the EPA informed the state of Texas that it did not approve the Qualified Facilities exemption rule that the Texas Commission on Environmental Quality (TCEQ) submitted for inclusion in its federally approved State Implementation Plan. This disagreement has put producers and midstream operators in the middle and caused holdups in getting air permits in the state.

“Texas is somewhat a test of wills and the guys just trying to get the work done are getting caught in the middle,” Armstrong says. He also noted that there is a similar situation in Pennsylvania as far as halting air permits.

“The Pennsylvania state agencies are sort of overwhelmed right now. They’re trying hard to get new policies, but the state hasn’t been in the position of permitting a lot of gas compressors for a long time so all of a sudden there’s a new slew of permit applications,” Armstrong says.

Additionally, he says that the EPA is clouding the issue in Pennsylvania by trying to impose an aggregation rule that would treat a gathering system with a number of compressors on it as one large compressor station. “The problem with that is it’s never ending. On a big system you’re always adding and taking away compression and you’re constantly in an open permit situation with that sort of policy.”

These permitting issues may eventually result in higher gas prices, but for the wrong reason as it could result in producers halting drilling, he says. “If things continue along the path they’re on now we’re going to have a lot of our natural resources unable to flow because projects can’t move forward without the proper permits. Most GPA members are perfectly happy to do their part by using the latest technologies in terms of keeping the air clean. I don’t think companies are trying to buck doing the right thing, but when the right thing isn’t even made clear or can’t be agreed upon by multiple agencies, then you just get into a roadblock situation and that’s where we are right now in many parts of the country.” – Frank Nieto