The environmental movementhas a growing “keep it in he ground” drive that has led to TransCanada’s scrapping of the Keystone XL Pipeline and now threatens to stall Energy Transfer Partners’ Dakota Access project. Even energy-rich Texas has its fossil-fuel opponents. The critical midstream segment should take note and respond, warned a pair of its leaders.

In his opening keynote for Hart Energy’s 2nd annual Midstream Texas Conference, A.J. (Jim) Teague, CEO and director at Enterprise Products Partners LP, offered a spirited defense of what he described as an oil and gas industry under environmentalist assault.

“The attack on oil and gas affects all of us, the entire value chain,” he told a packed house at San Antonio’s Henry B. Gonzalez Convention Center. “Producers can’t produce, consumers don’t have it for their needs, and there’s no need for the midstream. We’re all in it together.”

The public at large does not appreciate all that energy companies do on its behalf, Teague said, noting that even the more pedestrian propane business serves an environmentally friendly purpose, allowing people in many countries to burn the fuel instead deforesting the planet for firewood.

Teague was one of 24 speakers who covered a wide array of topics at the event.

Changing focus

Mark Sutton, president and CEO of the GPA Midstream Association, had a similar theme in his presentation, explaining why the 95-year-old organization has added a major government relations effort in recent years.

GPA Midstream is “the only trade group that advocates for a midstream position” with the federal and state governments in major producing regions. “Our biggest issues are with federal regulation and legislation,” he said, adding that state government issues also have grown in importance.

Midstream Business serves as GPA Midstream’s official publication.

A changing—and frequently hostile— regulatory environment caused the Tulsa, Okla.-based organization to change its mission statement in 2009 to reflect a broadened advocacy role that builds on its work as primarily a tech-nical and educational body. It changed its name earlier this year, from the Gas Processors Association, to emphasize t speaks for all of the midstream, not just its traditional gas processor membership. >Although GPA Midstream has helped solve many technical and operating questions, its biggest challenge today lies in advocacy during the government regulatory process, he stressed.

The association has had a significant increase in the number of formal letters and comments to regulatory agencies, he noted. In 2014, GPA filed 13 comments. Last year, that number rose to 41, and in 2016 it has presented 27 formal comments, to date.

“Of those 26, four to five were a considerable undertaking, [being] comments on methane regulation, which is really killing us all in this industry,” Sutton said, noting some of GPA’s filings ran to 50 or more pages. Safety regulation is another area it monitors closely.

“It has been a tough fight” in recent months as a result, he said, and the midstream will need to stay involved in the foreseeable future.

Taking action

Brydon Ross, vice president of state affairs for the Consumer Energy Alliance, echoed remarks by Teague and Sutton and outlined his organization’s actions to build public support for the energy business. Ross said the alliance works to build the credibility of pro-energy positions; counters opponents’ emotional arguments with facts to create a more meaningful public dialogue; creates relationships with consumers, labor, businesses, landowners, stakeholders and public officials; and seeks to bring new voices and viewpoints into the discussion of energy.

“Someone will define you if you< don’t define yourself,” he told the conference attendees. Ross outlined the association’s new “Pipelines For America” effort to tell the public how important energy is to the economy. Its campaign emphasizes public education and awareness of pipeline/midstream consumer benefits and seeks to provide an advocacy gap for critical midstream infrastructure.

“The pipeline and midstream industry must expect opposition on nearly everything” because environmentalist opponents’ “goal is to end fossil fuel development and means of delivery.” There are no more free passes for the industry, Ross cautioned. Opponents turn routine regulatory reviews into anti-fossil fuel campaigns.

Midstream to Mexico

If Texas’ energy sector faces political challenges at home, it also enjoys opportunities close by. Brandon Seale, president of Howard Energy Mexico, a unit of San Antonio-based Howard Energy Partners, told conference attendees that Texas producers “are at the front door of the most exciting new market in North America.”

He discussed Mexico’s growing demand for oil and gas in general and his firm’s expansion south of the border in particular. He noted that Howard’s Nueva Era gas pipeline, now under construction, “will link the biggest gas-producing county in Texas [Webb County] to the biggest gas market in Mexico”— the industrial hub of Monterrey.

“We need to remember that what is good for Mexico is good for Texas, and vice versa,” Seale added. He noted Mexico is not just an export market but looks to incorporate U.S. business practices to stimulate its sluggish energy sector and economy.

Permian perspectives

Much of the oil and gas Mexico needs for its domestic market will come from the Permian Basin—the hydrocarbon- rich region that sprawls across West Texas, then laps over into New Mexico. Three panelists who participated in a discussion of “The Permian Powerhouse” agreed it has bucked the two-year-old industry downturn and has continued to develop. Drilling and completion improvements have allowed the Permian’s output to remain remarkably steady despite a 75% drop in the number of rigs making hole.

Michael J. Latchem, president and CEO of Lucid Energy Group, asked a rhetorical question at the start of his presentation: Is the Permian the last man standing from the earlier boom or the first man up for a new boom? Latchem said it is the latter.

What’s important now “is matching capital to the market as there is a shift in momentum” back to a growing oil and gas industry. He noted that capital providers and midstream operators’ criteria are not always the same, and the two sides need to work together closely.

Joining Latchem on the panel were Brett Wiggs, CEO of Oryx Midstream Services, and Robert A. Milam, president and CEO of EagleClaw Midstream.

Wiggs noted that “regional transportation capacity is an issue—not just capacity out of the basin.” Milam said it is important for midstream operators “to understand the producer’s economics” as they respond to the Permian’s shifting active drilling areas. All three panelists rated the Permian’s Delaware Basin as underserved.

Milam said the recent Alpine High discovery by Apache Corp. in Reeves County, Texas, represents a particular concern for the midstream because t lies at the southern extreme of the already underserved Delaware—but noted that could be a good thing for EagleClaw since it operates the nearest active midstream assets to Alpine High.

Where to invest?

Andrew Deck, Permian Basin vice president for EnLink Midstream, recalled asking: “How long is it going to take before the storm is over?” And, with slowly emerging signs of stability and a recovery in the midstream industry posed a related question: “If I’m going to reinvest my money, where am I going to get the biggest bang for the buck?” He replied that “the Permian Basin is the place where the comeback is starting. The Midland and Delaware basins are a contributing source of the comeback.”

In addition to the disproportionate increase in recent rig activity in the Permian, coupled with the dramatic improvements in productivity per well, Deck pointed to deal flow of E&Ps buying into the Permian as “probably the most persuasive” indicator of likely success. Moreover, with breakeven prices well below current crude oil prices, he said, “prices don’t have to improve for there to be significant returns in the Permian Basin.”

In the Midland Basin, using a so-called build-and-buy strategy, EnLink has developed an integrated network of midstream assets that it calls the MEGA (Midland Energy Gathering Area) System. Recent additions include the Riptide processing plant in Martin County, Texas, while the Greater Chickadee crude oil gathering system is under construction.

In the Delaware Basin, EnLink is also employing a build-and-buy strategy, and has established a footprint based on the Lobo system acquired from Matador Resources Co. The company also formed a strategic joint venture with Natural Gas Partners to expand activities in a “key area in the northern Delaware Basin,” according to Deck.

Waterborne exports

The state’s midstream needs to shift its focus from predominantly domestic customers to waterborne exports of LNG, crude, petroleum products and petrochemicals according to John LaRue, executive director of the Port of Corpus Christi Authority. H described how the South Texas port has adapted to a growing role as an energy hub by adding infrastructure and deepening its channel.

The same holds true for all 16 deepwater Texas ports, he noted. The port will have LNG liquefaction and ethylene< cracking plants operating by 2020 at Ingleside, Texas, on the north shore of Corpus Christi Bay, enhancing its importance as an export hub, he said.

Michele Joy, vice president of regulatory and major projects for Shell Pipeline LP, described the recent changes and mprovements to Shell’s Zydeco system around the Gulf Coast. Built originally as an east-to-west crude system to move imported oil landed in Louisiana to Texas refineries, Shell rebuilt the line as a header that can batch 14 different crude grades in either direction. Zydeco will become more important as the Gulf Coast grows as a refining and petrochemical hub, Joy said.

Nozomu Nagai, general manager of upstream business development for Tokyo Gas America Ltd., discussed the role of the North American unit for one of the world’s largest LNG customers. He predicted the emergence of a “homeless LNG” market—LNG not produced under a long-term contract that will be freely traded. That market will be more like the freely traded market for crude oil, he said. Nagai added that worldwide LNG is moving toward pricing off of the U.S. Henry Hub benchmark rather than crude oil-based prices.

Tokyo Gas has purchased gas reserves in Texas’ Barnett and Eagle Ford shales, he noted. That gas may or may not be liquefied and shipped abroad, but the Texas reserves will enable the Japanese firm to hedge its fuel needs better in the future.

Weathering the storm

The process of emerging from the downturn provides an extra opportunity to revisit key business principles hat can help midstream players: stay engaged with customers, the industry and your team.

Stephen Morgan, vice president of TransTex Treating, emphasized those points as he recapped factors contributing to the energy downturn. Ahead of the commodity crash, companies levered up balance sheets by outspending cash flow as Wall Street rewarded aggressive growth with high trading multiples, he said.

Principles to abide by to emerge from the downcycle intact include include focusing on core competencies, gaining and retaining recurring business revenue streams and employing disciplined financial management, he said. These principles helped TransTex in that it “lost only one employee” in the downturn.

And keeping close to customers is critical—and easier—now that so-called gate guards have less traffic to handle, according to Morgan. “They’re saying that no one’s coming by,” he said. “But now, more than ever, we need to be increasing our face time with our customers.”

Cost control

The midstream sector should maintain “vigilance in driving down costs” as it responds to demand-driven natural gas nfrastructure needs, John Poarch, vice president, commercial and business development, for The Williams Cos Inc. cautioned.

Agreeing with Poarch, Carlos Conerly, vice president, ISII Plant Services, said midstream players and< equipment suppliers “need to find >ways to significantly reduce the cost of< pipelines and processing facilities to remain competitive in today’s low cost price environment.”

Conerly pointed to the need for the sector to follow upstream companies example of having reduced days-to-drill a well by as much as 61%. He cited data showing how wells in northeast Appalachia are being drilled in 10 days, down from over 25 days earlier.

Conerly was one of several speakers who identified the industrial and electric power segments as growth markets for the industry’s abundant gas production.

After declining to a low of 6.2 trillion cubic feet per year (Tcf/year) in 2009, due to the 2008 recession and manufacturing moving overseas, industrial segment demand grew to 7.5 Tcf/year from 7.0 Tcf/year over 2011-2015, an increase of 7%. The U.S. Energy Information Agency is projecting 28% growth in industrial demand to 9.6 Tcf/year by 2040, he noted.

Demand for natural gas in the electric power segment has increased at the expense of coal, said Conerly, with June marking the first time that electricity generated by natural gas has exceeded that of coal. While power generation using renewables (wind, solar) is on the rise, these facilities are dependent on co-existing natural gas generation to meet grid demands, he added.