Midstream Monitor

This issue oversees the destination of much of the U.S. energy output, that is, overseas. Our cover piece explores opportunities opened up by expanded lanes in the Panama Canal, while an inside story examines the burgeoning business of building pipelines to move U.S. natural gas to Mexico. In an accompanying Midstream Audio report, two attorneys discuss how to navigate the complex legal terrain of Mexico's energy reform. Also, NGL may have started the year off slowly, but they sprinted to the finish in 2016.
The list of nominees to key positions in the Trump administration cabinet points to a growing hydrocarbon influence. ExxonMobil's Rex Tillerson (State) is joined by former Texas Gov. Rick Perry (Energy) and Oklahoma Atty. Gen. E. Scott Pruitt (EPA). Also, the trend to repurpose assets gains traction; Raven's new refinery has exports to Mexico in mind; and ethane prices hit a 29-month high.
Environmentalists declared victory when the U.S. Army Corps of Engineers denied a key construction permit for the Dakota Access Pipeline. As far as the energy industry is concerned, however, it's just a temporary setback that will be remedied on Jan. 20, 2017. Also, barring a trade war, the oil and gas sector is primed to succeed during the years of the Trump administration; new projects are adding natural gas capacity in New England; and NGL prices are at a two-year high.
The stunning announcement that OPEC would cut production by 1.2 million barrels spurred increases in the price of crude and plenty of questions. Jeff Quigley of Stratas Advisors provides some answers. Also, CB&I was awarded a $200 million contract to build an LNG facility in Tacoma, Wash., and rising natural gas prices squeezed profit margins for NGL.
The Trump administration can be expected to move quickly to clear the way on energy infrastructure projects like pipelines, Washington insider Joe McMonigle said. Whether Harold Hamm will lead the Department of Energy in the incoming administration may depend on whether the president-elect can convince the Continental Resources CEO to leave the company he founded. Also, Houston-based Tudor, Pickering, Holt & Co. announced its merger with Perella Weinberg Partners; and Gregory Meece of Thompson & Knight discusses energy litigation in a downcycle in the new Midstream Connect video.
The U.S. presidential election may be over, but what will a Trump administration mean to the energy industry? Hart Energy gathered insights from industry pros to illustrate what to expect on a broad range of issues, from the Dakota Access Pipeline to the regulatory environment. Also, how the industry's good ol' boys network could hinder another kind of network—technology; and Karen Harbert warns energy execs that they must get their message across to the public.
The DAPL issue is about much more than a Native American tribe's land and water rights. Aspects of this conflict and the way they have played out will continue to pose significant challenges for the oil and gas industry. Also, we talk to Andrejka Bernatova of PennTex Midstream, a Thirty Under 40 honoree; Stratas Advisors provides insights on LPG exports; and Dominion makes a $1.73 billion dropdown.
American Midstream's acquisition of JP Energy will create a Houston-based company with presence in four major plays and expected EBITDA of $185 million. Also, a Marathon executive discusses his company's operations and plans in Oklahoma's Stack and Scoop plays; NGL prices set another new high for the year and East Daley analysts explain the high demand for central Oklahoma's pipeline capacity.
Vandalism and celebrity arrests have shoved protests against the Dakota Access Pipeline (DAPL) into the national spotlight, but a slew of projects face environmental resistance and the potential for significant delays. Also, Thirty Under 40 honoree Ash Shepherd of Talos Energy LLC talks with Hart Energy's Heather Huften; Sidley Austin partner Glenn Pinkerton discusses LPG sales to Mexico on Midstream Connect; and NGL prices keep rising.
Barry Davis, chairman and CEO of EnLink Midstream, explains why he chose the midstream path early in his career and the challenges in melding operations from Crosstex and Devon. Also, troubles continue for the protest-plagued Dakota Access Pipeline; Thirty Under 40 honoree Howard Barnwell of BMO Capital speaks with Hart Energy's Heather Huften; and the price of the NGL "barrel" climbs to a 22-month high.
U.S. exports of propane soared by 41% in the first half of 2016, though canceled shipments to Asia have resulted in a slump since the middle of the year. Also, Enable Midstream's Jeff Brinlee, a Thirty Under 40 honoree, speaks to Hart Energy's Heather Huften in a video interview; Paul Hart muses about a possible natural gas shortage in California this winter; and NGL prices hit a 17-month high at Mont Belvieu.
Project delays will exacerbate a bottleneck in the Northeast as natural gas production as pipeline capacity is unable to keep up, analysts from S&P forecast during a recent conference. Also, industry experts plot a course for the sector to follow during tough times; Vitol Group sells its Permian crude oil system; and GPA Midstream explains how it represents operators in the regulatory process. NGL prices, near a high for the year, may not stay that way through an expected tough winter.
Shell Oil's president takes on the "keep it in the ground" movement, explaining that no fossil fuels means no energy. Also, a Deloitte survey shows a midstream tendency toward consolidation; Centurion CEO Tom Ramsey compares the Eagle Ford Shale to the Delaware Basin in the latest Midstream Connect video; and the damage wrought by the shale boom on the NGL-to-crude ratio is examined.
Midstream Business named Jim Teague, CEO of Enterprise Products Partners LP, its executive of the year. Teague received the award at the Midstream Texas conference in San Antonio, where he urged oil and gas executives to better educate the public on the industry's contributions. Other winners included MPLX for deal of the year for its purchase of MarkWest, and Frontier Energy Services and Concho resources for project of the year, the Alpha Crude Connector.
Calgary-based Enbridge has agreed to buy Houston-based Spectra Energy in a $28 billion all-stock deal that will combine the Canadian company's largely crude-based pipeline system with Spectra's extensive natural gas system. Also, protests against the Dakota Access Pipeline turned violent; Excelerate Energy celebrated an LNG milestone as Australian producer Santos cut output at its new Gladstone LNG facility; and the numbers confirm that NGL prices struggled through the summer.
The legal fight to prevent construction of the federally approved Constitution PIpeline could be costly for New Yorkers if their state government prevails. Also, the U.S. Chamber of Commerce expressed concern over a moratorium of hydraulic fracturing on federal lands that is backed by Hillary Clinton; Wärtsilä Corp. is moving to expand its footprint in the LNG sector; and Eagle LNG is moving forward on its Jacksonville, Fla., project. In the Frac Spread feature, NGL prices rise during the week, but market fundamentals for oil and gas have shifted.
Boosted by a global recovery in oil prices, the Bakken Shale will surpass the Eagle Ford Shale as the leading U.S. tight oil formation by 2040, the U.S. Energy Information Administration projects. Also, Mexico's energy reforms offer opportunities to U.S. firms and investors; the world's leading LNG importers have cut back on their demand; and a former member of The Williams Cos. Inc. seeks to take over the company's board of directors.
Analysts tell Hart Energy, however, that the worst is past, at least for the bulk of upstream companies. For those in the oilfield services realm, on the other hand, the next several months could be rough. Also, Elizabeth Ames Coleman, former chairman of the Texas Railroad Commission, said she believes three “missing pieces will bring equilibrium to the market going forward”; Debbie Conway discusses regulatory challenges in a Midstream Connect video; and NGL prices are slogging through the summer.
The Lone Star State is a big land of contrasts and surprises. Like the state’s topography, its multiple unconventional plays vary widely and midstream rises up to all of these challenges. If the proposed Sandpiper Pipeline Project is canceled, the result could actually brighten the outlook for the Bakken's supply and demand balance; also, the Middle East and North Africa—an energy producing powerhouse—is primed to become one of top importers of LNG; and the oilfield service sector is facing a $110 billion debt wall in the next five years.
The Williams Co. Inc. chopped its dividend by 69% and investors approved, providing a 13.9% lift over three days of trading. Also, captains of very large LNG carriers might want to be wary while sailing through new lanes of the Panama Canal, lest they literally hit the wall; Alerian offers insight to investors worried about MLPs; and LyondellBasell is planning a new polyethylene plant on the Gulf Coast.
There is both broad agreement among federal regulators and industry trade groups on their commitment to improve natural gas pipeline safety, and a sharp divergence on whether the Notice of Proposed Rule Making (NPRM) introduced in March and known as the Natural Gas Mega Rule, represents the correct approach. Recently, both the American Petroleum Institute (API) and the Interstate Natural Gas Association of America (INGAA) have voiced displeasure with aspects of the proposal from the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA). Also, midstream M&A activity plunged in the second quarter, PwC reports; Shell and Phillips 66 expanded their interest in the Explorer Pipeline; and Tesoro's Gregory Goff called for an easing of federal regulations.
There are no shortages of changes to commodity markets as a result of increased unconventional gas and oil, many of which are tied to long-time hydrocarbon-importing countries like the U.S. becoming net exporters. That and more on the LNG export market from the recent EIA conference in Washington, as well as a midyear report how The Midstream 50 companies are performing in the stock market, an analysis by Bracewell attorneys on the changing tax burden for pipeline MLPs and an ethane recovery comparison of Targa Resources and ONEOK.
Southern Co., the largest customer of Kinder Morgan Inc.’s (KMI) Southern Natural Gas (SNG) pipeline is buying a 50% stake in the line for $1.47 billion cash, the companies said July 10. The joint venture (JV) puts the value of the SNG line at about $4.15 billion. SNG is a 7,600-mile natural gas pipeline system that serves multiple states and will help Southern continue to supply hydrocarbons to gas-powered power generation in the southeast.
Reeling from the failure of its proposed merger with Energy Transfer Equity LP, Williams Cos. Inc. has turned to a former U.S. Department of Commerce official and chief economist of ExxonMobil Corp. to serve as its new chairman. Also, at Hart Energy's DUG East conference, a U.S. Department of Energy official said that the United States was primed to become a major exporter of hydrocarbons, a new study shows that U.S. oil reserves exceed those of Saudi Arabia and a new multimedia feature exploring the sweet spot of the Permian Basin is now online.
Production of crude from Canadian oil sands will rise by 1 million barrels per day (bbl/d) between now and 2025 despite a likely halt in construction of new projects, analytical firm IHS said in a new report. Also, Energy Transfer Equity LP elected to walk away from its merger with The Williams Cos. Inc., though Williams is pursuing compensation in court, the first LNG tanker is set to sail through the expanded Panama Canal and TransCanada Corp. is asking for $15 billion in damages over the permit denial for the Keystone XL Pipeline.
Those with clear vision—specifically, 2020 vision—will see a resurgence in the NGL market, particularly in the ethane segment. That’s because 2020 is when Shell’s long-awaited Appalachian petrochemical complex near Monaca, Pa., is expected to begin operations and add about 100,000 barrels per day (Mbbl/d) of demand for ethane. Major projects like that, and incremental additions to others on the Gulf Coast, will absorb all or most of the estimated 800 Mbbl/d of ethane rejection plaguing the industry at the moment, Greg Haas, director of integrated oil and gas for Stratas Advisors, told attendees at this week's DUG East Conference in Pittsburgh.
Stronger than expected oil demand growth, unexpected supply outages and modest growth from OPEC members mean the oil market is on course to balance in second-half 2016, according to the International Energy Agency (IEA). That is, assuming there are no surprises. Also, a cybersecurity expert urges the industry be resilient rather than redundant in fighting hackers. And, NGL prices keep rising, despite geopolitical threats to the global economy.
Midstream Monitor cover, June 10, 2016
There will be tweaks in the MLP structure overall and there may be areas of the energy business that don’t work well as an MLP, specifically upstream, production-focused firms, said panelists at the recent MLPA conference in Orlando. They agreed that the MLP concept is not broken and still provides a meaningful investment and operational vehicle. Growth is a key driver for investors, they noted. Also, economists at the recent KPMG Global Energy Conference in Houston declared that, as far as the markets are concerned, oil is the new corn. Also, the IEA's new five-year natural gas projection, an examination of DUCs and Frac Spread focuses on storage levels and rising ethane prices.
Midstream Monitor cover, June 3, 2016
Mexico has already made it clear how much natural gas it needs to import from the U.S. and how it wants to get it. The issue on this side of the border is meeting that challenge. Vaquero Midstream's Gary Conway offered solutions at DUG Permian Basin. Also, WPX Energy Inc. agreed to buy out its remaining transportation obligations from its former Piceance Basin operations for about $239 million and SemGroup Corp. will combine with MLP Rose Rock Midstream. In Frac Spread, NGL prices enjoyed a merry month of May.
As E&Ps become more efficient at finding ways to grow production, the midstream sector is getting ready to handle what comes its way when commodity prices rise by improving infrastructure. Meanwhile, the primary drivers of the crude-hauling business are the producers of crude and the truck drivers themselves, and the vaunted Permian Basin is the preferred venue for both.
Midstream Monitor cover, May 20, 2016
Commodity price woes have stung even the Permian Basin, but superior economics in the play’s sweet spot keep the midstream buildout humming. "We are just as busy today as we have ever been,” Matt Vining, chief commercial officer and co-founder of Dallas-based Navigator Energy Services LLC, told Midstream Business. “By the end of the third quarter, we will have installed over 450 miles of pipe and are now looking at building in excess of 600,000 barrels (bbl) of crude storage. We’re in full operation and moving a lot of crude.” Vining’s company, which has grown from a group of four industry veterans with big dreams in 2012 to a staff of 60 to execute those dreams in 2016, is not alone. Brett Wiggs, CEO of Midland, Texas-based Oryx Midstream Services LLC, has his team working at full throttle as well in the Permian.
Is the state of the midstream as positive as claimed or as negative as feared? That’s what the editors of Midstream Business sought to determine when we created The Midstream 50, the first-of-its-kind published ranking of the top publicly owned players in the sector. With the help of experts at Barclays Capital Inc., we dug into the hard, cold data of Form 10-K annual reports filed with the U.S. Securities and Exchange Commission to ascertain who was at the top of the midstream pile, how they got there and whether they are likely to stay.
Julian Lee, a London-based oil strategist for Bloomberg News, offered some salient points on OPEC’s role in today’s world. OPEC’s goal has always been to safeguard the interests of its member countries, noted Lee. The organization’s members are diverse, consisting of one group of countries with low-cost, high per-capita production: Kuwait, Qatar, United Arab Emirates (UAE) and Saudi Arabia, and a second group with mixed-cost, low per-capita production: Angola, Venezuela, Libya, Ecuador, Iraq, Algeria, Iran, Nigeria and Indonesia.
The New York State Department of Environmental Conservation (DEC) denied Williams Partners LP’s proposed 124-mile Constitution Pipeline approval, stating the project failed to meet the state’s water quality standards. In other news, proving that bigger is not necessarily better, tanker companies are beginning to place an emphasis on lower costs of operation. Also, when it comes to restructuring one expert says companies will need to pick their poison when deciding how to proceed. But companies in need of debt restructuring have some strategies available, said Ron E. Meisler, partner, Skadden Arps, at a recent event hosted by Davis, Graham and Stubbs LLC.
The oil and gas industry’s rapid Permian Basin expansion could push the power transmission and distribution capacity of the region’s electric system to its limits by 2020, a new GPA Midstream Association technical committee report cautions. To forestall potential power service limitations or reliability problems, midstream operators and upstream producers should contact their respective transmission and distribution service providers (TDSP) to discuss projections for future power needs over the next five or more years, James Meier, vice president of Permian gas and power infrastructure for Pioneer Natural Resources Co. and vice-chairman of GPA’s technical committee, said.
There’s light at the end of the long, dark ethane tunnel, according to a leading midstream consultant. Peter Fasullo, principal at Houston-based EnVantage Inc. told a standing-room-only crowd April 12 at the 95th annual GPA Midstream Association convention that the supply-demand balance for ethane has led to giveaway prices and large ethane-rejection volumes in which much of the ethane extracted from raw natural gas goes into the gas transmission system for consumption by gas users. Meanwhile, The topsy-turvy nature of the oil and gas prices over the past two years caused the INGAA Foundation to update its midstream infrastructure development forecast through 2035 to reflect the new market dynamics and austerity from both producers and midstream operators.
The already complicated relationship between Energy Transfer Equity LP and Williams Cos. Inc. is headed to counseling—the legal kind. The two companies, which are engaged in a nearly $38 billion merger, will now square off in the courts after Williams said April 6 that Energy Transfer and the company’s CEO, Kelcy Warren, violated terms with an equity sale made in March. Meanwhile, Adam Sieminski, head of the federal Energy Information Administration told the University of Oklahoma, Price College of Business Energy Institute annual Energy Symposium that “the end of fossil fuels is not on the horizon."
The Energy Information Administration reports that total exports of domestic petroleum products in general continued increasing in 2015 due to higher exports of distillate fuel, motor gasoline and propane specifically. Meanwhile, California refiners’ efforts to increase badly needed crude-by-rail service seem to have been derailed, but It wasn’t supposed to be this way, according to a new RBN Energy research report. In addition, Tallgrass Development LP is buying out its partner's stake in the Rockies Express Pipeline.
The U.S. Energy Information Administration (EIA) projects that 2016 is the tipping year from coal to natural gas in the fueling of U.S. power generation facilities. The EIA’s Short Term Energy Outlook forecasts that gas will provide 33% of electricity this year while coal’s share dips to 32%—the first time that gas will have the largest share for a year. The share of non-hydro renewables is expected to rise to 8%. Hydropower’s share is forecast to be 6%.
Months after President Barack Obama blocked TransCanada Corp.’s cross-border Keystone XL pipeline, the Canadian company is back with a deal giving it enough pipe to circle the Earth twice. TransCanada said March 17 it entered an agreement to acquire U.S.-based Columbia Pipeline Group Inc. for US$13 billion, which includes about US$2.8 billion of debt. As part of the agreement, Columbia shareholders will receive US$25.50 per common share, an 11% premium to its closing price on March 16.
On March 8, U.S. Bankruptcy Judge Shelley Chapman of the Southern District of New York authorized Sabine to reject certain gathering and processing agreements with Nordheim Eagle Ford Gathering LLC and HPIP Gonzales Holdings LLC. Sabine had argued that it was no longer able to deliver minimum amounts of natural gas and condensate and was subject to deficiency payments that would cost the company $35 million. Drilling an uneconomic well to avoid payments could cost it between $2.5 million and $80 million.
Midstream gas operators at IHS CERAWeek seeking to divine a strategy to return to the good old days may have been startled to learn that those days weren’t all that great. Salim Samaha, New York-based partner with Global Infrastructure Partners told attendees that without a conservative capital structure, companies will miss out on opportunities. He also said now is the time to invested. Meanwhile, the Appalachian Basin’s Marcellus and Utica shale plays will continue to pump out record volumes of natural gas in 2016, according to Ryan Horvat, Managing Director, RS Energy Group, who spoke at Hart Energy’s Marcellus-Utica Midstream Conference & Exhibition in Pittsburgh.
The stretch until mid-year will be brutal for the midstream, but the sector’s survivors can expect both stronger commodity prices and a stronger industry. A trio of leading executives mixed optimism with a cold, hard reality check at IHS CERAWeek: Well-run companies will make it through this rugged downturn intact and others will likely either be absorbed or die.
With many E&Ps struggling to keep their businesses afloat, producers around the globe have forgone turning off the taps even when fields are losing them money. Despite the drop in oil prices from late 2014, only about 0.1% of global oil production has been halted, amounting to about 100,000 barrels per day (bbl/d) of halted production. Also in this issue: production out of the Marcellus-Utica is among the greatest in the world, but until now it was limited to where it could go.
In the worst downturn in decades, WPX Energy Inc. (NYSE: WPX) keeps finding a way to make plays—a good sign for other E&Ps hoping to move assets. WPX said Feb. 9 that it would deal its Piceance assets to private equity backed Terra Energy Partners LLC for $910 million.In less than six months, the company has turned more than $4.2 billion worth of deals, starting with the $2.75 billion acquisition of RKI Exploration & Production LLC’s Permian holdings.
The size of the Marcellus and Utica shales is impressive enough, according to the U.S. Energy Information Administration—the Marcellus has an estimated 354 trillion cubic feet (Tcf) of recoverable natural gas, while the Utica has about 45 Tcfe. As the region’s oil and gas industry has grown, so has its reach.
PITTSBURGH--Donald Raikes, senior vice president for customer service and business development at Virginia-based Dominion Energy, has some simple advice for anyone pondering the state of today’s oil and gas market as it treads what is increasingly being recognized as an unprecedented downturn. “If you think you’ve figured it out, you haven’t,” he told the more than 1,200 attendees at the Marcellus-Utica Midstream Conference & Exhibition, which kicked off Jan. 27.
The oil and gas downturn continues to sap value from midstream companies, including pipeline leviathan infrastructure company Kinder Morgan Inc. Kinder Morgan said Jan. 20 it will write down $1.15 billion in value due to a decline in the market value of KMI and similar midstream companies. Meanwhile, Global M&A in 2016 will likely surpass the hyperactive deal making that totaled $4.7 trillion in 2015, but whether the energy industry will see a surge in activity is yet unclear, according to two recent reports.
New Marcellus Shale regional pipelines are beginning to pressure Henry Hub prices, sapping differentials in gas value as more of the area’s production escapes regional lockdown. With more pipelines coming online in the next couple of years—two with a combined 4.75 billion cubic feet per day (Bcf/d) takeaway capacity—the Marcellus’ formidable production may no longer be so tightly confined.
For the first time since the lifting of a 40 year export ban, Eagle Ford Shale oil set sail for international waters on Dec. 31 from the Port of Corpus Christi. NuStar Energy and ConocoPhillips said they loaded what they believed to be the nation's first export cargo of U.S.-produced light crude oil since the ban was lifted by Congress on Dec. 18.
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