Houston—Operators of North American pipelines, processing facilities and liquefaction terminals are preparing to release first-quarter financial results amid a recovery in demand a year after the first impacts from the coronavirus pandemic began to occur.
While weather negatively affected operations in the most recent quarter and seasonal maintenance is expected to be a factor heading into the summer, fundamentals are relatively strong. With vaccines rolling out, the economic recovery driving midstream volumes should continue.US natural gas production has seen steady growth averaging slightly over 92 Bcf/d in March, 0.7 Bcf/d higher than January's mark. The recent strength has resulted in over a 1 Bcf/d upward revision to S&P Global Platts' summer 2021 production forecast and likewise an increase to the October 2021 US storage forecast from 3.3 Tcf to 3.5 Tcf.
Despite robust LNG exports, an estimated 2 Bcf/d of coal-to-gas switching in March relative to February has helped in part to offset res/comm weakness and slow recovery of US industrial demand, according to Platts Analytics.
The market will be watching the outlook Kinder Morgan gives when it releases its latest financial results on April 21. The Houston-based company, which moves more than a third of the gas consumed in the US, has had a cautious approach to the building recovery. It has cut capital spending and held off on launching a third Permian gas pipeline project.
"We have an attractive industry view on E&P, underpinned by pervasive capital discipline and structural efficiencies driving a step change in free cash flow generation, and an attractive view on midstream, driven by re-opening progress/end-market demand improvement, durable above-market free cash flow yields, and emerging opportunities to participate in the energy transition," Morgan Stanley said in a note to clients April 15.
According to analyst consensus, the 11 major North American pipeline companies analyzed by S&P Global Market Intelligence should mostly record year-over-year and quarter-over-quarter losses in adjusted EBITDA even though revenues will likely increase.
Winter Storm Uri, which left millions of Texas customers without electricity in February, is a major factor in those lopsided expectations, according to Raymond James & Associates' Justin Jenkins.
"It's definitely going to move results in a pretty meaningful way, both up and down depending on where you were exposed either to the cost or the volume side of the equation," he said in an interview. "Most of the conversation wants ... to ignore the first-quarter noise because it's very much a one-time event in nature."
Analysts at UBS agreed that investors will be focused on determining which companies benefited or saw negative impacts.
"We believe those with gas storage (for their own use) were likely able to see some positives and specifically highlight [Energy Transfer] as favorably exposed; however, most positives were likely partially offset by down times, ethane rejection and higher power costs," they told clients April 6.
Enterprise Products Partners, Crestwood Equity Partners and Oneok Inc. were also "favorably exposed," they added, while DCP Midstream and Western Midstream saw some "headwinds."
Energy Transfer, however, has sued pipeline customers to collect on Uri's bills. Subsidiaries Houston Pipe Line Co. and ETC Marketing in March alleged that Valero Energy affiliates Premcor Refining Group and Diamond Shamrock Refining Co. refused to pay a combined $69 million for gas delivered during the week of the storm. Houston Pipe Line and ETC Marketing withdrew the lawsuit after Premcor and Diamond Shamrock paid all money owed, an Energy Transfer spokesperson confirmed.
Energy Transfer remains on the offensive with City Public Service of San Antonio, also known as CPS Energy, after subsidiaries Houston Pipe Line and Oasis Pipeline LP filed a counterclaim in March against the utility's price gouging claims.
Against the backdrop of these market trends, the midstream and LNG sectors are trying to guard against a future in which global gas consumption may eventually decline amid the energy transition to greater use of cleaner-burning fuels.
Carbon controlCheniere Energy, the biggest US LNG exporter and the country's biggest individual physical consumer of gas, said in February it would give its LNG customers emissions data associated with each cargo it produces at its two US export terminals.
In March, NextDecade launched an aggressive carbon capture project tied to its proposed Rio Grande liquefaction terminal in Texas. It said April 19 it was partnering with Project Canary to certify that the wellhead gas that is fed to Rio Grande LNG is responsibly sourced by producers in the Permian and Eagle Ford shale basins.
In the upstream sector, several producers have already partnered with Project Canary, including EQT and Chesapeake.
With strict carbon emissions goals, European utilities are being pressured to shy away from signing new deals for importing US shale gas. France's Engie said in November 2020 that it had halted talks with NextDecade about a supply deal tied to Rio Grande LNG.
