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Energy Transfer Building Export Options Via Haynesville, Permian for LNG and Lots of Liquids

With customer demand growing, Energy Transfer LP’s management team is confident that the Lake Charles, LA, natural gas export project will be sanctioned before the end of the year.

During the recent first quarter conference call, Co-CEO Tom Mason said “we’re really excited about where we are today” regarding the pending liquefied natural gas (LNG) facility in Louisiana

“We’ve got really strong demand from really high-quality customers.” Mason told analysts. “We’re really confident” about making a positive final investment decision (FID) by year’s end. “Of course, the marketing and the offtake agreements are key to getting a deal done.”

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An application to extend the construction deadline has been extended to 2028 by the Federal Energy Regulatory Commission. A bid process is underway to secure engineering, procurement and contracting. 

“So I think things are going well, and we’re really excited about it,” Mason said of Lake Charles. The world’s kind of gone upside down with what’s going on in Ukraine” and accelerated the demand for more gas. That in turn has led to “good progress” on netting contracts.

Waking Up Europe And Asia

COO Mackie McCrea said interest in the Lake Charles facility had “really taken off” following Russia’s invasion into Ukraine.

“It’s sad it took a travesty like what’s going on in Ukraine to wake up the world,” Mackie said. “It certainly has woken up Europe and Asia and China. Hopefully, they’ll wake up some of our administrators,” he said of the federal government.

“We’ve got an enormous amount of interest, as you can imagine, and we would be shocked if we don’t get to FID by the end of this year…”

With the FID, management is “also looking forward to all the upstream pipeline transportation business that will come with that project.”

Asked if Energy Transfer was getting inquiries from European utilities about obtaining natural gas supply, Mason demurred.

“It’s an interesting question because the utilities are kind of struggling with trying to satisfy their immediate and near-term demand for gas, as you could imagine. But for long-term contracts, they’re still interested. I think there’s been some issues with financial matters based on the high price of demand for natural gas currently. And so there could end up being some government guarantees for some of the longer-term offtake contracts, so we’re certainly in contact with them.”

For now, there’s been “a lack of real commitments for long-term contracts at this point,” Mackie said.

Energy Transfer’s original partner for Lake Charles was Shell plc, but the supermajor pulled out in 2020 as the market faltered.

Energy Transfer continues to look for partners, though, Mason explained. The plan is “to do some portion of equity sell down to primarily infrastructure funds. There’s lots of money that is looking for high-quality, long-term cash flow from a project like this. So, we think that’s going to be a really good way of financing it. We expect that we keep at least 25% of the project.

“We haven’t made final decisions on that yet, but…there’s just a lot of interest in the equity side of this project.”

Liquids Galore

On the supply side, CFO Tom Long said more natural gas liquids (NGL) volumes are flowing from the Permian Basin and Eagle Ford Shale than ever before. 

“We’re moving more volumes out of the Permian and more volumes out of the Eagle Ford than we’ve ever moved NGL volumes,” Long said. Adding more fractionation (frac) capacity is under discussion. “We are going to have to make that decision sooner than later. We’re at our full max capacity right now….

“However, we don’t want to move forward until we have secured long-term commitments for that net frac,” the CFO told analysts. “We do anticipate that happening possibly in the next quarter or so, maybe sooner. But we’re going to…be prudent around our capital. And we’ll spend that capital when needed, but we do anticipate making that decision in the not-too-distant future.”

A lot of projects have been completed, but the work is not nearly done, from Appalachia to the Gulf Coast.

By year’s end, the company expects to launch service on the 1.65 Bcf/d Gulf Run system. The  42-inch diameter system would move Haynesville Shale gas to the Gulf Coast – and beyond. Gulf Run is underpinned by Golden Pass LNG LLC, the LNG export project underway east of Houston by ExxonMobil and Qatar Energy.

Energy Transfer also is advancing the 200 MMcf/d Grey Wolf cryogenic processing plant in the Permian. In addition, the final phase of the Mariner East NGL project in the Appalachian Basin is done, with a total capacity of 365,000 b/d-plus, including ethane. 

Crude oil takeaway from the Lower 48 also is growing. Capacity expansions were completed earlier this year on the Cushing South oil pipeline, which provides transportation service from the partnership’s Cushing Terminal in Oklahoma to its Nederland Terminal southeast of Houston. 

Other pipeline projects to ramp up recently include the Permian Bridge Project, which connects gathering and processing assets in West Texas and southeastern New Mexico. In addition, the 500,000 b/d Ted Collins Link was placed into service last month with the inaugural oil export shipment. The Collins Link adds connectivity for the Houston Terminal pipeline network and the Houston Ship Channel.

In March, Energy Transfer completed a  $325 million bolt-on acquisition of underground storage assets and an ethylene storage header. The new asset, said Long, “provides us with an exceptional ethylene storage and transportation header system, located strategically between our Mont Belvieu and our Nederland terminals” in Texas.

Is Trans-Panama LPG Still Viable?

Also in the queue is an “opportunity” to develop a petrochemical project on the Gulf Coast, Long said. “If we are able to reach FID, we believe that our cracker will be a very unique world-class facility, providing unparalleled access to the lowest-cost feedstock through our pipeline systems, as well as unparalleled access to downstream domestic and international ethylene and propylene markets through our pipelines, our storage facilities and our export terminal.”

On the operations side, Permian plant inlet processing volumes recently were above 2.2 Bcf/d, and the company is “evaluating our options to meet increasing production from the basin,” Long said.

Beyond the Lower 48, the company is working with “appropriate entities” for the Trans-Panama Gateway pipeline. A memorandum of understanding was signed last summer with the Republic of Panama to jointly study the feasibility of the proposed liquefied petroleum gas (LPG) development. The project scope would include one terminal on the Pacific and another on the Atlantic, with an LPG pipeline connecting the facilities. This potentially would allow LPG shipments to bypass the Panama Canal.

“Panama’s geographic location and favorable investment climate make this an attractive project,” Long said. “We remain optimistic about the Trans-Panama Gateway pipeline and the significant value it will bring to markets around the world. 

During 1Q2022, gathered gas volumes jumped year/year to 17.3 trillion Btu/d from 12 trillion Bt/d. The gain was attributed to the takeover in December of Enable Midstream Partners LP.  

“More recently, we have seen steady growth in the interstate segment,” Long said, with Transwestern Pipeline “continuing to benefit from high prices and demand for gas delivery out West.”

Energy Transfer’s net profits were $1.27 billion (38 cents/unit) in 1Q2022 versus $3.29 billion ($1.22) in 1Q2021. Revenue jumped to $20.5 billion from year-ago revenue of $16.99 billion.

Capital expenditures for 2022, including with the Enable assets, have been increased from previous guidance to $1.8-2.1 billion from $1.6-1.9 billion. The revised growth capital reflects the addition of spend associated with the new Permian natural gas takeaway pipeline.
Net income was $1.27 billion (38 cents/unit) in 1Q2022. Energy Transfer gained on higher transportation volumes across all of its segments and a full three-month contribution from the Enable Midstream assets, which were acquired in December.

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2022-05-11 08:29:48

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