Energy Transfer LP is using its intrastate natural gas pipeline capacity in Texas to allow its customers to take advantage of the wide price spreads caused by sub-zero pricing in the Permian Basin.
NGI’s Waha daily cash price has averaged in the negative for much of the past two months, including a four-year low of negative $4.595/MMBtu on Tuesday (May 7).
“We sure hate to see prices do what they’re doing at Waha, but that’s what happens when you have capacity constraints, which we have right now out of the Permian,” Co-CEO Mackie McCrea said during a first quarter earnings call.
The Dallas-based operator of pipelines for natural gas and other fossil fuels has a heavy footprint in Texas that allows it to generate revenue from peak hourly sales of natural gas, putting gas storage positions on, moving gas west to east, and shipping on backhauls, McCrea said.
“We see this every year. We see it most winters, May time and summers, when we’re able to capture some unexpected revenue that will always be there during very volatile times,” McCrea said.
The company’s available capacity to benefit from the wide spreads across Texas varies from month to month, McCrea said.
Much of the basin’s constraints would be alleviated when the 2.5 Bcf/d, consortium-led Matterhorn Express Pipeline comes online later this year, McCrea said.
After Matterhorn, there is strong interest to build another natural gas pipeline out of West Texas by the end of 2026, and Energy Transfer is optimistic that its Warrior Pipeline would be the next one built, McCrea said. To meet that timeframe, Energy Transfer would need a final investment decision on Warrior by late third or early fourth quarter, McCrea said.
Growth Outlook
Weaker natural gas pricing has led to a slowdown in Lower 48 gas production, but “we could see demand jump up by 5-6 Bcf/d overnight” if the summer heat picks up and overseas buyers from Europe and elsewhere require more LNG, McCrea said.
“We see pricing…as high as $3.50 or $3.60 by the end of the year,” McCrea said. “We think that possibly could be moved up, that we could see higher prices mid to the latter part of summer with a hot summer and liquefied natural gas demand really picking up like we think it will.”
Energy Transfer increased 2024 growth capital expenditure guidance by about $400 million to a midpoint of $2.9 billion. The company added projects to boost capacity on the Florida Gas Transmission pipeline and other natural gas systems, as well as debottleneck some of its natural gas liquids pipelines.
Reliability Push
In addition, the company approved plans to build eight 10 MW natural gas-fired power plants aimed at shoring up the reliability of its system in Texas. The two main drivers are reliability of the company’s assets and benefits to the grid, McCrea said.
“When we have glitches on the grid, especially out in West Texas where those are not uncommon, we can keep our facilities running,” McCrea said. McCrea also cited Winter Storm Uri-type weather as a risk. That storm, along with Winter Storm Elliott, drew attention to cold weather reliability risks to the U.S. power grid and natural gas pipeline systems.
When Uri slashed Texas power generation in February 2021, the operator of the state’s power grid “asked us to get off the grid,” McCrea said. The new power plants would “allow that excess energy that we’re not pulling off the grid to benefit producers” that might have issues with losing electricity, he said.
The power plants, scheduled to come online in 2025 and 2026, are not peaker units, but would have efficient heat rates and would be operated by Energy Transfer, McCrea said. He added that power demand growth was so strong in Texas that it was likely the company would announce more generation in the future.
On the merger and acquisition front, while deals picked up over the past year for the upstream oil and gas sector, the midstream space is still ripe for consolidation, Co-CEO Thomas Long said. “We still feel like consolidation makes sense in the midstream space,” he said. “We still fully intend on evaluating various opportunities … so we’re not going to slow down on that front.”
Energy Transfer reported 1Q2024 net income of $1.1 billion (32 cents/share), compared with profits of $1.0 billion (32 cents) in the year-prior period.
