Kentucky landowners—including a group of Marion County nuns—who are challenging the proposed Bluegrass Pipeline have at least another year to make their case.
Joint venture players Williams Partners in Tulsa, Oklahoma, and Houston-based Boardwalk Pipeline Partners have decided to delay the project, a natural gas liquids (NGL) line designed to move NGLs from the Marcellus and Utica shale plays in the Northeast to petrochemical markets along the Gulf Coast.
Soon after the project was announced in October, opponents jumped on their bandwagon. Citing safety and environmental concerns, many activists said the geologic formation of soluble bedrock underlying the karst topography in central Kentucky would be unsuitable for the project. Some residents, who heard this year of a gas pipeline explosion in Adair County, Kentucky, or caught wind of a sinkhole in Bowling Green, Kentucky, that swallowed eight cars at the National Corvette Museum, were fearful and took their concerns to elected officials.
But it was market concerns and customer needs that quieted the call of construction until 2016. Alan Armstrong, Williams’ president and chief executive, said during a recent earnings conference call that the decision was made “to better align with the needs of producers.
Armstrong said Williams still believes the pipeline is the best solution available in the market, but producers are hesitant to embrace the economics of a 15-year commitment of paying roughly 30-cents per gallon for 50,000 barrels (bbl.) of NGLs per day. The pipeline’s initial takeaway capacity would be 200,000 bbl. per day.
“That’s a very, very large commitment from many … producers we’re dealing with,” Armstrong said. “A lot of our customers see this opportunity just like we do, that it is [an] essential piece of infrastructure.”
When Boardwalk announced in February it was cutting its distribution 81% to shore up its balance sheet, one of the first notes struck was that Bluegrass might also be cut. This was despite Boardwalk’s assertions that its general partner, Loews Corp., remained committed to the project.
Analysts at Tudor, Pickering Holt & Co.(TPH), as well as JP Morgan Securities LLC, have provided a chorus of doubt as to whether the Bluegrass Pipeline will move forward at all. At TPH, analysts said the delay of Bluegrass saves Williams $1 billion in capex in 2015, but it’s a $3 billion project with a long build time.
“Ultimately, we believe Bluegrass gets beaten out by (Sunoco Logistics’) Mariner East 2,” they said in a recent investors’ note.
Deon Daugherty can be reached at ddaugherty@hartenergy.com or 713-260-1065.
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