Editor's note: This article was updated to reflect Williams' closing of the deal.
Williams Cos.’ $1.95 billion purchase of six underground natural gas storage facilities indicates companies are looking to build supply networks that can handle a coming surge in U.S. LNG exports, even when natural gas prices remain low, an analyst said.
“The purchase of this group of assets is a bet on the value of gas storage more than it is a bet on gas prices,” said Zach Krause, energy analyst at East Daley Analytics, told Hart Energy via email. “Given the increased demand associated with LNG facilities coming online, without any significant new storage expansions, withdrawal capacity will fall below 100% of total U.S. demand and exports.”
On Dec. 27, Williams announced it came to an agreement with Hartree Partners for six underground natural gas storage facilities in Louisiana and Mississippi with a total capacity of 115 Bcf, plus 230 miles of gas transmission pipeline and 30 pipeline interconnects. Williams closed the deal on Jan. 3.
“Demand for natural gas has greatly outpaced natural gas storage capacity since 2010, demonstrating the intrinsic value this well-connected and strategically located Gulf Coast storage portfolio brings to our transportation network as we serve growing demand driven by LNG exports and power generation,” Williams President and CEO Alan Armstrong said in a release after the closing. “With the acquisition now complete, we look forward to welcoming the Hartree team to Williams and integrating this premier storage platform into our suite of natural gas transportation and marketing services, while delivering additional value to our shareholders.”
Gas prices have been under a monthly average of $3/MMbtu since February 2023 after reaching an average high of $8.81/MMbtu in August of 2022, according to the U.S. Energy Information Administration (EIA). However, U.S. gas production has continued to increase. Following the concurrent increase in crude production, the U.S. was on track to produce record amounts of natural gas in 2023, according to the EIA.
U.S. LNG export capacity is currently capped at about 11.4 Bcf/d, according to the EIA, thanks to a bottleneck of LNG processing along the U.S. coastline. However, that capacity is expected to more than double — to 24.3 Bcf/d — by 2027, thanks to a flurry of construction on LNG terminals, primarily on the Gulf Coast.
“It will be more challenging for storage facilities to mitigate the effects of constraints when they arise in the future,” Krause said. “This suggests that existing storage assets should become more valuable, a trend that we are noticing.”
Revenue reported to the Federal Energy Regulatory Commission from large Gulf Coast storage operators increased by about 20% during the past five years, according to EDA analysis. The total contracted volume on the coastal assets is up 8%, showing increased utilization and increased rates.
Krause said he expects more M&A deals for storage are likely. The U.S. does not have a storage problem per se, he said, but the problem of storing natural gas is “challenging because there is only so much capacity that exists in salt caverns, depleted reservoirs, and aquafers – storage capacity is challenging to expand. Despite the challenges, there are some avenues for expansion and additional storage projects floating around the market.”
M&A for storage infrastructure has been slow the past year, but the market should pick up in the near term.
“Acquisitions like this one and (Enbridge’s) acquisition of Tres Palacios demonstrate that major midstream players are beginning to recognize the value of storage assets within their strategy to serve growing Gulf Coast export markets,” he said.
In its deal announcement, Williams mentioned two markets the purchase will serve. Besides the growing LNG export market, the company also expects demand to grow for power generation, especially for data centers located along the Transco corridor.
Transco is Williams’ 9,700-mile pipeline network that curves crescent-like from South Texas to New York City. The network transports about 16% of the natural gas consumed in the U.S., according to Williams.
The power market for data centers is expected to grow about 10% per year until 2030, according to a report from financial analyst firm McKinsey & Company. Power companies are struggling in some segments of the country to keep up with demand, as a data center can use 50 times the electricity of a similar-sized office building, according to civil engineering firm Pape-Dawson.
Recommended Reading
Exxon Plans Longest 20,000-Ft Wells on Pioneer’s Midland Asset
2024-11-04 - Exxon Mobil has already drilled some of the longest wells in the New Mexico Delaware Basin. Now, the Texas-based supermajor looks to go longer on Pioneer’s Midland Basin asset.
VTX Energy Quickly Ramps to 42,000 bbl/d in Southern Delaware Basin
2024-09-24 - VTX Energy’s founder was previously among the leadership that built and sold an adjacent southern Delaware operator, Brigham Resources, for $2.6 billion.
Matador’s U-lateral Delaware Tests Outproduce 2-mile Straight Holes
2024-10-30 - Matador Resources' results from eight Loving County, Texas, tests include two 2-mile U-turn laterals, five 2-mile straight laterals and one 1-mile straight lateral, according to state data.
Now, the Uinta: Drillers are Taking Utah’s Oily Stacked Pay Horizontal, at Last
2024-10-04 - Recently unconstrained by new rail capacity, operators are now putting laterals into the oily, western side of this long-producing basin that comes with little associated gas and little water, making it compete with the Permian Basin.
Northern’s O’Grady: Most of ‘Best’ Acres ‘Already Been Bought’
2024-10-24 - Adding new-well inventory going forward will require “exploration or other creative measures,” said Nick O’Grady, whose Northern Oil and Gas holds interests in 10,000 Lower 48 wells.
Comments
Add new comment
This conversation is moderated according to Hart Energy community rules. Please read the rules before joining the discussion. If you’re experiencing any technical problems, please contact our customer care team.