US gas volumes, price trajectories in focus as midstream companies ready earnings


Highlights

Cautious project growth spending continues

LNG exports buoyed by Platts JKM bull run


Houston —
While global natural gas demand has rebounded following the initial shocks from the coronavirus pandemic, volatility, including a bull run in Northeast Asian spot gas prices, has created uncertainty.

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US gas pipeline operators and LNG exporters are warily eyeing the robust prices while preparing to release financial results for the past year and outlooks for the year ahead.



Many companies in the midstream sector are being cautious with spending on growth projects. At the same time,


US gas production has surged 3 Bcf/d since October, defying market expectations of widespread production declines. Robust LNG feedgas deliveries and exports to Mexico, in tandem with stronger power burns, have helped to offset weak res/comm demand from a lack of cold weather winter-to-date, according to S&P Global Platts Analytics data.





“It appears we’re past peak pandemonium and with the JKM front month contract set to roll forward to March at a much more modest ~$10/mmbtu, the heady days of $30+ pricing will linger only in the record books,” Tudor, Pickering, Holt & Co. said in a note to clients Jan. 15. “However, the disruptive events of the last month will continue to reverberate through the global gas market for some time to come.”









According to analyst consensus, the 11 major North American pipeline companies analyzed by S&P Global Market Intelligence should mostly record year-over-year losses in both adjusted EBITDA and revenues. Compared with the third quarter of 2020, however, those metrics should mostly show gains after midstream firms found their pandemic footing. Only Kinder Morgan and MPLX are expected to record revenue losses compared with the previous financial quarter.




Kinder Morgan’s 2.1 Bcf/d Permian Highway Pipeline began commercial service Jan. 1 and Summit Midstream Partner’s Double E Pipeline recently received authorization from the Federal Energy Regulatory Commission to start construction on the 1.35 Bcf/d project. Kinder Morgan reports earnings for the October-December 2020 period on Jan. 20.

Analysts are expecting more of the same dynamics from 2020 to persist in 2021.







“It kind of feels like déjà vu all over again,” Raymond James analyst Justin Jenkins said in an interview about the set up going into fourth-quarter earnings. “To us it feels pretty benign and pretty good.”










European storage







Meanwhile, the run-up in the benchmark Platts JKM has led to


higher LNG flows to Asia from the Atlantic Basin. That has been supplemented by stronger storage draws in the European system. In particular, German storage is being drawn at record high levels, although European storage in general will remain above the five-year average through the balance of the month and JKM-TTF has blown out to a record $13/MMBtu, according to Platts Analytics.








Even without a weather event in the US, the damage being inflicted on European storage will trickle back to the US market by Q2, with higher US LNG utilization expected to push Henry Hub to $3.35/MMBtu by this summer,” Tudor, Pickering, Holt said.


Industry observers expect management teams to keep a tight leash on balance sheets.

“Everyone will be trying to take people’s temperature on if oil prices go up and if companies keep adding rigs back, how quickly do you start spending money again, and I think we want to hear that they have no interest in spending money to invest in new projects sort of given the overcapacity situation,” CBRE Clarion Securities portfolio manager Hinds Howard said in an interview.

CreditSights said Jan. 7 that the Permian Basin now has pipeline takeaway of 6.4 million b/d, well above projected volumes into 2023. Utilization of Permian to Gulf Coast pipelines, which have become the biggest money-maker thanks to crude oil exports, will drop from approximately 90% at the end of 2019 to about 65% this year.



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