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Transco Pipeline Operations Today and Tomorrow

September 11, 2015 | By Luke Larsen

This past June, Energy Transfer Equity (ETE) offered to acquire Williams Cos (WMB) which is the parent of Williams Partners LP (WPZ) or the pipeline subsidiary holding company of Transco and several other pipelines.

The original bid was for $53.1 billion for the parent, but Williams rejected the offer and opted to be auctioned off. ETE would eventually sign a confidentiality agreement in late July to participate in the bidding process and in early August reportedly had advanced to the second round of bidding for what many have considered at one time to be the premier pipeline holding organization in all of North America.

In late August, Spectra Energy was confirmed to have joined the bidding for all of Williams even though the Oklahoma-based company has a market capitalization almost twice the size of the new suitor. This recent M&A activity underscores that financial arrangements between companies in the energy sector, especially oil and gas pipelines as well as processing companies, are turning to a more traditional corporate structure as advantages associated with Master Limited Partnerships have waned over time.

Energy Transfer would be the latest MLP to propose using a C-Corp designation as a way to maximize tax advantages, increase cash flows and broaden investor interest. The sector had previously embraced the MLP structure because the tax burden is passed through to investors who receive substantial yields. Furthermore, because the partnership pays no taxes, it also acquires the luxury of a lower cost of capital structure.

As we look toward a possible changing of the guard among superpower pipeline holding companies, we at PointLogic Energy felt it was necessary to take a two-part deeper look at perhaps one of the most valuable pipeline assets within the Williams Partners portfolio that has stood the test of time. In Part One we will explore the infrastructure and depths of Transco Pipeline as well as a brief overview of current operations. In Part Two we will examine the intricacies of seasonal pipeline flows on their system with a close up of the Leidy Line as well as looking at what the future holds from a load and project perspective.

Transco Defined

Webster defines the term “transcontinental” exactly how you might think as a crossing, passing or in its simplest state of describing something that extends from one side of the continent to the next. While Transco pipeline actually does not link the Atlantic seaboard to the Pacific like the Transcontinental railroad did, it is the original pipeline which connected both Texas (debatably still the oil and gas capital of the world) and along with the traditional Gulf Coast producing basins extending East and North all the way to the financial capital of the world which inherently is New York City. With that being said, it comes as no surprise that Transco is indeed the nation’s largest volume and fastest growing interstate natural gas pipeline system with enough capacity to serve more than 50 million households each day across North America.

Source: Williams Co.

This pipeline (by its own defining characteristics for the most part) quietly, safely and reliably delivers natural gas to its customers through a 10,200-mile interstate transmission pipeline system, extending from South Texas to New York City and its existing network of laterals and interconnects continues to promote it as the primary provider of natural gas to the northeastern and southeastern states. Its compressor stations help move gas from the Gulf Coast to 12 Southeast and Atlantic Seaboard states, including major metropolitan areas in New York, New Jersey and Pennsylvania.

PointLogic Energy Pipeline Module Flows

Source: PointLogic Energy Pipeline Module Flows Page

PointLogic Energy’s Pipeline Module details top to bottom pipeline specific information and is the primary source for all of the analysis in this week’s issue of Get the Point. We will also reference and document data from the Summary/News page which aggregates earnings report, FERC Form 2 data, specific project listings, corporate press releases as well as other original content articles. This has all been categorized at the pipeline level to help improve the efficiencies of a one stop approach for users. In the detailed descriptions below we will document that Transco is one of the most fluid and robust pipelines that has been regionally integrated as the anchoring service provider and reflects the extremely dynamic and highly competitive or volatile east coast operations area for now and well into future.

Transco Operations

Users visiting the Transco Pipeline Summary/Details page will quickly take note that of the 100 pipelines covered by PointLogic, Transco comes in at numero uno in terms of revenue and sixth overall as it relates to miles of pipe. Last year (2014), Revenue topped $1.4 billion and this was a moderate 3 percent gain over the prior year. However, operation and maintenance expenses have been rising much more significantly over the last year which would be indicative of a pipeline making modifications and reacting to market conditions in an effort to continually adapt to the changing fuel movement and consumption environment.

While it might be difficult to really get into some in depth analysis with this level, one item that I did do a double take on was the growth in gas molecules received and moved over the past five years.

Transco Reported Annual Deliveries

Source: PointLogic Energy

The table and corresponding chart above show a rather impressive 59 percent increase in total molecules received and delivered over the past five years. Of course you have to take a step back and ask what monumental elements in the market place might have caused that type of spike and it doesn’t take long to assess that pipeline expansions which have gone along in supporting the production growth in the Northeast would be the most likely culprits in this mostly planned and anticipated pattern of growth.

Because the pipeline serves a region the country where load changes and supply basin evolution has made it one of the most challenging environments, the Williams Pipeline Group has been aggressively looking to stay ahead of the game by planning, building and implementing a $5 billion dollar growth agenda which will bring on 15 different projects covering 10 eastern states with completion time for most expected by the end of 2017 and this program has been the root cause behind the accelerating O&M Expenses discussed earlier.

Earlier this month it was announced the active in service date for its most recently completed project being The Virginia Southside Expansion Project.  This on time accomplishment is just one of many projects that the pipeline has been working on recently. Other major Transco projects they have placed into service this past year include the Rockaway Delivery Lateral Project, the Northeast Connector Expansion Project, Mobile Bay South III Expansion Project and the Woodbridge Delivery Project. Later this year, Williams expects to place into full service Transco’s Leidy Southeast Expansion Project. The PointLogic Energy projects viewer in the pipeline module fully discloses the details and elements of each of this we will review them here accordingly.

Capital Invested Placed into Service

Source: PointLogic Energy

Virginia Southside Expansion Project

This latest project includes 98 miles of 24" loop pipeline from Station 165 in Pittsylvania County, Virginia while also providing increased service into the Charlotte, North Carolina distribution area while extending to Brunswick County, Virginia and thus also providing anchor service to VEPCO's proposed 1,300 megawatt power station thus providing in total 270,000 Dth/d of incremental firm transportation service to Virginia Power Services Energy Corp., Inc. and Piedmont Natural Gas Company, Inc. The $300 million dollar project by virtue of the additional referenced capacity that comes with it as well as the more than 21,000 horsepower of additional compression will be enough throughput to provide service to the equivalent of 1.6 million households.

This expansion is just one of a handful of projects that have already been completed and placed into service during the current calendar year. Others which we will briefly detail and evaluate were The Woodbridge Delivery Project, the Rockaway Delivery Lateral Project, the Northeast Connector Expansion Project and finally the Mobile Bay South expansion.

Woodbridge Delivery

Transco's Woodbridge Delivery Project was a new delivery lateral placed into service in late March of this year. The relatively small project extended a couple of miles from Transco’s mainline in Middlesex County, New Jersey to the Woodbridge Energy Center, a 725 megawatt natural gas-fired electric generating station owned and operated by Competitive Power Ventures Holdings, LLC ("CPV"). The project will enable Transco to provide 264,000 Dth/d of incremental firm natural gas transportation service to CPV's Woodbridge Energy Center which is currently under construction and is scheduled for completion late this year.

Woodbridge Energy Center project in New Jersey, Kiewit

This photo shows the Woodbridge Energy Center project in New Jersey, under construction for CPV Shore by Kiewit. 
Source: Kiewit

Rockaway Delivery Lateral

This project which went into service shortly after Woodbridge in mid-May of this year involved the construction of a 3.2-mile, 26-inch pipeline interconnecting with a 26” lateral pipeline proposed to be constructed by National Grid. It is anticipated that this project will serve 1.8 million customers across New York's Brooklyn and Queens or the heart of New York’s Manhattan Island. It will have capacity of 647,000 Dth/d which ultimately is connecting Williams’ Transco system to National Grid’s distribution network as it moves gas from the existing Transco Lower New York Bay Lateral to the Rockaway Peninsula.

Volumetrically all deliveries into New York City will be allocated through the New York Facility Group Meter in Richmond County.

Source: Williams Co.

Northeast Connector Expansion Project

This project complemented the previously detailed Rockaway Lateral in which it providesan additional 100,000 Dth/day of transportation service from Transco’s Compressor Station 195 in York County, PA to the interconnection between Transco’s new Lower New York Bay Lateral (Rockaway). It was no additional pipe but was simply modifications to existing compressor units which entailed adding 16,940 HP of compression separately this project cost nearly $30 Million but will bring gas service to the Rockaway communities for the first time ever as residential and commercial users have switched over from fuel oil.

Mobile Bay South

Finally earlier this year down in the producing area, Transco brought online 225,000 Dth/d of additional firm space on the Mobile Bay Lateral in Choctaw County, Alabama. Shippers will be able to move additional molecules from the Station 85 4A Pooling Point and other receipt points within the zone and deliver it to existing inter-connects with Florida Gas Transmission and Bay Gas Storage in Mobile County, AL. Reviewing PointLogic Energy’s pipeline data shows that injections this summer at Bay Gas Storage have ran 26% higher than last year while deliveries to FGT-Citronelle have increased nearly 35% as shippers have taken full advantage of the additional space that was made available with this project’s completion earlier this year.

Throughout the summer months, Transco shippers and producers in the Marcellus region (who are likely one and the same) have been further obstructed by capacity limitations associated with perhaps the most impactful project that is yet to fully go into service this year and that is the Leidy Southeast Expansion.

Leidy Southeast Expansion

In the July 29th issue of Get The Point,Escape from the Northeast is about to Get Easier,” Warren Waite of PointLogic Energy details this expansion as one of this year’s more pivotal in anticipation and volume and economic impact associated with moving constrained gas out of the supply heavy Marcellus region.

This monumental task, while only involving 30 miles of new pipe,  also requires significant enhancements with five Looping segments (Dorrance, Franklin, Pleasant Run, and multiple Skillman Loops), additional compressors and associated upgrades which will create the ability to backhaul or move gas from receipt points on the Leidy Line in Pennsylvania and delivering it South & West back down into Zone 4 within the producing region. This project will all in all generate roughly 525 Dth/d of backhaul space. While a partial in service date of this project was announced earlier this summer, last week it was disclosed that they still do not expect full service until later this year.

The year 2015 has been a busy one for Transco and Williams Partners LP but we can expect even more in years to come as the pipeline moves forward with such huge projects as the Gulf Connector Project, Western Marcellus Pipeline Project (Appalachia Connector) and Atlantic Sunrise Expansion Project while at the same time dealing with the evolving infrastructure, consumption, production and flow patterns within the natural gas industry. Join us at a later date for Part Two of the Transco series as we study the transitioning flow patterns on this pipeline as well as the economics underwriting this movement.

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