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Midstream Takes a Selective Hit from Low Gas Prices

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A run of record natural gas volumes has come to an end for midstream companies, falling victim to low prices and production cuts in 2Q24. East Daley Analytics’ survey of gathering systems shows asymmetrical impacts from production cuts, creating winners and losers for the quarter.

Lower 48 dry gas production peaked over the 2023-24 winter, averaging as high as 106.4 Bcf/d in December ’23, according to the Macro Supply & Demand Forecast. Midstream companies have boasted record gathering volumes over the last year on the wings of strong producer activity, but that run came to an end as prices plummeted.

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In 2Q24, Henry Hub spot averaged ~$2.09/MMBtu, making it the sixth consecutive quarter of sub-$2.75 average spot prices. The Haynesville is especially responsive to price signals, as demonstrated by the 17% Y-o-Y decline in East Daley’s residue estimate vs 2Q23 for the basin.

Production cuts have affected midstream systems asymmetrically in the Haynesville. Among those most affected in our coverage are DT Midstream (DTM) Blue Union, Kinder Morgan (KMI) KinderHawk, and Williams’ (WMB) Louisiana Magnolia and Trace Midstream systems.

DTM and WMB’s systems have fallen victim to production cuts by Chesapeake Energy (CHK) and Southwestern (SWN). The DTM - Blue Union residue estimate is down 8% Y-o-Y, leading to an estimated reduction in EBITDA of $3MM vs 2Q23 in the DTM Financial Blueprint.

The next expansion to come online is Kinder Morgan’s (KMI) Evangeline Pass project on Southern Natural Gas (SNG) and Tennessee Gas Pipeline (TGP). SNG plans to add 1.1 Bcf/d of southbound capacity and lease it to TGP, receiving gas from TGP in Mississippi and redelivering that gas to TGP in southern Louisiana.

The residue estimate for WMB’s Haynesville systems is down 10%, representing a $15MM decline in EBITDA for the assets relative to 2Q23. Based on East Daley estimates, the declines from the Haynesville alone will lead to a ~337 MMcf/d reduction in WMB West Segment gathering volumes vs 2Q23.

KMI’s KinderHawk breaks from the trend, as the residue estimate for the system has increased 17% over 2Q23. Operator BP has driven the strong performance on KinderHawk. State-reported data indicates BP’s production has grown to over 1 Bcf/d through February 2024 on the asset. The consistent volumes will generate $4MM more for KinderHawk this quarter vs 2Q23, according to the KMI Financial Blueprint.

KMI is also building the Evangeline Pass project, the next major pipeline expansion to come online in the region. KMI’s Southern Natural Gas system plans to add 1.1 Bcf/d of southbound capacity and lease it to Tennessee Gas Pipeline (TGP), receiving gas from TGP in Mississippi and redelivering that gas to TGP in southern Louisiana.

Despite changes in producer activity, Williams is still poised to perform above the midpoint of the company’s guidance for 2024 ($6.95B), according to EDA’s Financial Blueprints. DTM is positioned to come in above guidance ($955MM), and KMI is predicted to finish roughly in line with its guidance ($8.16B). — Zach Krause Tickers: BP, CHK, DTM, KMI, SWN, WMB.


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