The Daley Note: November 30, 2023
Williams (WMB) has started partial service on an expansion of the Transcontinental Gas Pipe Line (Transco) in the mid-Atlantic, lifting flows for Appalachian producers ahead of the winter.
Transco placed the Regional Energy Access (REA) project in service the last week of October, adding 450 MMcf/d of capacity along the Liedy line into the Transco Zone 6 (non-New York) market. Largely backed by regional utilities, REA adds more connectivity from the Leidy storage hub in north-central Pennsylvania to the northern end of the Transco system in New Jersey. WMB will place the project’s remaining 379 MMcf/d of capacity into service in 4Q24.
Pipeline samples in the Northeast show production from the Marcellus/Utica shales is up 2% M-o-M (~0.6 Bcf/d) in November. The REA project could be contributing to this increase by allowing more gas to access a premium market.
Transco Zone 6 prices historically trade at a premium to Leidy in the winter, with the Leidy-Zone 6 spread pushing upwards to a $1.00/MMBtu. Last year, weather-related demand caused the spread between Transco Zone 6 and Leidy to widen to over $30.
Flows through Station 515 of the Leidy line have increased by about 0.5 Bcf/d since the in-service of the REA project, averaging 2.46 Bcf/d so far in November vs 1.95 Bcf/d in November 2022 (see figure). Downstream at Station 505 in northern New Jersey, deliveries on the Leidy line have averaged 2.29 Bcf/d in November vs 1.92 Bcf/d in November 2022. Flows are lower at Station 505 as more natural gas is delivered along the route.
The increase in flows into Pennsylvania and New Jersey should soften the seasonal premium paid by gas consumers this winter. Looking ahead, East Daley expects the Leidy-Transco Zone 6 spread to narrow this heating season as a result of REA. Start-up of the second phase will bring more gas into the Zone 6 market prior to next year’s heating season.
In the Williams Financial Blueprint, EDA projects the Transco expansion will generate ~$63MM of EBITDA over the next year while in partial service. Following the full in-service in 4Q24, we estimate annual EBITDA from the REA project will step up to ~$139MM. – Zach Krause Tickers: WMB.
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