Companies profiting from the US LNG boom
In recent years, many U.S. midstream companies have seen pipelines and export terminals as U.S. natural gas and LNG markets explode as pipeline capacity continues to outpace production.
Natural gas projects are expected to be the fastest-growing pipeline sector as production rises and shippers find new customers in Europe and Asia. Now, analysts told Reuters, it’s all about increasing U.S. capacity and adding new pipelines to bring natural gas to LNG export terminals.
“Everybody has given up on building another long pipeline anywhere outside of Texas and maybe Louisiana,” said Bradley Olsen, senior portfolio manager for midstream infrastructure strategy at Recurrent Investment Advisors. , he told Reuters.
European demand for natural gas has risen as the EU seeks to reduce its dependence on Russian natural gas following the invasion of Ukraine. Europe has replaced Asia as the main destination for US LNG and now receives 65% of total exports. The EU has pledged to cut its consumption of Russian natural gas by almost two-thirds by the end of the year, while Lithuania, Latvia, and Estonia have pledged to end Russian gas imports.
The gas crisis in Europe only worsened after Russia stopped gas supplies to Poland and Bulgaria, allegedly due to non-payment for gas in rubles, causing gas prices to rise in Europe. The move raises tensions and could reduce supplies to Europe, as many pipelines to the rest of the continent pass through Poland. Adding to the supply problems is Russia’s Nord Stream 1 gas pipeline, which supplies Germany, due to scheduled maintenance. Although it will partially resume operations on July 21, Europe fears it could be delayed due to political leverage.
Not surprisingly, Europe has become the largest importer of US LNG, accounting for approximately 65% of US exports.
The United States. The Energy Information Administration (EIA) predicts that the United States will overtake Australia and Qatar to become the world’s largest LNG exporter this year, with LNG exports continuing to top U.S. natural gas exports and averaging 12.2 billion cubic feet per day (Bcf/ ) d ) in 2022. The United States is currently the world’s second-largest exporter of natural gas, behind Russia.
Annual U.S. LNG exports are expected to increase to 2.4 Bcf/d in 2022 and 0.5 Bcf/d in 2023, according to the EIA. Energy Watch forecasts that natural gas exports via pipeline to Mexico and Canada will increase slightly, by 0.3 Bcf/d in 2022 and 0.4 Bcf/d in 2023, thanks to higher Mexican exports.
Unlike natural gas, pipeline capacity continues to convince production. Currently, Permian pipeline capacity is ~8 million barrels per day, which is more than 5.5 million barrels per day of production, according to EIA and Morningstar data.
Natural gas and LNG projects
The key Permian Basin is gearing up to unleash gas flow and gas projects to meet the exploding demand for LNG and natural gas – come at the right time, as limited production capacity is expected to start in 2023, which could lead to a negative price. in the watershed.
Energy Transfer LP (NYSE: ET ) is looking to build another major pipeline to bring natural gas production from the Permian Basin. Energy Transfer also began construction on the Gulf Run Pipeline in Louisiana to transport gas from the Haynesville Shale in Texas, Arkansas, and Louisiana to the Gulf Coast.
Energy Transfer is expected to report Q2 earnings on Aug 3, 2022. The consensus EPS forecast for the quarter, based on five analysts according to Zacks Investment Research, is $0.28, compared to $0.20 for the corresponding quarter last year.
Back in May, a consortium of oil and gas companies, namely WhiteWater Midstream LLC, EnLink Midstream (NYSE: ENLC), Devon Energy Corp. (NYSE: DVN), and MPLX LP (NYSE: MX) announced that they have reached a definitive investment decision (FID) to proceed with the construction of the Matterhorn Express Pipeline after obtaining sufficient firm transportation contracts with shippers. . According to a press release, “The Matterhorn Express Pipeline is designed to transport up to 2.5 billion cubic feet per day (Bcf/d) of natural gas through approximately 490 miles of 42-inch pipeline from Waha, Texas to the Katy area. near Houston, Texas Supply for the Matterhorn Express Pipeline will be obtained from several upstream connections in the Permian Basin, including direct connections to processing facilities in the Midland Basin over approximately 75 miles laterally, as well as a direct connection to the 3.2 Bcf/d Agua Blanca Pipeline, a common venture between WhiteWater and MPLX.”
The Matterhorn is expected to be operational in the second half of 2024, pending regulatory approval.
WhiteWater CEO Christer Rundlof touted the company’s partnership with three pipeline companies to “develop incremental transportation of gas from the Permian Basin as production continues in West Texas.” Rudolf says Matterhorn “will provide premium market access with greater flexibility for Permian Basin shippers while playing a key role in reducing extended volumes.”
Matterhorn joins a growing list of pipeline projects designed to capture an increasing amount of Permian supplies and send them to downstream markets.
Source: Natural Gas Intelligence
Although the companies have not released cost and revenue estimates for Matterhorn, a project of this magnitude could provide these manufacturers with years of predictable cash flow—which is, really, anything that pays a high dividend.
Oklahoma-based Devon, one of the leading Permian producers, recently said it expects Permian production to reach about 600,000 boe/d in the second quarter. The new pipeline will help support the company as it ramps up its Permian production in the coming years. DVN stock currently yields (Fwd) 7.3% and has returned 54.3% year-to-date.
MPLX has several other expansion projects under construction. The company said it expects to build two processing plants this year and recently reached a final investment decision to expand its Whistler Pipeline. MPLX stock has delivered a juicy 9.2% (Fwd), but the stock has only returned 2.1% YTD. Devon Energy is expected to report Q2 2022 earnings on August 1, 2022. The company is expected to post EPS of $2.29, representing 281.67% year-over-year growth. Enlink will report on Aug 3, 2022, with a consensus EPS of $0.06 compared to $-0.04 for the same quarter last year, while MPLX LP will report on Aug 2, 2022, where the consensus EPS is $0.82 compared to $0.66 a year earlier.
Meanwhile, EnLink’s cash flow has been boosted by higher commodity prices. The company increased its capital range from $230 million – $260 million to $280 million – $310 million, which should support near-term growth.
Back in May, Kinder Morgan Inc. Subsidiary (NYSE: KMI ) launched an open season to gauge shippers’ interest in the 2.0 Bcf/d Gulf Coast Express Pipeline (GCX) expansion.
On the other hand, KMI has already completed the mandatory open season for the Permian Highway Pipeline (PHP), with the base carrier already available for half of the planned expansion capacity of 650 MMcf/d.
On Wednesday, KMI reported non-GAAP 2Q EPS of $0.27, a loss of $0.01; GAAP EPS of $0.28 was in line, while revenue of $5.15 billion (+63.5% YoY) was down $1.34 billion. For the full 2022 fiscal year, KMI expects to generate a net income of $2.5 billion and report dividends of $1.11 per share, a 3% increase over the dividends declared in 2021.
On the LNG front, the US Department of Energy in May authorized additional LNG exports from the planned Golden Pass LNG terminal in Texas and the Magnolia LNG terminal in Louisiana as the US seeks to increase LNG exports to Europe.
The $10 billion Golden Pass LNG export project, jointly owned by Exxon Mobil (NYSE: XOM ) and Qatar Petroleum, is expected to come online in 2024, while Magnolia LNG, owned by the Glenfarne Group in 2026. The two terminals are expected to produce more than 3 billion cf/day of natural gas, although Magnolia has not yet signed contracts with customers.
In the past, US LNG developers were reluctant to build self-financed liquefaction facilities that did not secure long-term contracts from European countries. However, the war in Ukraine exposed the soft underbelly of Europe and forced the hard reality to reconsider its energy systems. In other words, Germany, Finland, Latvia, and Estonia have recently expressed their desire to follow suit with new LNG import terminals.
Exxon plans to report Q2 earnings on July 29, we’re the largest independent oil company in the United States is expected to post EPS of $3.41 per share, up 210% year over year.
In May, the DoE approved expanded licenses for Cheniere Energy’s (NYSE: LNG ) Sabine Pass terminal in Louisiana and its Corpus Christi plant in Texas. The approval allows the terminals to export the equivalent of 0.72 billion cubic feet of LNG per day to any country with which the United States does not have a free trade agreement, including all of Europe. Cheniere says the facilities are already producing more gas than was covered by previous export permits.
Cheniere is expected to report Q2 earnings on August 4th, with EPS expected at $2.76, up 411.11% year-over-year.