Atlantic Sunrise and Rover Ramp and Pipeline Contract Roundup
By leveraging the LawIQ platform, each quarter we identify for our customers trends and major changes for a particular pipeline or, in some cases, a shipper. This review of the fourth quarter for 2018 for interstate activity discusses three trends:
- Molecules flow on new projects and another major project is announced
- Competitive forces create uncertainties in the MidCon
- Northeast pipe uses negotiated rates and short term contracts
Growth from New Projects Going Into Service & a New Addition
Energy Transfer Partners’ Rover originally expected, based on its Certificate application, to be fully in service by December 1, 2016. But, as discussed in Rover Retrospective – A Case Study of Project Risk , ETP continually pushed that date back and was consequently compelled to use phased in-service dates as the components of the system were completed. Rover has been steadily increasing the contracted capacity and has ramped up its volumes by an additional 600,000 dth/day of 20-year capacity for the fourth quarter, for a total of 3.1 Bcf/day. Despite Rover having placed additional laterals into service, FERC has refused to approve placing certain facilities into service until Rover demonstrates that it will restore the construction workspaces.
This week, Transco’s Atlantic Sunrise received its long-awaited in-service approval. Due to filing requirements, Atlantic Sunrise was not required to include its corresponding new capacity arrangements in its most recent contract disclosures. However, based upon our review of prior filings, we know that Atlantic Sunrise’s incremental 1.7 Bcf/day of 15-year capacity is contracted with nine shippers, with Cabot Oil and Gas, Chief Oil and Gas, and Seneca Resources holding the majority. Atlantic Sunrise now represents significant operations for Cabot (51% of its total company-contracted volumes across all pipelines), while Chief’s contracts with Transco represent 71% of its total, and Seneca’s contracts represent 39% of its total.
Almost immediately after placing Atlantic Sunrise into service, Transco’s close relationship with Cabot and Seneca was further expanded when Transco announced that it had executed binding, 15-year commitments with Seneca and Cabot for 100% of the 580 million dth of firm transportation capacity under Tranco’s proposed Leidy South expansion project. The project will consist of compression and looping of existing Transco facilities in Pennsylvania and will include leased capacity on two other pipelines.
Transco has announced that it plans to submit its pre-filing request with FERC later this month, and intends to have the project in-service by December 1, 2021. Based on the few known characteristics of the project, and by using the project simulation available in our platform, the projected in-service date is just a couple of months more aggressive than our median date of February 1, 2022.
Competitive Forces Create Contracting Uncertainties
As the SCOOP/STACK sub-basins prepare for the arrival of the Midship Project, we continue to watch the interplay between the contract cliffs for MidContinent Express (MEP) and Gulf Crossing in the summer of 2019. The most recent activity saw MEP lose 300,000 dth/day of contracted capacity, representing 14% of its total, with another 200,000 dth/day of short-term capacity scheduled to roll-off on October 31, 2018. This still leaves MEP with an additional 1Bcf/day with mid-2019 contract expiration dates. However, because Midship has yet to receive a FERC notice to proceed with construction on its 200-mile project, the uncertainty may continue past the mid-2019 time frame, which could cause a scramble for short-term capacity until Midship can go into service.
A Northeast Pipe Turns to Short Term Contracts
In a somewhat similar vein, uncertainty about long-term rates on Iroquois seems to be leading to a proliferation of negotiated rate and short-term agreements. Iroquois settled a rate case in August 2016, which required it to reduce its recourse rates on September 1, 2016, 2017 and 2018. That rate case settlement included a moratorium until 2020, which may be a good thing because we expect its 501G Form to show that it still has a relatively high ROE, greater than 20%, which as we discussed in Risks From Filing Form 501G - How the Major Pipelines Stack Up could create a risk for additional rate reductions. Perhaps to mitigate the risk, over 80% (by volume) of the contracts Iroquois has signed in 2017 and 2018 have been negotiated rate agreements.
It also seems, though, that Iroquois’s shippers are also hedging their bets, by not signing long-term contracts. As seen in the chart below, since at least 2017, shippers have been willing to sign contracts for capacity, but with a substantial portion of such contracts being for less than one year. In fact, an additional 137,500 dth/day of short-term contracts will be expiring on November 1 of this year. This pattern of negotiated rate agreements and short term agreements may continue until there is some clarity as to what Iroquois’s rates will be following the expiration of the moratorium in 2020, and whether FERC will honor the moratorium following the filing of Iroquois’s Form 501.
Insights Coming Soon
- Analysis of first wave of 501G filings
- Under the radar blanket projects