Bridging the Gap - Pipelines with Contract Cliffs are Hoping to Win Big with Cheniere Projects
Cheniere Energy has several major projects simultaneously under development, including hundreds of miles of pipeline and multiple liquefaction terminals. The development of the Sabine Pass and Corpus Christi liquefaction terminals, as well as the latter's associated pipeline, and the Midcontinent Supply Header Interstate Pipeline Project (Midship Project) means that Cheniere will be under FERC review for several years. All told, these projects total over a $30B investment. The projects are complementary in that Cheniere is bringing natural gas from production areas to its coastal liquefaction terminal. Pipelines along the way with contracting risks, such as those owned by Boardwalk, seek to benefit -- assuming the timing holds together. So, with Cheniere's earnings call in the rearview mirror, how's the permitting process going, really?.
In particular, it appears that the Midship Project and Corpus Christi Liquefaction Project are complementary with Cheniere's affiliate, Corpus Christi Liquefaction, LLC, serving as an anchor shipper on Midship (see our LawIQ customer note on the potentially changing dynamic for affiliated company anchor shippers). While the environmental review of the Midship Project moves forward, the construction of the Corpus Christi Liquefied Natural Gas (LNG) terminal and pipeline also to progress -- but will the project timing align for the pipelines which connect Midship to Corpus Christi LNG? The terminal, with a total liquefaction capacity of over 2,100,00 dekatherms per day, is connected to five interstate pipelines and will have a connection to Midship through the three pipelines at the end of that new pipeline. How will the timing of these projects impact contracting for the pipelines that bridge these two Cheniere projects?.
Earlier this month, the FERC issued a draft environmental impact statement (EIS) for the Midship Project, with a final EIS scheduled for June. This schedule has already encroached on the company's requested FERC approval date, February 1, 2018, which is optimistic when compared to LawIQ's most recent forecast, and considering the project's outstanding federal and state permits. Cheniere and those seeking to benefit from new capacity still estimate that the Midship Project will be in-service in April 2019, recast this week. Although the Corpus Christi LNG project was initially scheduled to begin liquefaction in 2018, Cheniere recently estimated that it anticipates substantial completion of Train 1 by March 2019. The completion of Train 2 is not anticipated to be substantially complete until September 2019.
The timing of the projects' in-service dates may be more important to the pipelines that will receive the new Midship volumes and can transport those volumes to the Corpus Christi facility. Midship, with a planned capacity of 1.44 Bcf/day and firm contracts for 0.825 Bcf/day, will be capable of delivering its gas to the following pipelines: Natural Gas Pipeline Company, LLC (NGPL), Midcontinent Express Pipeline LLC, and Gulf Crossing Pipeline Company, LLC. Corpus Christi Pipeline connects the LNG facility to the following interstate pipelines: Texas Eastern, NGPL, Transcontinental, and Tennessee Gas Pipeline.
As shown in the graphic below, the contract cliffs for these pipelines, between now and the end of 2019, is revealing. These bridging pipelines have as much as 84% of their capacity coming up for renewal between now and the end of 2019. It will be telling to see how much of the new 825,000 Dth/day, coming from Midship and possibly heading to Corpus Christi, that each of them will be able to capture to fill these gaps in contracting. (Even more insightful, and the subject for a future Insights, are the going competitive rates, which may have outsized impacts on future revenue streams.)
Boardwalk's CEO Stanley Horton, during Boardwalk's most recent earnings call, described Gulf Crossing's position as favorable for contract renewals from Midship Project, but could not confirm that it had yet seen any contracting as a result. As Midship nears completion, the potential route for this new takeaway capacity -- and how it may impact pending firm contract renewals -- will become more clear. What's certain? Competition for the new volumes could be intense.
Potential Interstate Pipeline Contract Roll Off through 2019 (% of total firm contracts)
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