Gas Pipelines With Seasonal and Year-Over-Year Contract Growth

Gas pipelines can typically ship greater quantities of gas during the winter, when compressor stations perform more efficiently. So it is not surprising to find that a pipeline will contract to provide a greater level of transport during the winter than it will during the summer. This can make it difficult to compare a pipeline’s contract commitments from one quarter to the next. Today we look at four major pipeline systems and break down how much seasonal variability they have and isolate that by comparing each company’s year-over-year growth by comparing the third quarter of 2018 to the third quarter of 2019. We set forth below our analysis of the contract commitments for TC Energy’s Columbia Gas, Kinder Morgan’s El Paso Pipeline, Boardwalk’s Gulf South, and Williams’s Transcontinental Pipeline. If there is a pipeline that you would like us to analyze, please let us know.

TC Energy’s Columbia Gas

As seen in the chart above, Columbia Gas has much greater contractual commitments during the winter months, but not all of their growth is purely seasonal. In the last half of 2018, it signed new contracts with capacity in excess of two Bcf per day. It then repeated that feat in the first half of this year. These were not only short term contracts; the weighted average tenor of each of these groups of contracts was over 13 years, primarily due to very long term negotiated rate expansion contracts with a number of producers, including Antero Resources, SWN Energy Services and Kaiser Marketing Appalachian.

Kinder Morgan’s El Paso Natural Gas

Kinder Morgan’s El Paso Natural Gas does not experience nearly as much seasonal fluctuation on the contracts that form its base as does Columbia Gas. Like Columbia, it had substantial new contract commitment additions in the last half of last year and the first half of this year. The contracts’ weighted average tenor of three years was not close to Columbia’s 13 years, but is still substantially longer than a single season. A couple of the larger and longer term negotiated rate contracts contributing to this success were with Saavi Energy Solutions (a twelve year contract) and Luminant Energy Company (a seven year contract). These shippers are somewhat unique, as they are end users of the gas and not producers or exporters.

Boardwalk’s Gulf South Pipeline

Like El Paso, Gulf South Pipeline does not experience much seasonal variation in its base contracts. It did not have as good of a second half of 2018 as either El Paso or Columbia Gas did, but it had a very good first half of 2019, signing over three Bcf of new contracts. These new contracts also have an impressive weighted average tenor of over 18 years. That average contract term was driven by major 20-year contracts with Osaka Gas Trading and Jera Energy America, both at negotiated rates, and with BP Energy Corporation.

Williams’s Transco

Transco has almost no seasonal variability in its base contracted capacity, but grew its portfolio substantially in both the last half of last year and the first half of this year. In the last half of last year, it signed new contracts for over two Bcf of capacity and also signed one Bcf of new contracts in the first half of 2019. The weighted average tenor of both groups of contracts was over 12 years in length. Last year’s larger contracts were negotiated rate agreements with Cabot Oil & Gas and Chief Oil & Gas and had 15-year terms. This year’s major contracts were with Corpus Christi Liquefaction and YCI St. James Enterprises. Both contracts were negotiated rate agreements with 20-year terms.

By reviewing a company’s contractual history, it is possible to get a better understanding of the proportion of its contracts that are coming up for renewal, and whether a substantial increase will be enduring, or merely a temporary bump that will need to be repeated each year.

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