Midship’s In-Service Date Sailed, is Gulf Coast Express on the Fast Track?
There are two large natural gas projects, Cheniere’s Midship Pipeline and Kinder Morgan’s Gulf Coast Express (GCX), designed to increase the flow of gas toward the Gulf Coast that are projected to be in-service by the end of this year. As we set forth today, our analysis shows that Midship looks to be focused on getting its mainline in-service by the end of the year, with the laterals to follow in 2020, and GCX seems to have moved forward after getting a late start on land acquisition, but has been able to catch up and appears able to meet its October 1 in-service date based on the progress it has made on a number of other fronts.
Midship
Our historic modeling for projects with characteristics similar to Midship show that for a project of its size, we would expect it would take a minimum of 12 months to complete construction following receipt of its first Notice to Proceed with construction from FERC staff. Midship received its first Notice to Proceed with construction on December 20, 2018, which means that if it were to be constructed as quickly as the top 25% of projects in our database (see Figure one), Midship could still meet an end-of-year in-service date. However, our modeling also shows that a project like Midship typically will take about 15 months to complete construction -- which would put the in-service date in March 2020 (see Figure 2).
Midship originally wanted to be in-service by the beginning of last month, and it appears to be moving aggressively to be in-service by the end of this year. The schedule Midship filed with FERC, however, could be overly optimistic, which would mean that the project’s in-service date will more likely fall closer to our historic median.
As contemplated by Midship in its construction schedule, the pipeline will be built in three discrete segments, or spreads. The first spread is the Chisholm Lateral, which is 20.5 miles of 30-inch pipeline that feeds the north end of the mainline. The second spread is the northern 119 miles of 36-inch mainline and 13.8 miles of 16-inch pipeline referred to as the Velma Lateral, which hits the mainline near the end of the first 119 miles. The third spread is the southern end of the mainline, which consists of 80 miles of 36-inch pipe.
Midship indicated that it intended to completely install the Chisholm Lateral between February 18 and April 19, 2019. It appears that Midship then intended to move that contractor over to the northern spread of the mainline, which would be installed between April 20 and November 26, 2019, allowing it to be in-service by the end of this year. However, since filing that schedule with FERC, it appears that Midship has reversed the order of those two spreads because it started work on the northern spread in February. And as of May 3, Midship has completed almost no work on the Chisholm Lateral. The optimistic part of the schedule is that Midship anticipates being able to construct the northern spread of the project at a rate of .54 miles per day. This is much faster than the .34 miles and .33 miles per day anticipated for the Chisholm Lateral and the southern spread, respectively. If the northern spread is projected to be built at a rate mid way between the .33 miles per day for the southern spread and the .54 miles per day for the northern spread, the northern spread will not be completed until November 15. And adding an additional two months to that for the completion of the Chisholm Lateral yields a completion date of January 15, 2020.
One explanation for the flip in schedule between the northern spread and the Chisholm Lateral may be that Midship is intent on getting the mainline in-service by the end of this year. As we have learned from other recent projects such as Energy Transfer’s Rover, the commencement of service is not necessarily a single event, but can be rolled out in phases. So at least for now, it appears that Midship may have its mainline in service by the end of this year, but that other portions of the project may not go into service until later.
Gulf Coast Express
Kinder Morgan’s GCX is not an interstate pipeline whose construction is regulated by FERC. Therefore, we have had to incorporate other data sets into our analysis of pipelines such as GCX that are being built solely within the state of Texas. Based on our analysis of county land records along the route, records filed with the Texas Railroad Commission and the Texas Commission on Environmental Quality, as well as satellite imagery, we currently expect that GCX will be able to meet its projected in-service date of October 1, 2019. However, four months in a construction cycle can seem like an eternity, so we will continue to monitor the project’s progress. Our current analysis is based on the following key factors:
GCX Land Records
A critical gating function for any greenfield project such as GCX is obtaining the necessary land rights needed to construct the project. These rights generally consist of the right of way easements and ownership or lease interests for the above ground facilities such as compressor stations. To assess progress of a project, we are monitoring this land acquisition process. Based on a look at historical records, most projects begin this process about 21 months before the anticipated in-service date, and essentially complete it by about ten months prior to the in-service date. As can be seen below, GCX was slow in beginning this process, as compared to others that we used as a benchmark, but caught up quickly so that by about eleven months prior to its projected in-service date, GCX was essentially done (note the shape of the curve and the flattening of that curve at the end is more important than the total easements acquired).
GCX Easements Per Mile over Time
Texas Railroad Commission
In addition to the land records, we also monitor filings at the TRRC, two of which are critical to our assessment that GCX remains on target. First, before a pipeline can begin construction, it is required to file a notice with the TRRC in which it states the date on which it intends to begin construction. GCX made this filing last year and indicated that it intended to start construction on five spreads of the GCX mainline beginning on November 1, 2018. Before a natural gas pipeline can begin providing transmission service in Texas, it must also file a tariff with the TRRC. GCX has filed tariffs for two confidential contracts, both of which have an initial service date of October 1, 2019 and which continue for ten years thereafter.
Texas Commission on Environmental Quality
Unlike in many states where a project would need an air permit before it can begin construction on a compressor or pumping station, Texas only requires that an application be filed before the station begins operation. The filing of such an application is an indicator that the project is, in fact, moving forward. In this case, GCX has filed for and received air permits for four mainline compressor stations.
Satellite Imagery
While interstate gas pipeline projects are required to file construction reports, along with detailed records about progress, although with varying quality, there is no such requirement for intrastate projects. By combining the information we gather from the land records and the information contained in the TCEQ permit applications, we are able to confirm the location of the compressor stations. We are then able to use satellite imagery to monitor the progress of the project. Based on those images, we have been able to confirm that three of these four stations were under construction by the end of last year.
An example of the satellite imagery used to estimate project progress is the image below of the Rankin Compressor Station as of March 9, 2019.
We will continue to monitor the compressor station work and begin examining the progress of the pipeline work as the project moves closer to its in-service date.
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