Quarterly Gas Contract Review - LNG, Project Ramp Ups, and Seasonal Ramp Downs

Our data platform provides users with the ability to download quarterly contract data for all interstate natural gas pipelines going back two years. We like to dive into these filings on a quarterly basis to identify for our customers any trends or major changes for a particular pipeline or, in some cases, a shipper.

This review of the third quarter for 2018 discusses three trends:

Growth from Corpus Christi and Cove Point LNG and their related pipelines;
Growth by Columbia Gulf and Rover due to bringing major projects into service; and
Seasonal reductions in capacity allowed by Texas Gas and Algonquin.

Contracted Capacity by Quarter

Pipeline Contracts and LNG Terminals

Dominion Energy's Cove Point Liquefaction facility began operating in April of this year, which is reflected in the contract capacity for its related pipeline. As the chart shows, the pipeline replaced a short-term agreement for 800,000 dth/day with Shell which began in October of last year with its long-term contracts for 430,000 dth/day running through 2038 with Gail Global (USA) LNG LLC and Pacific Summit Energy LLC.

Similarly, while Cheniere's Corpus Christi LNG facilities are not anticipated to begin service until 2019, the 23-mile pipeline that will connect the facility to the interstate system went into service on June 1. The pipeline listed a single contract in this quarter's filing and that was with its affiliate for 2.295 Bcf/day, the pipeline's entire capacity. Cheniere's business differs from other U.S. LNG projects in that, in addition to processing natural gas into LNG, Cheniere also procures the natural gas supply used for feedstock. Therefore, it is not surprising that the only contract on the pipeline is with its affiliate and that the contract extends until 2038 as well.

Growth From New Projects Going Into Service

Energy Transfer Partners' Rover was originally supposed to be in full service by December 1, 2016, but has continually pushed that date back and has instead been forced to use phased in-service dates as the components of the system have been completed. As the chart shows, Rover has been steadily increasing the contracted capacity and has ramped up its volumes by 865,000 dth/day from the beginning of the year, including 680,000 dth/day in just this quarter, a 42% increase from the beginning of the year. However, it is still about 800,000 dth/day short of its total capacity, as FERC has refused to approve placing certain facilities into service until Rover demonstrates that it will restore the construction work spaces for earlier facilities.

Transcanada's Columbia Gulf put its Rayne Xpress project into service in November 2017 and its Cameron Access project into service in March of this year. As a result, Columbia Gulf has seen a substantial 30% growth in contracted capacity since 2016. Just this last quarter, the increase was 16% and the new contracts have a weighted average tenor of over 17 years with over 500,000 dth/day in contracts with a term ending in 2038.

Seasonal Adjustments For Texas Gas and Algonquin

Both Enbridge's Algonquin and Boardwalk Pipeline Partners' Texas Gas have contracts with local distribution companies that apparently provide for a level of service during the summer months that is lower than during the winter. As the chart shows, in each of the last two years, 2017 and 2018, there has been a reduction in the contracted capacity during the third quarter as compared to the first quarter as a result of these contracts. For Algonquin, the contracted capacity for the third quarter of this year was almost 400,000 dth/day less than during the first quarter under these contracts, which represents about a 7% reduction from the winter peak contracts.

The reduction is even greater for Texas Gas, both in dth/day and as a percentage of its winter peak contracts. For Texas Gas, the differential in these contracts between the first and third quarters is 1.25 Bcf/day, which is about a 19% reduction from the winter peak.

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