Williams Companies Weathers Downturn as Natural Gas Demand Remains Steady

Researched by Industrial Info Resources (Sugar Land, Texas)--Natural gas-focused midstream company Williams Companies Incorporated (NYSE:WMB) (Tulsa, Oklahoma) seems to be weathering the downturn in commodities prices reasonably well due to its focus on natural gas transmission rather than other fossil fuels. While Williams saw some decrease in demand in first-quarter 2020, in Tuesday's conference call with analysts, Chief Executive Officer Alan Armstrong emphasized that this was simply normal seasonal declines as the country comes out of the winter season and into more temperate weather. Overall, demand remains strong.

Click on the image at right for a slide showing U.S. natural gas demand in first-quarter 2020 versus the three-year average, and Williams' transmission in the quarter versus first-quarter 2019.

While there has been much emphasis on the decline in demand for oil, this has not been the case with natural gas. Armstrong said, "Overall, we're seeing natural gas demand has remained strong, both broadly across the market and on our systems. In fact, we're seeing evidence that natural gas is not only both holding up nicely, but even exceeding recent historical norms. And while it's hard to predict very far into the future right now, we have seen demand for natural gas in the U.S., including exports to Mexico and via LNG [liquefied natural gas] exports, remaining strong. It's a vastly different picture than what we're seeing in crude oil demand."

Armstrong said natural gas demand was strong in the power sector, although the industrial sector had shown a slight decline, and that exports to Mexico and via LNG have driven demand up over prior-year averages.

With the decline in oil production due to lower prices, Williams expects to see a decline in associated gas production from oil-rich shale plays such as the Permian, Bakken, Eagle Ford, and SCOOP-STACK plays, and increased production from gas-directed basins. Armstrong said, "As producers begin shutting in some flowing oil production to avoid filling storage and avoid selling their production at unacceptable prices, we'll see reductions in associated gas accelerate. This decline will continue as the void in drilling and completion of oil wells begins to show the underlying decline in the large number of new wells supplying the market." He said the largest impact would be the reduced growth in the Permian and DJ Basin, including associated natural gas liquids volumes from the DJ.

Armstrong said that offshore gas also was affected by oil prices but is "uniquely positioned" compared with onshore production, as it requires a more long-term view given the multi-year, multibillion-dollar investments required to start up these operations. Most undertakings in this area are led by large multi-national corporations. Williams expects some offshore shut-ins from smaller producers, but does not expect this to be a significant volume.

Williams expects 2020 growth capital expenditures to be at the low end of its $1.1 billion-to-$1.3 billion guidance.

Associated gas projects that will almost certainly be affected by the downturn in oil prices include a planned natural gas processing plant in Grover, Colorado, in the DJ Basin. The plant, which is in the early planning stage, would process 225 million cubic feet per day. For more information, see Industrial Info's project report.

In the current environment, Williams will emphasize pipeline projects, especially on its Transcontinental (Transco) natural gas pipeline system, the largest in the U.S. Among its recently completed projects on the system is the Hillabee Phase II expansion in Alabama, which will expand gas supply in the Southeastern U.S. The project involved constructing various pipeline loops to supply up to 1 billion cubic feet per day. For more information, see Industrial Info's project reports on the Verbena Loop and the Rock Springs Loop. The Phase III expansion remains underway and is expected to be completed soon. For more information, see Industrial Info's project reports on the Butler and Autauga loops.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.