Energy infrastructure company Williams (NYSE: WMB) and midstream master limited partnership (MLP) Boardwalk Pipeline Partners LP (NYSE: BWP) have executed a letter of intent to form a joint venture that would develop a pipeline project to transport natural gas liquids from the infrastructure-constrained Marcellus and Utica shale plays to the expanding petrochemical and export complex on the US Gulf Coast, as well as the developing petrochemical market in the Northeast US.
The proposed "Bluegrass Pipeline" design would provide producers with 200,000 barrels per day of mixed NGLs take-away capacity in Ohio, West Virginia and Pennsylvania. The proposed pipeline could be increased to 400,000 barrels per day to meet market demand, primarily by adding additional liquids pumping capacity. It would deliver mixed NGLs from these producing areas to proposed new fractionation and storage facilities, which would have connectivity to petrochemical facilities and product pipelines along the coasts of Louisiana and Texas. Williams and Boardwalk are also exploring development of a new export liquefied petroleum gas terminal and related facilities on the Gulf Coast to provide customers access to international markets.
As proposed, the Bluegrass Pipeline would include the following:
- Constructing a new NGL pipeline from producing areas in West Virginia and Ohio to an interconnect with Boardwalk's Texas Gas Transmission, LLC system (Texas Gas) in Hardinsburg, Ky.;
- Converting a portion of Texas Gas from Hardinsburg, Ky. to Eunice, La. (the "TGT Loop Line") from natural gas service to NGL service, including construction of new pump stations and related facilities; and
- Constructing a new large-scale fractionation plant and expanding natural gas liquids storage facilities in Louisiana and a new pipeline connecting these facilities to the converted TGT Loop Line.
By combining new construction with an existing pipeline, Williams and Boardwalk believe that the Bluegrass Pipeline can be placed into service and begin serving customers sooner than other options. Williams and Boardwalk are engaged in comprehensive project development planning including project design, cost estimating, economic and risk analysis, customer contracting, permitting and other legal and regulatory approvals and right-of-way acquisition. Williams and Boardwalk expect to sanction the project this year and place the planned project into service in the second half of 2015 assuming all necessary conditions are met.
"We are designing Bluegrass Pipeline to provide these two world-class resource plays with access to one of the largest and most dynamic petrochemical markets in the world. In turn, this will help producers in Ohio, Pennsylvania and West Virginia achieve an attractive value for their ethane and other liquids," said Alan Armstrong, president and CEO of Williams.
"Given current market dynamics in the Northeast, existing liquids systems and local outlets will be overwhelmed by 2016. Total NGL volumes in the Northeast are expected to exceed 1.2 million barrels per day by 2020. The proposed Bluegrass Pipeline joint venture would support Williams' midstream assets in the region, offer an attractive return and enable Williams to become the premier NGL infrastructure provider by economically linking the Utica and Marcellus region to petrochemical complexes on the US Gulf," Armstrong said.
"Our pursuit of this project is also consistent with Boardwalk's long-term growth strategy of diversifying within the midstream energy sector and leveraging our newly-acquired liquids infrastructure assets at Boardwalk Louisiana Midstream, which provide a critical footprint for the downstream fractionation and storage portion of this project. Another key element is that Texas Gas would connect its natural gas customers along the length of the converted TGT Loop Line to the remaining Texas Gas lines and will continue to provide them, and all of Texas Gas' natural gas customers, with safe and reliable natural gas transportation service," said Stan Horton, president and CEO of Boardwalk.
Sanctioning and completion of this project is subject to, among other conditions, negotiation and execution of definitive joint venture and related agreements; execution of customer contracts sufficient to support the project; and the parties' receipt of all necessary approvals, including board approvals and regulatory approvals, such as antitrust clearance under the Hart-Scott-Rodino Antitrust Improvements Act, approvals by the Federal Energy Regulatory Commission (FERC), among others. Before Texas Gas Transmission may begin converting the TGT Loop Line, it must receive abandonment authority from FERC. Boardwalk plans to file the abandonment application with FERC by May 1, 2013 and the abandonment process is estimated to take between nine to twelve months.