IHS CERAWeek: Financing the shale gas infrastructure boom

The advance of the shale gas revolution has brought about an infrastructure boom, and financing for the needed pipes, LNG, and processing is at the forefront, speakers told the IHS CERAWeek energy conference during a March 5 strategic dialogue session.


(Gas processing factory/Shutterstock image by asharkyu)


The need is vast and projects are being discussed in all regions. “The Utica is still growing and will continue to need infrastructure development,” said Ken Yeasting, senior director, North American Gas at IHS and chair of the panel. Citing an earlier CERAWeek speaker from Mexico’s Pemex, Yeasting noted the increasing energy interconnection between the US and Mexico, pointing to current projects that would add 4MMcf/d into Mexico.

Guy Buckley, chief development officer at Spectra Energy said the company put over $6 billion in infrastructure and secured projects last year of about $7 billion. “We’ve seen a lot of opportunity come out of this,” he said. “We believe there is a big drive to get into markets.”

“It’s a good time to be an energy investor and investment banker,” said Bobby Tudor, CEO of Tudor, Pickering, Holt & Co. While gas prices are down, Tudor is optimistic about the opportunities that lie ahead. “We’re in a period right now where gas drilling has declined dramatically in the last 2-3 years,” he said, noting that he doesn’t see that changing much in the coming 3-5 years, but, he said, “the opportunity is there to flip the switch.”

Financing
To finance projects, companies like Spectra are securing long-term contracts with terms of 10 years or more and some with terms longer than 20 years. Many other companies are accessing the private equity space, but, noted Tony Weber, managing partner and COO of Natural Gas Partners, it’s a tough market to be a part of. “There are 90 private equity-backed midstream companies out there,” he noted.

Weber noted a trend of larger E&P companies creating their own midstream segment as a way of creating opportunities, and acknowledged that it is difficult for some of the small cap midstream companies to arrange financing in the current environment.

The speakers generally agreed that master limited partnerships (MLPs), economically popular for a number of reasons including the tax structure, are generally a good place to take the right, long-life assets.

“We’ve been through a remarkable period of MLPs doing really well,” said Tudor, but “it may not continue at that level,” he warned. His concern, he said, is that MLPs are priced for perfection and that could be difficult to sustain over the long-term.

All acreage is not created equal, he said, and some areas are not living up to expectations. “A lot of gathering systems have been built on the assumption that Tier 2 gets drilled out and that might not happen,” he warned.

It’s only the best of the best, even in the Marcellus, he said, that brings an attractive rate to the producer. “There will be winners and losers and that’s what will change investors’ views.” It all starts below the ground, he said. “It’s ultimately the economics of the hydrocarbon that drives everything after.”

 

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