By
Sandy
Segrist
Hart Energy

Gas prices have tanked and natural gas storage levels remain well above average.

 Most energy companies plan to spend their 2024 midstream money to bring more gas to market.

According to a study by analytic firm East Daley Analytics (EDA), energy companies have budgeted most of their midstream capex spending on natural gas this year, with more than $10 billion going to upgrades and expanding gas infrastructure.

For those following the natural gas market, the move should not come as a surprise, according to several analytical firms.

“Although natural gas prices have come crashing down in recent weeks, the long-term demand for gas infrastructure has not faltered,” Ajay Bakshani, EDA director of midstream company financials, wrote in the study.

Infrastructure for natural gas is needed for an LNG export market expected to double in size by 2030 and to support the power generation needed as coal plants retire and electric needs continue to increase.

Hinds Howard, portfolio manager at CBRE Group Inc., noted that overall capex spending is not expected to rise much in 2024. Companies spent about 25% more in capex in 2023 than in 2022, he said, while forward statements in 2024 show about an 8% increase. However, the focus on the midstream market shows a dedication to longer-term investments.

“The bigger picture is that midstream is a longer cycle business,” Howard said. “Upstream has become increasingly short cycle. They can look at prices in the next year or 18 months and say ‘We've got to slow down or else we're not going to make any money.’ Midstream announces projects and there's a little bit of a lag effect.”

According to a January outlook from S&P, infrastructure for LNG export and moving natural gas out of West Texas will be the main focus of the industry for the next several years. Gas-to-oil ratios continue to rise in the Permian, driving the need for more pipeline capacity towards the Gulf Coast.

EDA forecasts that about $2.6 billion will be spent on gathering and processing plants in the Permian. Enterprise Products (EPD) and Targa Resources (TRGP) are leading the pack with plans to add 2 Bcf/d of new processing capacity in the area.

TC Energy (TRP), Enbridge (ENB), Williams (WMB) and Kinder Morgan (KMI) will spend the most on pipelines, with about 40% of their capex slated for pipeline modernization projects and maintenance, EDA estimated. About $1 billion in capex will go toward projects in the Mideast, such as Equitrans’ (ETRN) Mountain Valley Pipeline, slated for completion in the second quarter.

In the short term, natural gas prices are expected to remain low. The U.S. Energy Information Administration’s weekly release of gas storage figures on March 6 showed a decline of 40 Bcf in the U.S., thanks to continuing mild weather. The amount in storage, approximately 2.3 Tcf, was well above the five-year average. Henry Hub prices on March 8 were holding at about $1.80 per MMBtu, despite news at the beginning of the month that EQT and Chesapeake planned to temporarily cut production.