Praneeth Satish: Got it. That’s helpful. And then I just had a couple of questions here on the Washington Storage Transition to market-based on Transco. Can you just help frame maybe how much of an uplift you expect for moving that from — to market base from, I guess, cost of service? How much difference in rates could you see there? And then how much of that capacity do you need to go through an open season now? And how much of that capacity do you think third parties could take versus Sequent? And then finally, is this shift to market-based rates and the upside is that reflected in 2025 EBITDA guidance at all?
Alan Armstrong: Mike, do you want to take that?
Micheal Dunn: Yes, I’ll take that. So yes, to answer your last question first, that is embedded in our guidance for 2025. So the process where it stands now. FERC has approved our settlement with the customers, the customers have a choice to take a tranche of capacity on a term that they so desired. So they’re making that decision now between now and the end of May. So ultimately, they’ll decide upon how long of a term they want and there’s already a pre-determined rate for that was embedded within the settlement. And so once they make that decision, that will be effective as of April of 2025. So that’s when those rates will go into effect. So we definitely embedded what our expectations are with where we think the customers will end up in regard to their choices of selection.
Ultimately, we think that we fully subscribed by existing customers. It’s a really good project for them. It’s a great project for us. The storage is in high demand. We don’t expect anybody to turn back any of that capacity at this time.
Operator: Our next question comes from Gabriel Moreen with Mizuho.
Gabriel Moreen: A quick one on your Gulf projects. I think there’s been some talk about there about Shenandoah being delayed, maybe half a year plus or minus. Can you talk about whether you’re potentially seeing that? Or whether that would impact project economics or would just demand fees kick in regardless?
Alan Armstrong: Yes, Gabe, I would just say our part of that project is on schedule. We’re not really at liberty to get into details of the contracting details in that. But remain confident in what we have in the forecast for that project. So anyway, we’re not going to speak for the producer. Our part of that project and our work there is on time and team’s doing a great job of executing on that, and we’ll be ready to serve when we were supposed to be ready to serve on that project.
Gabriel Moreen: Understood. And then maybe if I can just talk LNG a little bit. There’s a stake in the facility LNG export facility under construction that I know you’ve looked at pretty hard over the course of time. Are you interested in potentially looking at that stake? And just how it may or may not fit into a broader LNG strategy that you may be pursuing over time?
John Porter: Gabe, are you referring to Port Arthur?
Gabriel Moreen: I am.
Unidentified Company Representative: Chad, do you want to take that?
Chad Zamarin: Yes. I think in general, we’re focused on high-return projects that we operate — we build and operate. And so we continue to look at how we can connect our customers to the most attractive markets. LNG markets are obviously an important destination for U.S. natural gas. And so we’re going to continue to look for ways to connect our customers and our value chain to those international markets. But we’ve typically not been looking for non-operated positions in infrastructure projects. We’ve got so many opportunities to invest in our kind of organic projects, that’s been our primary focus. But again, if we find opportunities that come with our ability to connect our customers to better markets, we’ll look at them, but that’s certainly not the primary focus of our LNG strategy.
Operator: Our next question comes from Neel Mitra with Bank of America.
Indraneel Mitra: I wanted to follow up on the [indiscernible] expansion in your conversations with your big three utility customers there. You had an interesting slide at the Analyst Day where you talked about those utilities having quotes about not recurring enough natural gas and kind of underestimating power. When they made those quotes in your conversations, did that reflect the AI team. So do you think that the project that you’ve contracted so far has some AI components in it? Or is it just general electrification so far that’s being reflected in that demand?
Alan Armstrong: Yes. To answer your question, our work on that in terms of developing that project, obviously, was even further ahead of when we announced that. And so you kind of have to remember that as you think about the timing of that. And to answer your question very simply, the degree — the kind of incremental demand that we’re talking about is not reflected in the [indiscernible] project. There might have been some expectation for that. But in terms of the large incremental growth impacts that customers are now starting to reflect in their integrated resource plans. Those are somewhat, I wouldn’t say perfectly incremental, but certainly, a big chunk of that is incremental to the load that we’re serving on [indiscernible].
Indraneel Mitra: Okay. And then I wanted to follow up on some of your producer activity. I know one or more of your customers are delaying sales til gas prices get better. Do you have any updates on that? And then how do you factor that into ’25 guidance if you just have a lower base going into ’25 if those don’t get turned in line?
Alan Armstrong: Yes. Well, first of all, there’s a lot of productive capability in these fields. And the ability to ramp that up and respond to the market. And I think the producers are managing their business in a way that they will be ready to respond to respond to it, as I mentioned in my comments earlier around gas supply demand balance, that’s certainly what we’re seeing is producers being willing and able to commit to what they need to on their end to be ready to respond to that. So I think there certainly will be some upside to our business in ’25 as the market and supply start to respond to that. But it is typically a very long lag period and very difficult for the market to be able to respond quickly. I do think, however, this time, and I hate to be the guy calling it’s different this time.
But because there is such strong contango in the market right now, we are seeing a different response and a different positioning from our producers than we typically see in this situation. And again, I think that’s because there’s such confidence in both the fundamentals and the visibility to the forward market that’s suggesting that that’s how they should behave at this point.
Operator: Our next question comes from Theresa Chen with Barclays.
Theresa Chen: Alan, I’d like to go back and touch on the comments of strong contango benefiting your storage assets. Can you give us a sense of what you’re seeing in changes in storage rates as contracts come up for renewal? And is this largely due to the current contango? And as we come out of the contango, do you think these economics are durable?
Alan Armstrong: Yes. Good question, Theresa. I’ll give you my comments, and I’m going to ask Chad to give you a little more detail on that. But I think over time, we have seen the value of storage, and we’ve certainly seen it with our own Sequent operations. We’ve seen the value of storage in these volatile markets and markets that are having to respond very quickly to shifts in demand continuing. I think it’s also pretty visible to see that both with an increase in renewable power on the market as well as more and more LNG as that comes on LNG is going to need to be a little more responsive. It’s not going to run at 100% load factor when the LNG is more — is closer to meeting the more mature demand from that market. So I think those are a lot of the drivers for the increase in storage capacity.
As Micheal mentioned earlier, we certainly have seen a pretty strong response from our customers and making sure that they don’t lose the benefits of the Washington storage facility and the flexibility of their business. And I think as the market turns to more and more hourly type service, and pipelines tighten up on the flexible services and no noted services that they previously offered. I think that’s going to continue to put more and more pressure and more need for the storage business. And I think that’s becoming pretty evident to the gas marketing business. In terms of contango driving the value, it’s certainly one of the elements of value that is driving that. But I think it’s a little broader than just the contango in terms of what’s driving the pretty rapid increase in storage rates.
And I’ll let Chad talk a little more specifically about what we’re seeing in rates.
Chad Zamarin: Yes. I think it’s a really important theme to keep an eye on what both the ability to set up our infrastructure to benefit from volatility and price that supports extraction value. But also importantly, we’re seeing the transition. We’ve been talking about it for a while, increased volatility in power markets, Alan talked about the power demand that we’re seeing — I mean we talk often — I mean, PJM numbers themselves say that by 2040, peak demand will more than double. That’s a significant — from a set of infrastructure that’s already full. And so assets like storage will not only be driven from a value perspective by dislocations in price over time, like the contango we’re seeing in the current market, but we are seeing an evolution and a recognition that you’re going to need those assets for reliability.
Power — produced power companies will need storage LNG companies. We’re seeing much more variable demand coming in the future. And so not only will we be set up for storage to have value in the near term when there are price dislocations like we’re seeing with the contango in the market, but we’re also seeing an evolution of the market to recognize that storage value will increase even when there may not be apparent price dislocation, there will be a need for reliability in backup, both in supply and the ability to put gas into storage when upset conditions occur. So we’re set up really well to benefit from both the value dislocations you see in the current market and the long-term fundamentals around the need for storage for reliability. So all that to be said, I don’t think that the contango in the market is the only necessary driver for long-term storage value.
We see long-term storage value both in markets where there are dislocations from a price perspective but also because of the long-term need for reliability and the important role that storage plays in providing reliability.
Operator: Our next question comes from Tristan Richardson with Scotiabank.
Tristan Richardson: Alan, just maybe switching back to the thematic for a moment. At the Analyst Day, you and some of your guest speakers talked a lot about sort of that general need for permitting reform and how critical gas supply is to power sort of this increased demand we’re seeing in electricity. How critical is sort of permitting or form or at least a more amenable regulatory environment for energy supply to kind of meet this accelerating demand growth you guys have talked about today and the slide you talked about with sort of the 3x demand you’re seeing over the next decade?
Alan Armstrong: Yes. I would just say as the world turns off of coal, as the reliable baseload and is shifting more and more and more to natural gas as the base load, as Chad mentioned, that reliability issue is going to be really key and us continuing to stretch and deny the amount of capacity we really need in these markets, is going to become a louder and louder drumbeat. You’re hearing it from the ISOs already. You’re hearing it from — starting to even hear from the utility commissions about how important it is that they have access to natural gas. You’re even starting to hear it in places like Connecticut that are upset that they don’t have low-priced gas into those markets because Governor Cuomo stopped a number of projects coming across the state.
So it’s unfortunate. It’s kind of like sometimes it’s a terrible situation as we think about long-term infrastructure and politics, but the two don’t meet very well together, unfortunately. And sometimes the bridge has to fail to people to realize that we have to spend money on maintaining and keeping our bridges safe. And I would say similar situation on gas infrastructure. We are heavily under-invested in gas infrastructure right now in terms of keeping up with this growing need. The good news is, I think the screen is going to get pretty loud and it’s not just going to be from the gas industry when the tech industry is really struggling to get adequate supplies for data centers and power, I think that both the utilities are going to get loud on this.
I think the tech companies are going to get loud on this. And hopefully, it doesn’t come to a catastrophe in some of the markets, but it’s amazing to me how quickly people forget how close we got last — this last winter, how close we got to losing parts of the Northwest markets due to a couple of very small failures on some of our competitors’ pipeline serving into us that caused a shortage as well as distorted at one of the big storage facilities up there. So we’ve been able to manage. We’ve been able to keep the gas service on, but we really haven’t experienced a situation in these big heavily populated areas where we’ve lost gas service because people, I think, tend to think just like losing your power and it just clickers off and comes back on.
