Midstream Leveraging Current Assets in the Energy Transition

04/05/22 | Stacey Morris, CFA


  • Midstream companies can use their existing assets and expertise to participate in opportunities related to responsibly sourced gas and carbon capture and sequestration.
  • Midstream’s expertise makes it an ideal partner for transporting captured carbon dioxide.
  • As demand for responsibly sourced gas grows, companies are positioning to meet customer needs for handling RSG and monitoring emissions across the value chain.

Even as the world moves towards decarbonization, recent geopolitical events and corresponding price spikes in oil and natural gas have highlighted how much our global economy is still dependent on these fuels. Oil and natural gas will likely play an important role in the energy mix for decades, but steps can be taken to produce and consume oil and natural gas with fewer emissions. Energy companies are focused on solutions with that objective, and responsibly sourced gas (RSG) and carbon capture and sequestration (CCS) are pertinent examples where midstream can play a supporting role while leveraging existing assets. Today’s note discusses recent examples of midstream companies positioning for opportunities around RSG and CCS.

Midstream leveraging existing assets and skillset for CCS opportunities.

Carbon capture and sequestration has a critical role to play in global efforts to reduce emissions, and over 100 new CCS facilities were announced globally last year. Midstream’s expertise makes it an ideal partner for transporting captured carbon dioxide. Last month, Shell (RDS.A) and Keyera (KEY) announced a memorandum of understanding (MOU) to collaborate on low-carbon initiatives in Alberta, noting the potential to transport captured carbon and hydrogen while using existing expertise and assets.

EnLink (ENLC) and Talos Energy (TALO) announced an MOU in February to develop a comprehensive carbon capture and sequestration (CCS) solution along the Mississippi River in Louisiana, leveraging ENLC’s existing natural gas pipelines and TALO’s River Bend CCS site. On its 4Q earnings call, ENLC’s management highlighted the unique advantages of repurposing its existing gas pipelines to transport carbon dioxide. The redundancy in its natural gas system in Louisiana allows for repurposing lines without interrupting existing gas operations, and the large diameter of the pipes (24-inch, 30-inch, and 36-inch) will allow for moving large volumes of carbon dioxide in a gaseous state, instead of a supercritical state.

Midstream helping connect customers with RSG.

Midstream companies are also helping ensure that customers can source conventional natural gas in a more environmentally-conscious way. Responsibly sourced gas (RSG) is natural gas produced with adherence to certain ESG criteria, particularly around methane emissions, water consumption, and community relations. An RSG buyer will understandably want to know about the emissions profile of processing and transporting that RSG. As such, there needs to be emissions monitoring across the natural gas value chain from the wellhead to the end user. Accordingly, midstream companies are partnering with third parties that provide comprehensive emissions monitoring solutions.

Williams (WMB) will leverage technology from Context Labs to track emissions data. WMB is initially deploying the technology in the Haynesville, where it is developing the Louisiana Energy Gateway (LEG) project with plans to gather 2 billion cubic feet per day of RSG. WMB is also acquiring Haynesville gathering and processing player Trace Midstream, which is a Quantum Energy Partners portfolio company. Quantum has signed an MOU with WMB to partner in LEG, while its affiliate Rockcliff Energy has signed up for long-term capacity from the project. LEG would supply RSG to premium end markets, including liquefied natural gas (LNG) terminals on the Gulf Coast.

Kinder Morgan (KMI) is involved with an RSG pilot project in Colorado that encompasses a natural gas producer, gathering and processing company, KMI’s Colorado Interstate Gas Company, and a local utility. Project Canary will provide emissions monitoring and independent RSG certification for the project. Collaboration across the value chain and tracking emissions each step of the way could become more common as end users seek to achieve certain environmental goals and require more transparency around emissions. On a related note, KMI announced in December that it had filed with the Federal Energy Regulatory Commission (FERC) to provide RSG pooling services at select locations on the Tennessee Gas Pipeline. This will allow stakeholders to transact in RSG and makes it a more marketable product. KMI noted at their investor day in January that they are seeing more demand for RSG from utilities and customers with LNG export terminals.

Bottom Line

Midstream companies can use their existing assets and expertise to participate in opportunities around carbon capture and responsibly sourced natural gas.

Related research:

Can Midstream/MLPs Be a Green Investment?

Midstream Partnering for a Cleaner Tomorrow

Midstream Pulling Multiple Levers to Reduce Emissions

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