The Future of Gas Distribution: Key Drivers and Investment Opportunities

Technological and Infrastructure Developments in Gas Distribution

Chevron, Schlumberger, General Electric, and Amazon are making significant strides in gas distribution through investments in midstream infrastructure, digital and AI capabilities, energy transition technologies, and modern energy delivery systems. These advancements aim to enhance production capacity, operational efficiency, and sustainability in the sector.

"Noteworthy Developments Certain noteworthy developments in recent months included the following: • Israel - Reached final investment decision to add midstream infrastructure that is expected to increase production capacity at the Tamar gas field in Israel to 1.6 billion cubic feet per day." --- (CVX, sec filing, 2024/Q1)

"In this context, there are certain priorities that are increasingly critical to our customers: project life-cycle reduction, particularly in exploration & appraisal to accelerate time to first gas or first oil; capital efficiency in the development phase to set new benchmarks in every basin; step change in production and recovery for producing assets and for unconventional resources; and finally, adoption of Digital & Al capabilities to transform operations and use of technology to abate emissions." --- (SLB, earning call, 2024/Q1)

"To capitalize on this opportunity, the company is focused on executing with sustainability, innovation, and lean at its core and is building on its history of innovation by investing approximately $1 billion annually in research and development to drive breakthrough energy transition technologies." --- (GE, press release, 2024/04/02)

"We're investing in modern energy delivery infrastructure to sustain access to secure, affordable energy and building on more than a century of operating conventional energy infrastructure and two decades of experience in renewable power." --- (AMZN, press release, 2024/05/22)

"We're producing from new wells. We've got upgraded to new utilities now, gathering system, a new control center, power distribution system, two new, big-frame nine gas turbine generators in service." --- (CVX, earning call, 2024/Q1)

Regulatory and Policy Impacts on Gas Distribution

Regulatory and policy frameworks significantly influence gas distribution. Government policies like the renewable fuel standard, Low Carbon Fuel Standard, and the Inflation Reduction Act shape market dynamics. Regulatory milestones, such as FERC permits, are crucial for project advancements. Additionally, jurisdiction-specific policies impact technological progress and sustainability standards, emphasizing the importance of compliance and innovation in the sector.

"And so we're pleased with both of these. There are markets, maybe to your point about economics that are in some ways heavily influenced by government policy, be it the renewable fuel standard and the Low Carbon Fuel Standard, which affect renewable fuels or some of the things in the investment or the inflation reduction act that affect hydrogen." --- (CVX, earning call, 2024/Q1)

"As our natural gas-focused strategy continues to gain momentum, we are successfully executing a full slate of high return growth projects, with new regulatory milestones reached on seven of our FERC-regulated expansion projects so far this year and progressing on a healthy backlog of expansion opportunities to serve accelerating demand for natural gas." --- (WMB, press release, 2024/05/06)

"Agreement aims to advance low-carbon hydrogen market, driving toward a cleaner energy future Enables transportation of low-carbon hydrogen from ExxonMobil's facility through Air Liquide's existing pipeline network Air Liquide supplies oxygen and nitrogen needed to produce low-carbon hydrogen and ammonia Final investment decision subject to supportive government policy, necessary regulatory permits ExxonMobil (NYSE:XOM) and Air Liquide today announced an agreement to support the production of low-carbon hydrogen and low-carbon ammonia at ExxonMobil's Baytown, Texas facility." --- (XOM, press release, 2024/06/24)

"Implementation of jurisdiction-specific policies and programs can be dependent on, and can affect the pace of, technological advancements, the granting of necessary permits by governing authorities, the availability and acceptability of cost-effective, verifiable carbon credits, the availability of suppliers that can meet our sustainability-related standards, evolving regulatory or other requirements affecting ESG standards or other disclosures, and evolving standards for tracking, reporting, marketing and advertising relating to emissions and emission reductions and removals." --- (CVX, sec filing, 2024/Q1)

"We are executing a multiyear asset modernization and emissions reduction program across our footprint, while also tracking, reporting and reducing methane releases. And we are focused on decarbonizing the natural gas value chain, seeking independent verification of responsibly sourced next gen gas, while also investing in technologies like blockchain to track emissions along a near infinite number of paths along our gathering, storage and transmission networks." --- (WMB, event transcript, 2024/04/30)

Market Demand Trends for Gas

Natural gas demand is projected to grow significantly by 2030, driven by increased LNG exports and exports to Mexico. New projects, such as those in the Haynesville Shale basin, aim to meet this demand. Additionally, AI-related demand could add 7-10 Bcf/day. Despite recent price decreases, storage value is expected to rise.

"We expect demand for natural gas to grow substantially between now and 2030, led by more than a doubling of demand for liquefied natural gas (LNG) exports and a more than 50% increase in exports to Mexico." --- (KMI, press release, 2024/04/17)

"The project is expected to go into service in the third quarter of 2025. West Louisiana Energy Gateway In June 2022, we announced our intention to construct new natural gas gathering assets which are expected to gather 1.8 Bcf/d of natural gas produced in the Haynesville Shale basin for delivery to premium markets, including Transco, industrial markets, and growing LNG export demand along the Gulf Coast." --- (WMB, sec filing, 2024/Q1)

"Earnings decreased as industry refining margins and natural gas prices came down from last year's highs to trade within the ten-year historical range." --- (XOM, press release, 2024/04/26)

"AI demand alone is projected at about 15% of demand in 2030. If just 40% of that AI demand is served by natural gas that would result in incremental demand of 7 to 10 Bcf a day." --- (KMI, earning call, 2024/Q1)

"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." --- (WMB, earning call, 2024/Q1)

Sustainability and Environmental Initiatives in Gas Distribution

Gas distribution companies are heavily investing in sustainability initiatives. Williams emphasizes the role of natural gas in supporting renewables and reducing carbon-heavy fuels. Kinder Morgan is reducing methane emissions and focusing on GHG reduction, while Chevron highlights investment in environmental sustainability and carbon solutions.

"Natural gas and the infrastructure that moves it are necessary for the sustainable growth of renewables and electrification, while also driving displacement of carbon-heavy fuels like coal both in the United States and overseas. #natgas https://t.co/25vDC9ovmJ" --- (WMB, Twitter post, 2024/06/29)

"The report highlights KMI's progress on its continued improvement of sustainability programs including: Reducing absolute methane emissions by 8% from 2021 A female and minority participation rate of 35% in leadership training programs in 2023 Improving total gender and minority diversity of the KMI board to 31%, with the addition of Amy Chronis Also discussed in the report is KMI's new greenhouse gas (GHG) reduction opportunities working group (GROW), which is a cross-functional group established to focus on identifying and evaluating additional GHG emission reduction opportunities throughout KMI's business over time." --- (KMI, press release, 2024/07/18)

"EnerCom Denver - The Energy Investment Conference will once again include The Energy Transition and Emerging Technology Session featuring quick-pitch investment presentations from promising start-up energy and technology companies focused on innovation and operations in alternative energy, advanced oil and gas technology, environmental sustainability and carbon solutions." --- (CVX, press release, 2024/07/17)

"We do have some new Energy Ventures investments that we're expecting to begin to spend some money on, including our first Carbon Capture and Sequestration project, which is at the terminus of the Louisiana Energy Gateway project." --- (WMB, earning call, 2024/Q1)

""We are devoting approximately 80% of our project backlog to lower-carbon energy investments, including conventional natural gas, renewable natural gas (RNG), renewable diesel (RD), feedstocks associated with RD and sustainable aviation fuel (SAF), as well as carbon capture and sequestration," Dang concluded." --- (KMI, press release, 2024/07/17)

Economic and Financial Performance in Gas Distribution

Kinder Morgan's Natural Gas Pipelines segment saw improved financial performance due to higher margins, increased volumes, and contributions from acquisitions. Williams Companies highlighted the economic viability of gas storage projects. Conversely, Chevron and ExxonMobil reported decreased revenues and earnings due to lower natural gas prices.

""The Natural Gas Pipelines business segment's financial performance was up in the first quarter of 2024 relative to the first quarter of 2023, largely due to higher margins realized on our storage assets and higher volumes on our gathering systems, as well as additional contributions from our recent STX Midstream acquisition," said KMI President Tom Martin." --- (KMI, press release, 2024/04/17)

"Appreciate the frame up of the gas storage opportunity. At the very beginning, you mentioned the rates have come into making brownfield economics work." --- (WMB, earning call, 2024/Q1)

"Sales and other operating revenues decreased for the first quarter mainly due to lower natural gas and refined product prices, partially offset by higher U.S. crude and natural gas sales volumes." --- (CVX, sec filing, 2024/Q1)

"The decrease in earnings was mainly driven by declining industry refining margins and lower natural gas prices." --- (XOM, sec filing, 2024/Q1)

""In the second quarter we enjoyed another solid quarter of strong operational and financial performance."" --- (KMI, press release, 2024/07/17)

Future Investment Opportunities in Gas Distribution

Chevron, Williams Companies, and Kinder Morgan are focusing on disciplined capital investments, innovative energy businesses, and new assets, respectively, highlighting significant future investment opportunities in gas distribution.

"This year, we've got $15.5 billion to $16.5 billion as a range. And we intend to be very disciplined with our capital investment and only invest in the most attractive opportunities." --- (CVX, earning call, 2024/Q1)

"Our reportable segments are comprised of the following business activities: • Transmission & Gulf of Mexico is comprised of our interstate natural gas pipelines, Transco, Northwest Pipeline, and MountainWest, and their related natural gas storage facilities, as well as natural gas gathering and processing and crude oil production handling and transportation assets in the Gulf Coast region, including a 51 percent interest in Gulfstar One, a 50 percent equity-method investment in Gulfstream, and a 60 percent equity-method investment in Discovery." --- (WMB, sec filing, 2024/Q1)

"Historically, you've spent $200 million to $300 million annually here and you noted that there are greater flood opportunities with the new assets." --- (KMI, earning call, 2024/Q2)

"We have committed to investing $500 million in innovative energy businesses through Chevron Technology Ventures' Future Energy Fund III." --- (CVX, Twitter, 2024/05/01)

"Exciting news! Chevron Technology Ventures recently announced a new $500 million Future Energy Fund to invest in lower carbon technologies." --- (CVX, Twitter, 2024/05/14)