Nearly five years ago Plains All American Pipeline, L.P. (PAA) bought two natural gas storage facilities from Sempra Energy (SRE). Bluewater Gas Storage in Michigan has a working gas capacity of 20 billion cubic feet, and Pine Prairie Energy Center in Louisiana also has 20 billion cubic feet of capacity. Today, Plains has commenced an IPO of the two businesses as another master limited partnership named PAA Natural Gas Storage, L.P. (PNG) that will trade on the New York Stock Exchange under the ticker symbol ‘PNG’.
The new company’s shares have been priced at $19-$21/share, and Plains is offering 10 million shares with an overallotment option of 1.5 million additional shares. The offering represents 17.2% of PAA Natural Gas Storage’s equity, or 19.8% if the overallotment option is exercised. Joint book-runners are Barclays Capital, UBS Investment Bank, Citi, and Wells Fargo Securities.
The Bluewater facilities can deliver 826 million cubic feet/day and inject 508 million cubic feet/day. Pine Prairie currently is able to deliver 2.4 billion cubic feet/day and inject 1.2 billion cubic feet/day. Pine Prairies has received approval to increase its working gas capacity to 48 billion cubic feet, with delivery capability of 3.2 billion cubic feet/day and injection capability of 2.4 billion cubic feet/day.
Natural gas storage availability has traditionally outpaced supply, but that situation is changing rapidly as more gas is being produced at the shale gas plays. Shale gas production peaks very quickly after the well is completed, and then tails off nearly as quickly as the reservoir drains. In a conventional gas play, the peak is usually not reached for two or three years, so the buildup is slower and the decline is slower.
The Pine Prairie facility is also sited near the LNG import facilities in the Gulf of Mexico, which have not played a large role yet in adding to US natural gas supplies, primarily because of the success in drilling for shale gas. The volatility of supply in the natural gas market has increased the need for high-deliverability gas storage facilities like Pine Prairie. According to Plains’ most recent Form 10-K, the Pine Prairie facility can be expanded “significantly” beyond its currently permitted 48 billion cubic feet.
Expansion of the Bluewater facility is more problematic because it consists of depleted reservoirs, unlike the Pine Prairie facility which consists of large underground salt caverns. Prior to the IPO, Plains planned to expand the capacity of Bluewater by 2 billion cubic feet over a 10-year period, beginning next year. Currently, Bluewater leases about 3 billion cubic feet from third parties and 329 million cubic feet/day of pipeline transportation capacity.
Plains has not indicated how it plans to spend the proceeds of the IPO, but it’s a fair guess that most if not all will go to general partnership purposes. This is a good move for Plains, and the newly-listed company should offer some upside going forward.
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