Alan Armstrong counts himself as a lifer as he approaches his 40th year with The Williams Cos. after joining as an engineer in 1986 out of the University of Oklahoma.
“If you look at how fast the Trump administration is coming in and approving permits, we think the next 10.5 Bcf/d [of LNG] probably can be absorbed by the market. But, if you get beyond that, we’re certainly in a ripe situation to overbuild the market.” —Alan Armstrong, president and CEO, Williams Cos. (Source:Marshall Hawkins)
In the decades since, he’s seen Williams acquire its crown jewel Transco in 1995, survive the fallout of the Enron scandal and, personally, rise to president and CEO in 2011.
He led the spinoff of the upstream arm as WPX Energy, and he focused Williams on emerging as a natural gas midstream powerhouse.
Roughly a decade ago, as crude oil ruled the industry, Williams and Armstrong narrowly survived a takeover attempt by Energy Transfer amid a pricing collapse and legal dispute.
Fast forward to today though, and Williams has seen its market cap skyrocket to about $70 billion—near the top of all U.S.-based midstream firms.
The buildout of LNG facilities and data centers are all bullish for Williams, and the Trump administration is eager to see gas pipeline construction expedited. President Donald Trump is even mentioning revitalizing Williams’ Constitution Pipeline project, which was scrapped in 2020 after New York blocked it over water-quality concerns.
Armstrong spoke with Hart Energy contributing editor Jordan Blum about the state of the midstream sector and Williams’ growth as a gas juggernaut.
This interview was edited for clarity and length. A longer version will appear in print in the May issue of Midstream Business.
Jordan Blum, contributing editor, Hart Energy: Broadly, I wanted to get your take on the overall state of the midstream sector in the U.S. and the growing role Williams is playing in it.
Williams Cos. Expected Capital Drivers for 2025. (Source: Williams Cos.)
Alan Armstrong, president and CEO, Williams Cos.: Our focus for a long time has been strictly on natural gas infrastructure, and that’s been, I think, a winning strategy for us. We really have—probably more than anybody—been very narrow in focusing on natural gas infrastructure. One, because we realized how inexpensive gas was relative to other fuels. And, two, the benefits of it for a world seeking lower emissions. It’s really with the pursuit of being great at something and not just being a jack of all trades. Back when liquids were super popular, that was a bit of a detriment for us. Thankfully, we’ve been able to keep the board excited about our strategy and committed to our strategy.
Broader, coming out of the MLP days where people were really incented to do projects even at lower returns because of the way the cash flowed up to the general partner... Those days are kind of gone and there’s a lot more capital discipline in the market today … than we saw 10 years ago in the go-go days in the MLP world. Somewhat for different reasons, it’s like we’ve seen in the upstream space where there’s been a lot of focus on capital discipline as well.
I think the space is a lot healthier than it’s been in my career from a financial perspective, but it also, particularly on the natural gas space right now, has probably more tailwinds and more exciting growth opportunities in it right now than I’ve seen in my career as well. I think it’s a great time to be in the space.
JB: Can I get you to elaborate a bit on your reasons for the overall bullishness on the natural gas side. Even though prices have been weaker, obviously they’re better now. Talking about how things have changed: Nine years ago, there was the Energy Transfer takeover attempt of Williams and a bit of an investor coup. Now, you’re arguably bigger and stronger than ever.
AA: I do think it’s because there is so much demand for [gas], and that’s partially based on the fact that our independent producers here in the U.S. have done such a great job of continuing to get their costs lower and lower. I think the technical success on that side is way underappreciated by a lot of people and certainly the general public. What’s paved the way for the gas side has been the fact that we’ve been able to keep natural gas supplies at such a low cost. That has driven long-term capital investment in the use of natural gas. And, of course, the demand side is pretty sticky. Once you’ve made a commitment to an LNG facility or a power generation facility or manufacturing that is based on natural gas, it’s pretty expensive to change that decision.
When gas prices get low we will see people selling off our stock because they think of us as a natural gas company and they think, “Oh, price is bad and, therefore, it’s got to be bad for Williams.” The truth is it’s actually a good thing for us in the long term. It means that long-term, big capital investments that drive demand are being made and that demand, frankly, is a whole lot stickier than the decisions that are made on the supply side. It’s a lot easier to allocate capital in and out of the space on the supply side than it is on the demand [side]. Because we’ve had low prices, people have been convinced that we can produce, and we keep finding so much resource here in the U.S. that it’s driven interest in natural gas infrastructure and the use of natural gas both here at home and, obviously, overseas.
Projected L48 Natural Gas Cumulative Demand Growth Over 2024 Levels. (Source: Wood Mackenzie, Williams Cos.)
JB: Can I get you to expand your thoughts on those demand pulls a bit more? Obviously, there’s LNG, data centers and AI, power generation … I know a lot of those are interconnected.
AA: Yeah, it certainly is. On the LNG side, that’s a lot easier to talk about and forecast because they’re big decisions and those big facilities don’t sneak up on anybody. We’re looking now in the U.S. by 2030 having another 10.5 Bcf/d of online export capacity with that growing to about 17 Bcf/d by 2035. That’s a lot of incremental demand on the export facilities. As we look at the demand side for LNG, not just at the export facilities, but the global demand, which you have to keep your eye on, we feel pretty confident about the market’s ability to be able to absorb the export capacity here for this next 10.5 Bcf/d.
Get beyond that and it’s certainly harder to predict what will happen. But the utilization rates here for export facilities in the U.S. have been about 96%. Globally, that’s about 87%. If you think about the right amount of capital deployed to a space, 96% probably says you’re short. In fact, really, the only thing that’s driven the 96% [down] for the most part has just been outages on facilities, not really lack of demand or margin. But, as you start to get that capacity built out, we would expect those utilization factors to start to trend down a little bit as plenty of export capacity gets built out as we get into 2035. We feel pretty good about the next 10.5 Bcf/d, and we think it’ll be healthy for both the U.S. and the global markets if we have a little bit more capacity than we need.
If you look at how fast the Trump administration is coming in and approving permits, we think the next 10.5 Bcf/d probably can be absorbed by the market. But, if you get beyond that, we’re certainly in a ripe situation to overbuild the market.
In other words, if that utilization rate gets down closer to an 87% level, that’s saying we’re providing the storage capacity for the rest of the world. In other words, if you’re going to store gas, it probably doesn’t make sense to pay for it to be liquefied, sent overseas and sit in liquid storage. It makes a lot more to store it where we have all the underground storage capability here in the U.S. That’s what our expectations are, that the market will build out to where the U.S. really is the swing globally and, therefore, we’ll probably have a lower utilization on LNG.
On the power demand side, this is getting hard to keep up with, but it is really coming on fast. So, just a couple of really interesting data points, though, from our particular perspective. First of all, we set a new, all-time record on Transco for the month of January and, even though we had some cold snaps, it wasn’t extraordinary weather. Our new record beat our old record by 10% for January, so that’s a big step up in demand on Transco.
The peak day gas demand for power generation is expected to increase across major ISOs due to growth in electrification. Natural gas pipeline contracted capacity is critical to ensure electric reliability on peak days. (Source: McKinsey & Co., Williams Cos.)
Secondly, which I find even more impressive, if you think about how you sell pipeline capacity, you really don’t care what the average annual demand is and you don’t really care that much other than just paying attention to what’s going on. What you do care about are peak days because peak days are what sell capacity, and that’s what we actually sell. This winter so far (as of Feb. 17), 17 of the 20 highest recorded peak days ever for Transco have occurred. That’s pretty amazing considering we really haven’t had any big blowout weather conditions in the Northeast this year, certainly not 17 days of them. We’re seeing these peak days really start to pick up. What’s driving it is not the residential heating load; it’s the power generation coupled at the same time with the residential heating load. That’s really what’s driving these records.
Two [Transco expansion] projects were brought on this last year. One was Regional Energy Access (REA) [in Pennsylvania and New Jersey], and one was the Southside Reliability Enhancement (SRE) project in Virginia [and North Carolina]. Those two projects both had full utilization of their capacity this winter. They just now came online, and we’ve already hit full utilization on both of those capacity systems, which is fascinating, especially given that one of those, Regional Energy Access, FERC (Federal Energy Regulatory Commission) got sued for approving that project because they didn’t prove up that there was enough need for it. And it is really rare that a project that we bring on hits full capacity in its first year use. It really speaks to how robust the demand is coming at us on a lot of fronts.
Williams Cos. latest Transco expansions serve the Mid-Atlantic and Southeast U.S. (Source: Williams Cos.)
JB: From a political and regulatory standpoint, obviously it’s easier to build expansions than greenfield. But what is your opinion on what could happen in terms of reforms via NEPA (National Environmental Policy Act) or anything else under the Trump administration that could help the midstream sector? And, I’ll play devil’s advocate, potentially create more Transco competition, too.
AA: Sure, I think that’s right. I would just tell you we think we have such an advantage as the incumbent by having such a big network, and cover so much area where there’s just nobody else, even if permitting got easier, which I certainly hope it will. We’re certainly working hard to make that happen just because it’s really nonsensical and a lot of wasted money.
Back when we had Constitution Pipeline up and rolling, which is just in upstate New York, it’s not like going through populated areas. That pipeline costs 2.4 times more per diameter-inch mile than laying [pipe] in the deepwater Gulf of Mexico, where you have almost 2-inch wall thickness on the pipe. And there are only two ships in the entire world that can lay pipe in that depth of water. You actually have to go down and build bridges across the canyons and ravines in the ocean. It’s not like you just lay the pipe down. And, yet, it’s that much more expensive to lay pipe in New York, and it’s all driven by permitting costs.
Transco Expansion Projects. (Source: Williams Cos.)
My point is, relative to your question on permitting, yes, we would introduce competition. I would just say we would welcome some healthier competition to the degree that it allowed more infrastructure to get built here. One of the things that people have to remember is we’re the largest gatherer by a very large margin in the Marcellus and Utica [shales], but we’re also the largest in the Haynesville. We actually like seeing takeaway infrastructure built from these areas because we make higher margins on our gathering business than we do even on our transmission business. We love to see takeaway capacity built out of these markets. Certainly, we’d love for it to be by us, but we win either way. We like to see new transportation, particularly out of these dry gas basins.
In terms of what will happen, I think it’s very clear to us right now that the Trump administration is very focused on getting some big quick wins and getting some projects. President Trump mentioned our Constitution Pipeline on [Feb. 14] in a press briefing, which we had no idea was coming.
He was in the Oval Office and we were kind of like, “Whoa, where’d that come from?” He mentioned Constitution, which is a greenfield project, and we’d love to see it get built, obviously. But that is exactly what the administration is wanting. They’re wanting some big quick wins like that. Our preference would be that we use these examples of these wins to show how much the economy is being held back by infrastructure here in the U.S., not just pipeline infrastructure—really all forms of infrastructure being held back by our permitting processes. We are really pushing for some long-term durable permitting [reform] while we have both the Senate and the House and the executive branch all under Republican control. We’re not trying to make it just about pipelines. We think it needs to be done for all construction.
