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Boardwalk Pipeline Partners, LP (BWP) Wants You Back

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The energy production boom in the U.S. has many midstream and downstream companies salivating at the potential of moving and using our oil and gas. The Gulf Coast in particular is expected to benefit from a massive influx of capital expenditures. Petrochemical companies are investing heavily to build facilities capable of turning natural gas liquids, or NGLs, into the building blocks used to create products ranging from plastics to detergents and footwear.

Boardwalk Pipeline Partners, LP (NYSE:BWP)

The key to making those investments pay off is access to low-cost feedstocks. This is where midstream companies like Boardwalk Pipeline Partners, LP (NYSE:BWP) are stepping up to the plate to provide a solution. Boardwalk, along with its newly minted, joint-venture partner Williams Companies, Inc. (NYSE:WMB), is working on a project aimed at moving NGLs from the Marcellus and Utica to the Gulf Coast.

The joint venture will consist of the Bluegrass Pipeline from the Appalachian Basin down to Louisiana, as well as processing and storage facilities with the potential for liquefied petroleum gas export capacity. One of the key aspects of the project is that it’s repurposing some of Boardwalk Pipeline Partners, LP (NYSE:BWP)’s Texas Gas system from natural gas into one suited to handle NGLs. This will allow the partners to not only save some money but also complete the project sooner, as evidenced by the targeted in-service date of late 2015.

This is a pretty timely venture for Boardwalk Pipeline Partners, LP (NYSE:BWP), which has underwhelmed lately. The company has underperformed the S&P 500 by a wide margin over the past year. Some of that could stem from the fact that its distribution has been stuck in neutral for the past five quarters after a long run of consistent quarterly raises. The deal with Williams Companies, Inc. (NYSE:WMB) enables the company to leverage its assets in the Gulf Coast while repurposing a portion of its Texas Gas system without affecting its existing natural gas customers. That will help Boardwalk to generate more fee-based income, which will provide greater stability for the distribution, as well as the potential to eventually grow those payments.

In one sense Boardwalk Pipeline Partners, LP (NYSE:BWP) and Williams are taking a page out of Enterprise Products Partners L.P. (NYSE:EPD)‘s  playbook. The company has a history of repurposing underutilized assets, including several hundred miles of pipeline to get its own Gulf Coast NGL pipeline project completed. The ATEX Express is the first mover when it comes to taking Marcellus and Utica NGL production to the Gulf Coast, and it should be in service early next year.

There should be plenty of demand for both systems as producers in the region are targeting growing the wet-gas portions of the play. As you can see from the following chart there is a severe lack of NGL takeaway capacity in the region, which opens up opportunities for companies like Williams and Boardwalk Pipeline Partners, LP (NYSE:BWP):

Source: Williams Investor Presentation (link opens a PDF)

Because of all the supply that’s coming on line, petrochemical companies in the Gulf are spending heavily in anticipation of increased access to these cheap NGLs. The Dow Chemical Company (NYSE:DOW), for example, has announced its intentions to build a number of facilities in the Gulf with plans spend more than $4 billion on these expansion projects. The company is specifically sourcing feedstock from the Marcellus Shale to fuel these projects.

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