PITTSBURGH—As major pipeline projects, including Rover, Mountain Valley and Atlantic Coast, move forward in their quest to unlock new markets for Appalachian natural gas, participants at the recent Marcellus-Utica Midstream Conference discussed prospects for the next round of projects likely to emerge based on abundant Appalachian gas.

Chris Akers, president of Eureka Midstream, said the impact of the Rover pipeline starting up early in 2018 was “going to be positive,” but noted it “was just one piece of getting gas out of the basin. With the Atlantic Coast and Mountain Valley pipelines taking gas to the Southeast and other projects going to the west and northeast, I think the basin is now getting well-shaped to be able to get gas and/or NGL out of the basin.”

Steve Woodward, senior vice president of business development for Antero Resources Corp. (NYSE: AR), cited a “change going towards demand-driven projects,” with the Atlantic Coast pipeline as an example. “It was a much-needed project to come in, and we’re excited to see that project move forward,” he said.

“As far as the future for additional projects out the basin,” Woodward continued, “the thing that I’ve been promoting is the concept of meeting half-way with demand. We’ve been talking to a number of utilities, we’ve been talking to various co-gen projects and combined cycle projects, trying to figure out ways to meet half-way on reservation.”

As additional infrastructure is built in the basin, according to Woodward, “we’re seeing that the cost is exceeding $1, and at current NYMEX gas prices it’s pretty tough for a producer to stomach the takeaway. I used to use the rule many years ago that you don’t want to spend more than 10% of the commodity price on firm transportation. Needless to say, this basin has been a very costly basin, and we’ve all exceeded that parameter.”

As a result, the industry is “trying to look forward, as utilities need more gas, and do some form of sharing mechanism,” he said. “What we’re seeing is that a lot of the people that are in the middle of these long-haul pipelines between the Gulf Coast and Appalachia are stepping up. Because the long-haul transport keeps the gas from one end of the pipe to the other, the guy in the middle sometimes gets left out, and so he really has to create his own destiny and step up and say, ‘I want to be part of this. Let me help sponsor some takeaway.’ We’re excited that we’re having those sorts of discussions with people midway between the Gulf and Appalachia.”

Speakers at the MUM conference also discussed changing views on acreage dedications and volume commitments. Dana Bryant, senior vice president of midstream and marketing for Eclipse Resources Corp. (NYSE: ECR), noted that as development drilling has expanded in the basin, volume commitments have followed.

“There’s more certainty,” noted Bryant. “You’re more willing to make a volume commitment.”

Akers concurred.

“An acreage dedication is nice, but if it’s not being produced, and if it’s not being backed by MVCs [minimum volume commitments] or a reservation charge, it really doesn’t pay the bills,” he observed. “There’s enough production in the area now that you can feel some level of security as to what’s going to happen. We’d love to have acreage dedication, but we’d much rather have MVCs.”

Woodward noted a more “hybrid structure” evolving in some areas.

“What we’ve seen, particularly in the development of the Appalachian region—the most capital-intensive gas basin in the United States—is a kind of a hybrid structure, where you’ll have a dedication, but you’ll also have some form of reservation charge,” he said. “There’s typically a modified fixed and variable component of the reservation fee coupled with some form of acreage dedication. That seems to have worked well for a lot of the relationships between producers and their midstream counterparts.”

Akers pointed to a move to more risk-sharing between the midstream and the upstream sectors.

“One of the things I think is growing more and more important is having the midstream company start sharing some of the risk and the upside with producers—so more of a joint relationship than we’ve seen in the past, with the midstream provider sharing in the risk and the upside,” he said.

In addition to higher commodity prices—as well as rapid well connections and reliable flow of wells—what else makes for a more effective midstream operation?

“We try to work out relationships that work for both parties,” said Akers. “We believe in shared success. And once that contract is in place, you still have to be a little bit flexible outside the contract.”

As an example, Bryant pointed to Eclipse’s ability to work with Eureka on natural gas usage.

“Eclipse is using natural gas to fuel drilling and completions, so we work with Eureka in getting access to natural gas off the system to fuel our operations,” she said. “We have to work together potentially out of the four corners of the contract to make that work for everyone.”

Given the integrated relationship between upstream and midstream, ways to create value are easier to identify at Antero.

“We’ve found a good way to get the value is not just to get good netbacks on our upstream company, but also to share in the value of the midstream through getting dividends [from the midstream MLP, Antero Midstream Partners LP, and its Antero Midstream GP].”

“Our midstream company enjoys a very reliable company on the upstream side,” he winked. “And the company has a very well-planned drilling plan.”

Chris Sheehan can be reached at csheehan@hartenergy.com.