Despite what will likely be a noisy first quarter of earnings due to supply interruptions from Texas Winter Storm Uri, we expect midstream companies to keep their full year guidance intact. Offsetting the weakness was an improvement in commodity prices, which may allow companies to leverage excess pipeline capacity across their systems. Specifically, natural gas liquids fundamentals have remained robust, which should lead to continued volume growth. Earnings and distribution announcements have highlighted the stability of the midstream business model as free cash flow generation has continued to ramp. Companies have been reducing capital expenditures and using the excess cash flow to reduce debt, with stock buybacks as a secondary and growing consideration. There are now 15 midstream companies with active buyback programs, with approximately $300 million being bought back in 4Q 2020.
Winter Storm Uri was another reminder of the critical role energy infrastructure plays in delivering energy to end users. All generation sources suffered from reduced uptime due to a multitude of factors. Texas oil and gas producers’ biggest obstacle to delivering the fuel during February’s historic freeze was power outages rather than frigid temperatures. Pipelines, in some cases, suffered from rolling statewide blackouts. Moving forward, we expect the industry to explore additional winterization investments in energy and power infrastructure, improved resource planning, and increased investment in reliability and dispatchable power. The grid needs reliability and dispatchable generation must be ready to go.
While the Presidential Inauguration in January created headline risks for the energy sector, we continue to believe the consensus path forward for the Biden Administration is focused on getting Americans back to work with supportive policies versus policies aimed at opposing the oil and gas industry or destroying jobs. Actions taken by the Biden Administration have been more “bark than bite” in our view. In his first few months, President Biden stopped short of declaring a Climate Emergency, which would have given him executive power over export restrictions, tariff controls or emergency rulemaking. His pausing of new leases on Federal lands has had a very minimal impact as producers hold backlogs of permits on already leased land, and the Army Core of Engineers (ACE), a branch of the executive branch, has punted any decision on shutting down the controversial Dakota Access Pipeline (DAPL).
The predominant theme around Biden’s energy plan is to address climate change and create substantial job opportunities for Americans. Climate change and related opportunities for the overall economy was one of the four pillars of the convention platform, integrated into an overall vision of revitalization of America. We are keeping a close eye on policy guidelines. The tight margin in both houses of congress likely forces legislation using the reconciliation process, which we would expect to tilt legislation towards tax credit policy rather than more restrictive, comprehensive climate policies. We expect market economics to dictate the trajectory of future energy supply and demand.
Finally, the first quarter witnessed energy infrastructure companies advance ESG efforts to meet modern energy initiatives. During the quarter, we saw governance improvements with many MLPs now having publicly elected boards, midstream companies Kinder Morgan, Energy Transfer, and Williams Companies forming sustainable development groups, and formal carbon reduction targets being established by ESG leaders MPLX and Williams. Last quarter, we discussed how pipeline infrastructure could be repurposed to transport hydrogen. During the first quarter of 2021, we saw increased discussion on carbon capture. We believe achieving a carbon-neutral future will take a comprehensive approach, including carbon capture. Carbon can either be captured directly from the atmosphere or in higher concentrations directly from point sources, such as industrial exhaust. Existing U.S. CO2 pipeline infrastructure should be critical to accommodate growing volumes and we believe more infrastructure will need to be built to transport the carbon. During the quarter, Valero Energy announced a partnership with the Navigator Energy Services to build out a new carbon capture pipeline system in the midwest. The proposed system plans to transport liquefied carbon dioxide through the pipeline, for delivery into a central sequestration facility contemplated to be in south-central Illinois.
Within the downstream portion of the energy value chain, the refining sector remains among the most challenged sectors due to the COVID-19 pandemic. Refinery utilization has recovered from the depths of the economic contraction in 2020 but has remained below 2019 levels. In a sign of the times, permanent refinery closures have helped balance the market from a supply and demand perspective while new renewable diesel projects are being announced to extend the useful life of refining assets and associated logistics. From a U.S. refined product demand standpoint, we believe gasoline and diesel will continue to inch towards pre-COVID levels during 2021 while a slower recovery should be expected in jet fuel. That being said, more americans are traveling and American Airlines recently announced April ticket sales have hit 90% of pre-pandemic levels. Natural gas liquids, unlike the refining sector, has proved resilient despite challenges faced during the COVID-19 pandemic. Strength can be seen in LPGs (liquid petroleum gases) where demand is driven by global population growth and improvements in living standards in Asia, notably in China and India.