How Williams Companies Is Turning a Distressed Situation Into an Opportunity for Profit

Williams Companies Inc sees a once-in-a-generation opportunity to participate in building infrastructure to support what it sees as a natural gas industry supercycle. That said, the cycle hasn't exactly been growing in a straight line as supplies, in many cases, are outpacing demand. However, this is creating unique situations to capture value by taking advantage of that disconnect in the market. One area where Williams sees a unique opportunity is in Canada, where a current over supply of propane is causingit to sell at a distressed level. Here's how the company plans to profit from this opportunity.

From distress to high-valueAt a recent investor conference, CFO Don Chappel went through the growth opportunities the company saw on the horizon. One opportunity that the company is looking to capture is in Canada, where it has a unique asset footprint it wants to expand. Chappel noted this footprint by pointing out the that company's...

We can see these assets on the following map.

Source: Williams Companies Inc Investor Presentation.

While Canada is a small part of the company's current asset base, it sees a unique opportunity to leverage its asset footprint and take advantage of a compelling opportunity it sees in the marketplace. The opportunity it sees is to build a Propane Dehydrogenation, or PDH, facility.Chappel then went on to explain this opportunity:

As we see on the slide below, Williams is proposing a first of its kind PDH facility in Canada to take advantage of distressed propane prices by converting that propane into a higher valued product.

Source: Williams Companies Inc Investor Presentation.

Chappel then expaned upon why this project is such a compelling opportunity:

What the company envisions is building a PDH facility to turn propane it controls, as well as discounted propane it would buy into a petrochemical feedstock called propylene. Propylene is the second most important feedstock for the petrochemical industry, and about two-thirds of it is consumed by manufacturers of plastic polypropylene, which is used for films, packaging, caps, and closures, as well as a variety of other applications.

Williams isn't the only company that sees profit potential from turning propane into propylene. Fellow midstream company Enterprise Products Partners LP is doing the same thing in the U.S. Gulf Coast to take advantage of the abundant propane supplies in that region and turn it into propylene, which will then be sold to petrochemical plants in the Gulf. However, what's different about Williams' project is that it is looking for a partner to build a propylene consuming plant right next door to turn its propylene into a higher valued end product, as there aren't any propylene consumers nearby. It views this partnership as ideal since it would save on shipping costs and make it a much more economically viable project.

Investor takeawayWilliams sees a big disconnect between the price of propane in Canada and its value once upgraded. The company is planning to seize this opportunity by finding a partner that can turn the petrochemical feedstock it could create into a valuable end product. It's a unique situation that could create a lot of value for Williams out of what is a very distressed situation for propane in Canada.

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Matt DiLallo owns shares of Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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