Engineering Inc. - March/April 2013 - (Page 4)

MarketWatch By g e r ry d o n o h u e U.S. Pipeline Industry: From Bust to Boom F ive years ago, the U.S. pipeline industry couldn’t see any light at the end of the tunnel. Domestic natural gas and oil reserves were dwindling and high drilling costs were making U.S. suppliers uncompetitive with growing foreign imports. The pipeline network was established and there was little demand for new infrastructure. That was before the combined technologies of horizontal drilling and hydraulic fracturing made the production of huge reserves of natural gas and oil trapped in shale formations plentiful and economical. Domestic natural gas production has increased fivefold in the past five years. “It’s nothing short of phenomenal,” says Greg Hopper, managing director for the natural gas and power fuels group at Black & Veatch Management Consulting. “We are actually set to become an exporter on a significant scale.” The 760,000 barrels-perday jump in U.S. oil production in 2012 marked the largest ever year-over-year increase. And, according to the International Energy Agency, the United States will be the world’s largest oil producer within the next five years. production infrastructure and are far from refining hubs, such as the Bakken shale oil fields in North Dakota. Rather than merely needing to add to the pipeline grid, these resource finds require building an entirely new grid, experts say. According to North American Midstream Infrastructure, a report by global energy, environment and infrastructure consultant ICF International, through 2035, 16,400 miles of mainline gas pipeline and 165,000 miles of gathering gas line will be built between 2011 and 2020. From 2021 to 2035, an additional 19,200 miles of mainline and 249,000 miles of gathering line will be added. Through 2035, the oil and NGL industries will require 30,000 miles of new pipeline. 4 ENGINEERING INC. Slowing Growth Two challenges to this growth scenario are low natural gas prices and/or regulation. The current price of less than $4 per million British thermal units (MMBTUs), says Paul Ziff, CEO of Ziff Energy Group, “is far below the full cycle cost to replace gas that is produced and sold.” For many wells, he says, the cash costs “exceed the gas price received, resulting in negative cash flow.” ICF International says gas prices between $6 and $7 per MMBTUs would sufficiently encourage gas production without curtailing demand. A distorted supply-demand curve is keeping natural gas prices down. Production is increasing at a rate of 15 percent to 20 percent annually as suppliers tap new wells and improve technologies for recovering gas from existing ones. Concurrently, says Black & Veatch’s Hopper, “we’ve had three years of a tough economy, with curbed consump- Cost of Infrastructure Added (Billions) 2011–2020 2021–2035ail annual average expenditures Gas Transmission Mainline $46.2 $51.5 $3.9 Laterals to/from Power Plants Gas Storage and Processing Plants $14.0 $15.8 $1.2 Gathering Line $16.3 $25.4 $1.7 Gas Pipeline $5.6 $3.5 $0.3 Oil Transmission $19.6 $11.8 $1.3 NGL Transmission $12.3 $2.2 $0.6 Source: ICF International Summary of Incremental Infrastructure Costs 2011–2020 2021–2035ail annual average expenditures (billions) Inter-regional Pipeline (Bcfd) 29 14 $1.7 Miles of Transmission Mainline (1000s) 16.4 19.2 $1.4 Miles of Laterals to/from Power Plants Storage Fields and Procession Plants (1000s) 6.6 7.3 $0.6 Miles of Gathering Line (1000s) 165 349 $16.5 Compression for Pipelines (1000 HP) Building Capacity Bust has turned to boom for the pipeline industry because most of these newly productive natural gas, oil and natural gas liquid (NGL) reserves are in remote regions that have no or limited resource ICF International estimates that total expenditures for natural gas mainlines, laterals, gathering lines and compression will total $82.1 billion through 2020 and another $96.2 billion between 2021 and 2035. Oil and NGL pipeline transmission expenditures will be $31.9 billion through 2020 and $14 billion between 2021 and 2035. In addition, the natural gas industry will need to add 240 new processing plants—at a cost of $20 billion—and 600 billion cubic feet of new storage capacity. 3,039 1,907 $197 Source: ICF International maRCh / apRIl 2013

Table of Contents for the Digital Edition of Engineering Inc. - March/April 2013

Engineering Inc. - March/April 2013
Table of Contents
From ACEC to You
Market Watch
Legislative Action
A Fresh Look at U.S. Energy Policy
Record-Setting Year for ACEC/PAC
Protecting Your Interests
Sky’s the Limit
6 Ways to Keep Cash Flowing
2013 Annual Convention Preview
Guest Column
Decision Makers
Business Insights
Members in the News
Mergers and Acquisitions

Engineering Inc. - March/April 2013