American Oil and Gas Reporter - August 2018 - 27

Midstream Infrastructure
Needs Signiﬁcant Investment
Amid Uncertain Future
The growing need for pipeline infrastructure is an urgent
issue mentioned frequently in this column. It has focused on
fossil fuel opponents' targeting of pipelines, since fossil fuels
will not be produced without the means to transport them.
North American Midstream Infrastructure Through 2035:
Leaning into the Headwinds, a report by the Interstate Natural
Gas Association of America Foundation, provides a sobering
look at the capital expenditures needed for natural gas, crude
oil and petroleum/petrochemical liquids infrastructure: $44
billion annually through 2035, for about 41,000 miles of pipeline
and an additional 139,000 miles of gathering lines.
The study deems midstream infrastructure to include surface
and lease equipment; gathering and processing facilities; oil,
gas and natural gas liquids pipelines; oil and gas storage
facilities; refineries and oil products pipelines; and liquefied
natural gas export terminals. Projected natural gas infrastructure
accounts for 52.7 percent of those future expenditures ($23
billion annually), which would supply increasing demand in
both the United States and Canada, particularly in the power
generation sector and for LNG exports.
For infrastructure additions, the study envisions 2019 will
see the largest expenditure, topping $100 billion. But the study
notes that midstream investment "remains robust over the study
horizon," with the primary drivers being continued unconventional
resource development and strong market demand attributable in
large part to relatively low commodity prices. Natural gas
exports show enormous potential, with exports to Mexico and
LNG exports to worldwide markets.
Power sector usage growth will contribute significantly to
the need for natural gas infrastructure. The retirement of coalfired power plants and of nuclear plants 60 years and older,
along with the key role of natural gas "to help firm up variable
renewables, like wind and solar," are expected to foster natural
gas demand and the need for infrastructure additions.
The economic impact from the projected midstream infrastructure investments would be significant. They project to:
* Add a cumulative $1.3 trillion to the U.S. and Canadian
economies, or about $70 billion annually; and
* Increase employment by 725,000 U.S. workers a year, and
while those jobs are likely to be concentrated in the Southwest and
Northeast, "Significant employment opportunities are created . . .
across all states because of indirect and induced labor impacts."
The study does not consider impacts of steel tariffs or quotas
and the cost increases and delays associated with fossil fuel opposition are difficult to quantify. Studies are best-effort analyses
and their accuracy usually declines in proportion to their time
horizons. For example, INGAA's 2016 study estimated an
average U.S. pipeline unit cost in 2017 of $158,000 per inchmile. In actuality, the average unit cost in 2017 was about
$230,000 (in 2016 dollars) per inch-mile. The study includes an
escalating unit cost scenario, which incorporates regression
analysis of historical unit costs by region, to reflect the much
higher costs in the Northeast, "where projects have been very

"Even when a project receives approval, it
usually comes with enormous expenditures
associated with delays and the costs of defending against attacks, both legal and physical, at all levels of government.

difficult and time-consuming to construct due to congested corridors and rough terrain."
The INGAA analysis concedes that the "infrastructure development in each of the (study's) scenarios is dependent on
regulatory approvals of the projects." That is not an easy hurdle.
Even when a project receives approval, it usually comes with
enormous expenditures associated with delays and the costs of
defending against attacks, both legal and physical, at all levels
of government. Costs for Dominion Energy and Duke Energy's
Atlantic Coast Pipeline, scheduled to be in service in 2019, are
expected to increase by $1.5 billion owing to regulatory delays.
Total project cost is now about $6 billion.
For interstate natural gas pipelines that rely on Federal
Energy Regulatory Commission approval, the prospect of regulatory delays increases after mid-August, when Commissioner
Rob Powelson steps down to become president and chief
executive officer of the National Association of Water Companies.
As a long-serving member and former chairman of the Pennsylvania Public Service Commission, Powelson contributed indepth knowledge of the natural gas industry, as well as the perspective of a state regulator. Among the five commissioners, he
was the most outspoken opponent of the Trump administration's
efforts to keep coal-fired and nuclear generators running,
ostensibly in the name of grid resiliency and national defense.
Nomination and confirmation of a new Republican commissioner
likely will take months. In the interim, FERC may face tie votes
in proceedings involving natural gas pipeline approvals, as the
two Democratic FERC commissioners often dissent on pipeline
certificate orders, arguing that FERC is inadequately analyzing
upstream and downstream environmental impacts. The commission
also will be reviewing comments on the important notice of
inquiry, "Certification of New Interstate Natural Gas Facilities,"
which will be the topic of next month's Washington Watch. r

SUSAN GINSBERG is vice

president of crude oil and natural gas regulatory affairs for
the Independent Petroleum Association of America. She covers legislation and regulation,
focusing on the CFTC and
FERC. Her experience in natural gas regulatory affairs spans
more than three decades.
AUGUST 2018 27

American Oil and Gas Reporter - August 2018

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