THE SOURCE - Fall 2016 - (Page 24)

feature The Rising Cost of Natural Gas Transport N By John P. Gregg, McCarter & English, llP atural gas consumers are cruising down the road buoyed by historically low natural gas commodity prices, but around the corner lurks the toll of higher costs of pipeline transportation. Despite a competitive supply market, all consumers will see their bills rise. The nation will rely increasingly on expensive new pipelines while its low-cost older pipes require billions of capital improvements to remain safe and operational. and there is reason to worry that some of this new investment will become stranded if liquefied natural gas (lNG) export markets fail to materialize, so that captive consumers could be asked to pick up the tab. New Construction Between 1998 and 2013, expenditures to create new gas pipeline capacity totaled more than $63 billion. last year, the Energy Information administration (EIa) projected total capital expenditures on pipeline capacity expansion to be about $42 billion between 2015 and 2030.1 a 2016 report prepared by ICf International for the Interstate Natural Gas association of america foundation says that by 2035 the U.S. will add between 264,000 and 329,000 miles of pipeline (including both gathering and transport lines), which is enough to circle the earth more than 10 times.2 The completion of the Rockies Express pipeline at $5 billion in 2009 alerted the industry to the cost of laying new, highpressure interstate pipeline over considerable distances. The "polar vortex" during the winter of 2013-2014 drove many local distribution companies (lDC) into that capacity market after hitting new design days. Project rates startled those shippers operating on "old," low-cost, deeply depreciated interstate systems. a large portion of this new investment is being spent on the "great reversal" of flows on the old long-line pipelines that stream from the Gulf. aNR, Texas Eastern, Texas Gas, and Tennessee Pipeline are among those spending hundreds of millions each on projects to reverse the flow on their pipe by making compressors (new and old) bidirectional. One has even proposed a reclassification of its rate zones to call the Gulf area a market delivery zone in recognition of the hoped-for lNG export market.3 24 THE SOURCE | THE vOICE and CHOICE Of pUblIC gaS But the global price of lNG has plummeted along with oil as new lNG facilities pop up around the world. The appetite for U.S. lNG appears less certain today than when these plans were formed. all of the new infrastructure may not be sustainable. The various natural gas producers that pledged to pay for it all may fail. What then? Financial Risks of Pipeline Expansion When the interstate pipeline market was restructured 25 years ago, rock-solid utilities held most of the newly unbundled capacity rights. Natural gas marketers took some, but producers generally did not. That is not the case with the great reversal. Producers hold the lion's share of capacity created by these new projects. The EIa predicts that domestic supplies of natural gas will exceed domestic requirements in 2017, which dictates lNG exports of 3 Tcf per year by 2021.4 If that lNG export market fails to materialize, the resulting supply glut will keep commodity prices low; financially stressed producers may fail to pay on their new pipeline contracts. Pipelines are on one of two regulatory paths with their large new infrastructure projects. Either they build them on a so-called incremental basis and take the risk of their success, or they seek a predetermination that they may roll the costs of a project into rates the next time each files a rate case. Since 1999, the federal Energy Regulatory Commission (fERC) has applied a Certificate Policy Statement to determine whether a new project will serve the public interest. The threshold requirement is that the pipeline supports the project without relying on subsidization from its

Table of Contents for the Digital Edition of THE SOURCE - Fall 2016

First Person
APGA Events
Q&A: Representative Blackburn
A Successful CNG from Sea to Shining Sea Road Rally
Richmond Breweries Tout Benefits of Natural Gas
Presidential Candidates Outline their Energy Plans
The Rising Cost of Natural Gas Transport
CNG for Public Transportation
APGA Hosts Second Southeast Tour
Legislative Outlook
The Pipeline
Marketing Matters
Advertisers’ Index/
At Last

THE SOURCE - Fall 2016