The Current State of the U.S. Pipeline Industry

(Note: This is a transcript of the speech, Jeff Share, Pipeline & Gas Journal’s award-winning editor, gave to the Pipeliners Association of Houston earlier this month)

Since the election I’ve been pondering about what I want to talk about. With Donald Trump it’s anyone’s guess what’s going to happen next.

President Obama wasn’t popular with our industry, but when he came in, domestic crude production was just 5 mbpd, we imported 10 mbpd, and no exports were allowed. Now we produce 9 mbpd, import about 7 mbpd and export over 600,000 bpd of crude. We’re also exporting natural gas which will be a big boost to the industry, the economy and the environment.

New regulations and lags in permitting have led costs to spiral to where many projects are no longer economic. But unlike others, Obama never tried to ban fracking, but left it up to the states. The Clean Power Plan is unpopular to many, but it should be great for natural gas.

Let’s look at the executive orders Trump has already signed to promote pipelines and create jobs:

• A directive to expedite review and approval of Dakota Access. Unless it goes to court and they’re successful at forcing a full review which could take up to 2 years, the oil is expected to begin flowing in June.
• Keystone XL: an invitation to TransCanada to resubmit an application for the presidential permit, which they did immediately, and a directive to the State Department and other agencies to issue a decision within 60 days

A request to the Sec. of Commerce to develop a plan in 6 months to mandate the use of U.S. steel in all pipelines

On Keystone, do producers still want it or, have current market conditions made it uneconomic? How hard will Justin Trudeau try to shut down the oil sands, and what does President Trump want in return?

He’s promised to review NAFTA which could affect Keystone because, among other things, he’s suggested a border adjustment tax which could shut out exports from Canada, Mexico and the rest of the world by raising the cost of imported oil by 25%. Trump wants most of the materials to be US-made and said earlier he wants a piece of the revenue. It’s 50-50 we see it built. Keystone would definitely kill off Energy East, which is tottering after last week’s unfavorable decision in Canada.

Mexico is a bright spot for our natural gas but again we don’t know how this is going to be affected by the administration. Gas generated 54% of Mexico’s power in 2015 and is expected to comprise 60% of future power generation fuel. Gas deliveries from the U.S. more than doubled the past two years, averaging over 4 Bcf/d August through October. The pipeline gas and LNG shipments helped producers end a supply glut that had prices at their lowest level in two decades.

With the turnaround for Dakota Access and Keystone and an administration that likes fossil fuels, what is the opposition’s plan? Will they organize protests on a wider scale? They’ve moved into West Texas and into the East Coast, but can they sustain that over the next 4 years?

Yes they can. And may even be more galvanized in blocking new pipelines and will try to use every conceivable delaying tactic until developers quit in frustration or a new administration is voted in. This is not the time to relax because the battle isn’t over. They have the time, social media outlets and resources to do it.

Expect to see less restrictive regulations, but is this what we really want? Do we want to return to the drill baby drill days when we produced so much oil that we had to beg OPEC to bail us out, and when low natural gas prices hardly made it affordable to produce? We need even stricter regulations because there are still too many leaks and other incidents. Many of you here tonight work for companies that profit from those regulations.

Prices: EIA’s Annual Energy Outlook has Brent crude at $53/b in 2017, $56/b in 2018. WTI should average $1 less than Brent both years. EIA sees Henry Hub natural gas averaging $3.55 in 2017 and $3.73 in 2018 vs. $2.51 last year. Consumption will be flat for the next two decades with rising fuel economy offsetting demand growth in transportation.

EIA sees a price recovery to $80B within four years, gradually rising to $100 by 2040. If prices rise much more sharply, oil production will go up by a third by the early 2020s. For much more detailed information visit httl:www.eia.gov/outlook/aeo.

BP’s 2035 forecast says natural gas led by unconventional sources will overtake oil as the dominant fuel. We should remain the largest gas producer with 25% of production. Shale gas is expected to grow 4% per year, accounting for 75% of our production in 2035 and 20% of global output. We should be export 18 Bcf/d of natural gas by then.

Wood Mackenzie predicts oil/gas companies will increase spending in 2017 and more than double new project developments. Their global outlook shows E&P spending rising 3% to $450 billion, still 40% below 2014 levels.

There will be 20-25 final investment decisions for projects over 50 million/ b of oil equivalent compared to 9 in 2016. Not enough to cover a growing supply/demand gap which they say could widen to 20 mbpd by 2025.

Trump’s been upfront about oil pipelines, but we’ve heard nothing about gas pipelines, especially those needed to carry supplies from the Marcellus and Utica. Now it takes FERC an average of 429 days to review them compared to 359 days 3 years ago. Norman Bay’s decision to resign after he was pushed as chairman leaves FERC without a quorum, meaning it can’t act on pending projects. New appointments have to be approved by Congress.

Appalachia growth remains constrained but FERC’s actions Friday in Bay’s last day will fix some of the bottlenecks. Although several of these projects, which I’ll get to, are expected to come online this year, this may not provide enough capacity for Appalachia alone to meet growing gas demand. Several pipelines remain stuck in legal battles and lengthy reviews before regulators. The lack of pipeline space is depressing prices for gas from the Marcellus and Utica, forcing drillers to curb output.

17 greenfield natural gas pipeline projects should be completed and be online in Pennsylvania, Virginia, West Virginia and Ohio over the next two years. They’ll ship about 17 Bcf/d from the Appalachian Basin to the Northeast, Atlantic Coast and Canada. Some gas will move south to the Gulf Coast for LNG exports and to meet demand in Mexico. Add billions more for related construction projects include expansions, looping, gathering lines, meter stations and compressor stations.

Rover Pipeline is a critical piece of the map. On Friday, Energy Transfer received a notice to proceed with preconstruction for tree cutting and to install access roads. This was essential because they only have until March 31 to get the tree-clearing done in time for bat season–when federally protected Indiana and northern long-eared bats begin to roost in those trees. Now they need the final project certificate to being construction which they’ve requested by Feb. 20.

The $4.2B, 711-mile Marcellus/Utica gas pipeline will run from PA, WV and eastern OH, delivering 3.25 Bcf/d gas in 24-42-inch pipe directly into Ohio, Michigan and the Dawn Hub, and through connections to the Midwest, Northeast, East Coast and Gulf Coast.

FERC gave 4 certificates of public necessity, which means construction can begin, to several projects, including Williams Partners’ Atlantic Sunrise expansion.

It’s a $3B, 200-mile expansion of the Transco system that’ll connect Marcellus gas from Penna to markets in the Mid-Atlantic and Southeast. They’ll start work on the mainline portion in mid-year with work on the Central Penn Line, the greenfield portion, starting in the 3^rd quarter. Everything should be in-service by mid-18.

Earlier the Atlantic Coast gas project also got a favorable draft environmental impact statement from FERC. The $5 billion, 550-mile pipeline led by Dominion Energy would carry Marcellus gas from West Virginia to Virginia and North Carolina. They expect the final draft impact statement in June with construction starting soon after and continuing into 2019.

A couple weeks ago FERC approved the $1.4B, 36-inch Leach Xpress pipeline, to carry gas from WV into Ohio and back into to Virginia.

In Canada, Kinder Morgan’s $7B expansion of the Trans Mountain pipeline seems ready to move forward after the National Energy Board recommended it go ahead if 157 conditions are met. The expansion would triple capacity of the existing pipeline, which runs from near Edmonton, Alberta into BC and increase tanker traffic seven-fold.

Spectra’s $2B, 255-mile, 36-inch Nexus pipeline would bring Appalachian gas into northern Ohio, southeastern Michigan, Chicago Hub in Illinois and Dawn Hub in Ontario. FERC OK’d the environmental impact with a final deadline expected to come shortly, after which they should get the certificate of construction.

FERC also gave final approval to National Fuel Gas Co. Northern Access pipeline, a $455M, 100-mile project from north central PA into western NYS. But National Fuel had already decided to push back the anticipated start date of the project from November until March 2018.

Last week Equitrans announced another delay for Mountain Valley Pipeline, a $3.5B, 300-mile, 42-inch line taking gas from the Marcellus and Utica in northwestern West Virginia to southern Virginia through a connection with Transco. They got the Draft Impact Statement last fall and expected the final statement March 10. They hoped to start by mid-year; that’s pushed back a year.

Federal regulators were supposed to have decided on the PennEast Pipeline’s environmental impact statement this week but have delayed that to April 7. The in-service date for the $1.2B, 110-mile, 36-inch pipeline from PA to NJ is scheduled in late 2018. Because it would cut across an ecologically sensitive region it’s caused one of the biggest clashes between the industry and environmentalists in state history. 4 former Democratic and GOP governors are against the project.

The good news is the many gas replacement programs around the country are worth billions and will continue for years because of aging infrastructure.

Washington Gas is replacing 16,000 miles of mains and over 235,000 gas services as part of its accelerated program in Virginia, Maryland and DC. This will take 15-40 years with spending of $650M over the next 5 years.

In NJ, PSE&G is replacing 4,000 miles of cast iron main. By 2018, they’ll replace 500 miles of cast-iron and unprotected steel gas lines. The job could take 25 years.

Baltimore Gas and Electric is replacing 50 miles of gas mains annually and in the first two years of their program has replaced 12,000 service pipes and risers.

UGI Utilities in eastern and central Pennsylvania still has 1,200 miles of bare steel and 350 miles of cast-iron infrastructure to replace. They expect to have all cast-iron gone by 2027 and all bare steel pipe replaced by 2041. The $1.2 billion replacement program began in 2012.

Consumers Energy serves Lower Michigan and has a multibillion-dollar program where they’ve spent $1.5B the past 5 years upgrading their system. They have 60 ongoing projects upgrading pipe, enhancing compressor stations and building a new station needed with the addition last year of 10,000 residential, business and commercial customers. New business installations have grown 141% since 2009.

Integrys Energy Group is replacing 2,000 miles of cast-iron mains within its Peoples Gas Distribution system – much of it within Chicago. They’ll also install 300,000 service pipes and meters in their $5B program. They expect half of the system to be brand new within 20 years.

Metropolitan Utilities District of Omaha is spending $1B replacing cast-iron mains along with water mains. They’ll replace 400 miles of cast-iron gas mains by 2027 and 1,200 miles of cast iron water mains.

Cleveland-based Dominion East Ohio is spending $4B replacing over 5,500 miles or 25% of their system. They expanded the program last year to continue into 2021.

Vectren in central and southern Indiana is replacing gas mains and service lines in 15 cities in its service area. They’ll remove 700 miles of bare steel and 55 miles of cast-iron pipeline annually at a cost of about $37M.

TECO Peoples Gas has been replacing all cast-iron and bare steel distribution pipes in the Tampa area since 2012. They’re spending $8 million a year as part of a 10-year program in which they remove 15 miles of cast-iron and 40 miles of bare steel pipe. This is 4% of their pipe.

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