Significant challenges exist to creating the necessary transportation systems for the US to fully realize its significant oil and gas potential, according to John England, who leads Deloitte LLP’s US oil and gas practice. It also could provide some of the biggest investment opportunities, he quickly added.
“Rail is here to stay as part of the midstream,” he told reporters during the financial services firm’s 2014 Washington Energy Conference on May 13. “It’s more flexible. Companies don’t have to make long-term commitments required for pipelines.”
A pressing question for US gas is what its next big shift will be, England maintained. This could lead to a discussion of the best ways to monetize the nation’s gas supplies, he said. LNG exports provide one way, but assuring enough low-cost gas to keep the country’s petrochemicals rebound going also matters, he added.
“In general, the exports story still has a lot of room to run, even though we’ve made a lot of progress,” said England. “Our gas exports to Mexico are still ahead of our LNG exports. There’s certainly more discussion about additional pipeline capacity south, even though Mexico’s energy sector is trying to reform. That could take time, making more midstream investments possible.”
Deloitte’s oil and gas customers also continue to focus on containing costs, particularly for bigger projects, he told OGJ following the press luncheon. This applies to both major oil companies and larger independent producers, particularly with their offshore projects, he said.
“But the industry has picked up on midstream opportunities, with both established players and startups in new basins,” England continued. “It takes time, which is why producers expecting to reach markets in 2015 need to make decisions now so they can contract for the right level of infrastructure support.”
Rail may never become the biggest part of the US oil transportation picture, “but it has several things working in its favor,” he said. “Producers and refiners find it’s a pretty good solution in some cases, even if pipelines are better in the long term,” he said.
England concluded, “Exports also will drive midstream investment. As they grow, we’re going to need more pipelines and storage.”
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