Popular pipeline economics

Sept. 2, 2013
The costs and benefits of building one or another hydrocarbon pipeline, or deciding instead to use rail or another mode of transportation, are as close to the popular consciousness now as has likely ever been the case.

The costs and benefits of building one or another hydrocarbon pipeline, or deciding instead to use rail or another mode of transportation, are as close to the popular consciousness now as has likely ever been the case. Between the rapid development of US shale resources and recent pipeline failures affecting the Yellowstone and Kalamazoo Rivers as well as the towns of Mayflower, Ark., and San Bruno, Calif., pipelines appear in the nontrade media with increasing regularity.

One of the companies first referenced in any casual US pipeline conversation is TransCanada Corp., thanks in large measure to the protracted regulatory and political wranglings regarding its proposed Keystone XL pipeline. Proponents tout the benefits, economic and otherwise, of a secure supply of oil from a friendly neighbor and the additional jobs the project would create. Opponents worry about the costs, again economic and otherwise, of greenhouse gas emissions and potential leaks from the pipeline.

TransCanada, for its part, has already purchased the pipe to build Keystone XL, performed much of the right-of-way work, and still believes the project will move forward. In the meantime, however, the company is advancing its 1.1-million b/d Energy East Pipeline project to move oil produced in Alberta to eastern Canadian and international markets. Analysts have touted Energy East's economics in terms of both displacing currently imported Brent with light, sweet Canadian production and exporting heavier material to markets such as India.

Crude shipped eastward to New Brunswick could also still be exported to the US Gulf Coast. But TransCanada Pres. and Chief Executive Officer Russ Girling says the decision to move forward on Energy East does not diminish the need for Keystone XL, describing the two pipelines as complimentary rather than exclusive (OGJ Online, Aug. 1, 2013).

The US Department of State's Inspector General Office has opened an investigation into whether a conflict of interest was created when DOS hired ERM Group Inc. to draft its environmental impact statement, the company having previously done work for TransCanada on the Alaska Pipeline Project. At the same time, vastly different numbers regarding almost every quantifiable aspect of the project are bandied about depending on which side of Keystone XL one's interests lay.

Nuts and bolts

When the dust settles, however, real numbers will come into play: the actual costs of building a pipeline. Keystone XL might be the highest-profile pipeline project in the US right now, but outside the political realm it must budget for all of the costs—line pipe, construction, ROW, regulatory filings, etc.—for which even the smallest pipelines have to account.

Companies that fall under the jurisdiction of the US Federal Energy Regulatory Commission must file both the estimated and actual costs of construction for expansions to their system, large or small. Oil & Gas Journal has been compiling and analyzing the data from these filings for more than 50 years as part of its annual Pipeline Economics special report, the most recent edition of which begins on p. 112.

The quality of the job companies do in estimating expansion costs is one of many factors affecting both their individual financial health and that of the industry as a whole. OGJ compiles and analyzes the annual financial reports of each FERC-regulated natural gas or liquids pipeline company as the second component of the Pipeline Economics special.

Followed over time, the combination of these two data groups allows OGJ readers to asses both the ebb, flow, and costs of pipeline construction and the relative financial health of the pipeline industry.

Are you new to OGJ? Back data is available through the PennEnergy Research Center at www.pennenergyresearch.com.