The US and Canada will need to invest a combined $791 billion, in real 2016 dollars, or an average $44 billion/year, for new natural gas, crude oil, and natural gas pipeline transportation systems from 2018 through 2035, the INGAA Foundation Inc. predicted in anew report.
Pipeline steel tariffs, which were among those US President Donald Trump imposed after the report was largely complete, obviously would push costs higher, officials from the foundation and from ICF Strategic Consulting in Fairfax, Va., which prepared the report, said at a June 18 briefing.
“The tariffs have introduced significant uncertainty. I understand there are more than 15,000 applications for exclusions already,” said Donald F. Santa, president of the Interstate Natural Gas Association of America as well as the foundation.
Santa explained that when Trump directed the US Department of Commerce last year to develop a “Buy American” plan for new domestic pipelines, it found that about 75% of the higher-quality steel that US steelmakers would use to make oil, gas, and NGL pipe would have to be imported because there’s no domestic capacity to make the higher quality grade.
“Tariffs implicitly would raise pipeline expansion expenditures higher and push us toward an escalating unit cost scenario,” said Kevin Petak, the managing director for natural gas and liquids at ICF who wrote the report, which also has a constant unit cost scenario. The study’s key findings include:
• Midstream infrastructure investment will remain robust, although it is expected to peak in 2019. Primary drivers are continued unconventional resource development and strong market demand, largely in response to relatively low commodity prices that these new oil and gas supplies foster, the report said.
• About 41,000 miles of pipeline and 7 million hp of compression and pumping will need to be added to transport oil, gas, and NGLs through 2035.
• Another 139,000 miles of gathering lines will need to be added, along with 10 million hp of compression, will need to be added to support gathering, processing, and storage of oil, gas, and NGLs during the study’s forecast period.
• Infrastructure investments will contribute $1.3 trillion, or $70 billion/year, to US and Canadian gross domestic product.
• Infrastructure development will result in 725,000 US workers to be employed annually, with job opportunities created not only within states where pipelines are constructed, but also across other states because of indirect and induced labor impacts.
• Infrastructure development in both scenarios depends on regulatory approvals for the projects.
“Costs have continued to grow the last couple of years,” Petak told reporters. “Production has grown around 4-5 bcf/year. Several projects in 2017 were in high-population areas, which made them more expensive. There also have been problems with some states’ regulatory agencies, but the biggest factor still will be growing demand.”
The study did not look at refurbishment and replacement of existing infrastructure, which also could be a cost factor, Petak said.
“The market is making a transition from a supply push environment to one that is market-driven,” Petak said. “A good part of the gas transportation demand growth is from both associated and nonassociated production. We have a little bit more certain of midstream development needs going forward than we did in 2016 because needs in the Permian and Niobrara basins are becoming more apparent.”
Santa said he does not expect it will be any easier for pipeline project developers to secure state and local approvals in the next 18 years. “There’s not a single developer who doesn’t treat the process as a political campaign because outside groups are mobilizing local residents as opponents,” he said.
“INGAA and its member companies—like their counterparts across the US oil and gas industry—are mobilizing employees to become more effective ambassadors. People listen more closely to their friends and neighbors than to outside groups,” Santa said.
Contact Nick Snow at [email protected].
