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The Well Isn’t Dry for Midstream Opportunities

Aug 20, 2018 6 MIN. READ

You don’t have to dig deep to find good opportunities in oil and gas infrastructure.

An Interstate Natural Gas Association of American (INGAA) Foundation midstream infrastructure report recently completed by ICF foretells of nearly $800 billion of dollars of investment in new oil and gas infrastructure from 2018 through 2035, terrific news for those looking to benefit from future activity. Opportunities lie ahead for midstream developers, investors, and energy consumers, each of whom stand to gain. The true victors, though, will be those who act on this potential now, as the lion’s share of these investments will happen in the next seven years.

The Projected Wealth in Midstream Investment

The report recognizes that infrastructure development is extremely important, with the observation that while “technological innovation (for shale resource development) has … transformed the North American energy landscape … the benefits of new production can only be realized through new and expanded midstream infrastructure.” Thus, ICF projects:

  • $417 billion of investment in new gas infrastructure
  • $321 billion of investment in new oil infrastructure
  • $53 billion of investment in new natural gas liquids (NGL) infrastructure
midstream oil and gas forecast

$800 Billion in Project CapEx

Drilling down into actionable investments

The ongoing splurge in midstream spending of nearly $50 billion per year will continue to create many investment opportunities. Even so, private equity firms looking to gain a foothold in midstream development would be well advised to fully investigate where the best opportunities lie to determine which projects offer the strongest opportunities for growth. But it is also imperative to understand uncertainties and risks.

With so much of a good thing, risks are often minimalized, leading to investments that go bust. (The recent recession, caused by the meteoric rise and subsequent fall of real estate in the mid-2000s, comes to mind as a more recent example of “lemmings running over the cliff.”)

With that in mind, there is little doubt that there are many potential roadblocks in the midstream space, including opposition that stalls projects; new regulations that promote other forms of energy to the detriment of oil and gas; and a growing interest by policymakers to decarbonize the U.S. economy.

200,000 barrels per day of new fractionation capacity

How do you adjust to new supply dynamics?

Projected growth in midstream infrastructure will mean that end users of gas and oil products will have more opportunities to access cheaper and more readily available resources. With well over 40,000 miles of new pipeline set to be developed in the United States and Canada, defining priorities and planning for future development to provide access to growing supplies is a vital step in taking advantage of this trend.

Gas prices are likely to continually shift with such a fluid situation. Frequent monitoring of the market is advised, and understanding the key drivers of prices as well as the risks and opportunities for gas supply development is critical for utility planning. Review and refinement of the supply portfolio to minimize cost and risks associated with gas supply and pipeline capacity holdings will help improve competitive positioning, retain consumers, and enhance growth prospects, particularly in an environment that is increasingly focused on reducing hydrocarbon use.

2,300 miles of new pipeline will be built annually

Where do you build it?

Companies that own and operate infrastructure need to know where to build. They must also understand how midstream values will be impacted. Knowing where and how to best position new assets—and knowing how much capacity is needed—requires a firm understanding of markets. It is important to understand key drivers of and risks associated with new oil and gas infrastructure.

There are many companies that stand to gain—or lose—from new infrastructure. With over 50 billion cubic feet per day of new gas transport capability and over 4 million barrels per day of new oil and NGL transport capability set to go in place over the next 15 years, shifts in oil and gas transport will be very significant.

Those who come out on top will have a clear understanding of all of the nuances unique to the supply and demand mechanisms of the midstream industry. They will also have clear insights into the broader energy landscape and future for hydrocarbons. Companies receptive to competitive positioning based on analysis of the entire energy industry will leave others behind.

Know the changing landscape

Understanding implications of new policies—particularly those aimed at preserving nuclear and coal generation in the power sector and others aimed at electrification—could have adverse impacts on oil and gas use and very negative implications for midstream infrastructure. Knowing which assets hold up best under adverse conditions and which companies’ resources and assets will weather aggressive carbon policies is of utmost importance. Resiliency, portfolio diversification, and flexibility to adapt to changing market conditions and regulations are all important factors to consider in this brave new world of investments.

In short, opportunities abound for a myriad of market participants. ICF is here to assist with the different types of analyses and studies needed to take full advantage of the ongoing evolution of the midstream space.

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