North American pipeline companies have built a complex web of infrastructure to transport natural gas around the U.S., and it might seem there is not much left to build. But even as a decade of major additions to the pipeline network draws to a close, there is still an opening for a large gas transportation project into New England or in the West.
"Certainly the days of building the one-thousand or fifteen-hundred-mile pipelines are numbered," said Kevin Petak, vice president ICF International and an expert in gas market modeling. "But it's not the end of an era."
Petak and other energy experts agreed that the current suite of greenfield megaprojects moving through construction toward completion in the eastern half of the country have addressed the biggest needs for natural gas transportation that cropped up after shale drilling took off about ten years ago. Although some areas, such as New England or the Permian Basin, are targets for still more infrastructure, those who watch pipeline development expect investment to slow.
Steve Piper, energy research director for S&P Global Market Intelligence, is expecting a period of dormancy on big pipeline projects because "the greatest needs for Marcellus takeaway are being addressed."
Eric Brooks, an energy analyst at S&P Global Platts, saw the downtime as more permanent. "It is hard to envision a second era of large greenfield pipelines," Brooks said. "All these were born out of huge differentials."
Pipelines are built to move gas to markets that stand out from other markets because of high prices, but once the pipelines are built and gas easily moves among the markets, the price differentials mostly disappear.
The U.S. pipeline system blankets the area between the Gulf Coast and the U.S. Northeast. Kinder Morgan Inc.'s Tennessee Gas Pipeline Co. system covers almost 12,000 miles. Williams Partners LP's Transcontinental Gas Pipe Line Co. LLC stretches over 10,000 miles. And Enbridge Inc.'s Texas Eastern Transmission LP system covers over 9,000 miles based on two mainlines. In 2016, TransCanada Corp. agreed to acquire the systems of Columbia Gas Transmission LLC and Columbia Gulf Transmission LLC, which together cover about 15,000 miles. Roughly half of the U.S. mainline gas transmission network was installed in the 1950s and 1960s. In 2016, the pipeline network helped deliver more than 25 Tcf of gas to about 74 million customers.
The Federal Energy Regulatory Commission has granted in the last few years Natural Gas Act certificates that allow construction and operation of several large gas pipeline projects, loosely defined as over $1 billion in costs and more than 100 miles in length. These projects include the Florida-focused, up to 1.1-Bcf/d Southeast Market Pipelines project, which is really three projects in one and which had its federal authorization renewed on March 14; the 1.5-Bcf/d Atlantic Coast and 2-Bcf/d Mountain Valley pipelines, two mid-Atlantic projects approved on the same day in October 2017; and the Marcellus Shale-linked 1.1-Bcf/d PennEast pipeline.
FERC reported in December 2017 that from January through October of that year it approved about 23.5 Bcf/d of new pipeline capacity, a sizable increase from the 14.4 Bcf/d approved at the same time in 2016. But the size of projects submitted for FERC review is dropping. Petak has directed research for the U.S. pipeline trade group Interstate Natural Gas Association of America, as well as other oil and gas associations, and he said there have been roughly 200 projects over the past 10 years of varying size. Most projects have had a modest amount of pipeline associated with them, Petak said. Over the past five years, the trend has been toward smaller projects, with fewer projects in the 200-mile plus range.
A transition to smaller projects
Smaller projects and those planned for land that has already been disturbed by development, known as brownfield projects, encounter less resistance from environmental groups and landowners and are less trouble to permit. FERC is looking to update its two-decade-old pipeline application review process to include even more public participation, among other changes.
Instead of long lines, pipeline companies more often apply for expansions of their systems, which sometimes only require an increase in gas compression, or laterals off their mainlines usually designed for individual customers or a small group. Other options include replacing line in the ground with larger diameter pipe; adding directional flexibility; or looping, which adds a second line in parallel to the first for a certain distance to add capacity.
Given the large network already in place, adding agility to pipelines, or adding small laterals to solve the last mile problem are all on the table, experts said.
With the pressures on permitting and building in the current market, "there is no one real headline project," Brooks said. The projects will be "small enough to stay under the radar, but [numerous enough to] accomplish their goals of building more capacity into that market."
In another dynamic working against large projects, the stacked Marcellus and Utica shales, twin engines of U.S. gas production, roared to life in the center of the Northeast market more than a decade ago and now account for about a quarter of U.S. and Canadian gas production. This means gas does not have to travel as far to Eastern markets.
If the Marcellus-Utica region has limited growth and stays in the range of 30 Bcf/d, the existing pipeline grid can accommodate that volume, Petak said. "But if you see production levels rise to 40-50 Bcf/d, you could see incremental [pipeline] requirements," he said.
A future swing back toward big pipes?
Taken all together, these factors should produce a lull in projects, especially large projects, after 2020. But these "dynamics can't hold forever," Petak argued. Pipeline compression upgrades are eventually limited by the size of the pipe. So developers will have to go back to large greenfield projects, as they did with Atlantic Coast and Mountain Valley.
"Consequently, you see in our projections, we tend to get a swing back to some larger projects in the future," even if they are not as big as the large east-to-west lines of Rockies Express Pipeline LLC or Ruby Pipeline LLC, Petak said. Supply will shift around, he said, "which will create opportunities for infrastructure and development." Piper also saw the possibility of another big project, especially if the industry draws a wild card as it has before. "No one really anticipated how Marcellus would re-tool things, so it's hard to say with confidence that a similar development in the future wouldn't spur more long haul infrastructure," he said.
A new slate of LNG export projects could also motivate big pipeline spending, Piper said, pointing to projects proposed by Tellurian Inc. to feed its planned facility in Louisiana, the longest of which would run about 625 miles and cost about $3.7 billion.
The big difficulty for developers is that affiliate support has drawn the attention of FERC commissioners and pipeline opponents as a possibly flawed indicator of whether a pipeline is needed, Brooks noted. In another item on the agenda in the FERC review of its pipeline application process, the commission will investigate whether it should require other signs of support.
FERC Commissioner Richard Glick said in a January interview that the commission is "siting an enormous amount of pipeline capacity compared to previous years." Several environmental groups, including the Sierra Club, the Natural Resources Defense Council and Delaware Riverkeeper Network, have argued that the U.S. does not need more gas pipeline capacity, saying new infrastructure adds decades to the country's reliance on fossil fuels.
"We cannot prevent the worst effects of climate change if we allow the fossil fuel industry to lock the United States into decades more of gas production," the Sierra Club says on its web page detailing its fight against pipelines.
Where to build next?
Areas that might support a larger pipeline project in the future include the New England market, a couple of the growing U.S. production regions, and Mexico.
"If there was an area where we need one, it's New England," Brooks said, but that market has remained out of reach for the industry in recent years. Projects proposed for the region, such as the shuttered Kinder Morgan's Northeast Energy Direct and the Enbridge-led Access Northeast pipeline proposals, have faced political and market-based obstacles.
There is potential for oil and gas pipelines in the Permian or Bakken regions if production in those formations takes off. Centered in Texas, the Permian Basin has pipelines, but they are fragmented and do not provide an efficient path to markets such as the LNG terminals and the petrochemical industries on the Gulf Coast. Several projects are in the works and expected to be up and running in the next year, but some see a major shortage in the Permian looming.
Mexico is pulling an increasing amount of cheap gas from the U.S. Its own oil and gas production and pipeline infrastructure is not fully developed, and the country is looking for partners that could help it build. "The pipeline grid within Mexico is in the nascent stage," Petak said.
These are all possibilities, but the view toward the future of the U.S. pipeline system remains cloudy because of difficulty in predicting how the market will evolve. "Supply is not an issue — there is plenty of gas," Petak said. "The uncertainty is on the market side."
And for now, the pipeline industry is focused on small. At a presentation in January, Kinder Morgan President and CEO Steven Kean told investors that building gas transportation in the future will be more restrained.
"We think that we can build off of our network at very attractive returns," Kean said, pointing to Kinder Morgan's project backlog of about $12 billion. "We don't think that the capital deployment opportunities are going to be what they were in the peak of the shale boom, with large greenfield gas pipelines ... being built really all over the place ... but we see [a] $2 billion to $3 billion a year opportunity to deploy capital along our network at very attractive returns."