US energy boom demands $641B in infrastructure, study finds

WASHINGTON — Companies will need to invest $641 billion over the next two decades in pipelines, pumps and other infrastructure to keep up with the gas, crude oil and natural gas liquids flowing from U.S. fields, according to a study released Tuesday.

The analysis, prepared by ICF International for two natural gas advocacy groups, predicts that $30 billion worth of new midstream infrastructure will be needed each year through 2035 — essentially triple the $10 billion in average annual investments over the past decade.

“We’re in a heavy growth period right now, said Kevin Petak, an economist with ICF who authored the study. “The next six years appears to be a pretty heavy period for expenditure and investment.”

Almost half of the projected spending — $14.2 billion per year — will be needed to accommodate new gas supplies and connect new shale plays with existing infrastructure and yet-to-be-built facilities, according to the report. Some 35,000 miles of new transmission pipelines will be needed, along with 303,000 miles of gas gathering lines, the study found.

“Significant development of natural gas infrastructure (is projected) to accommodate the rapidly growing gas supplies from shale,” the report said. “Much new gas gathering and pipeline infrastructure will be needed well into the future.”

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The new study finds that many of the gas pipeline projects will span shorter distances than projected in an earlier 2011 analysis, though the overall level of investment is similar because of climbing pipeline costs. “This is still a substantial amount of new pipe,” ICF International concluded.

Environment and the economy

The analysis was co-sponsored by America’s Natural Gas Alliance and the INGAA Foundation, an advocacy group founded by the Interstate Natural Gas Association of America.

It is delivered as Obama administration officials and energy companies look for ways to rein in the flaring of natural gas that is produced along with more valuable crude from oil wells, particularly in Montana and North Dakota, where gas pipeline infrastructure is sparse.

But it also is coming as regulators, environmentalists and other stakeholders boost their scrutiny of pipelines and other projects that are facilitating today’s drilling boom by linking oil and gas development with customers for the fossil fuel.

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The analysis also backs the oil and gas industry’s assertion that the domestic energy boom is good economic news for the country, by predicting that the midstream infrastructure spending will generate 432,000 jobs and roughly $300 billion in tax revenue in the United States and Canada.

The study predicts growing natural gas consumption across the United States and Canada — about 1.2 percent extra per year through 2035 — along with greater exports of the fossil fuel. ICF projects U.S. and Canadian facilities will be capable of liquefying and exporting 9 billion cubic feet per day of natural gas to other countries, in addition to 5 billion cubic feet per day of gas sent by pipeline to Mexico.

ICF also assumed long-term natural gas prices would average around $6 per million British thermal units, in 2012 dollars.

Moving liquids

Beyond gas, the study predicts that companies will have to pour $12.4 billion per year into crude oil infrastructure, including pipelines, valves, manifolds and separators.

Another $2.5 billion will be needed annually for infrastructure associated with natural gas liquids such as ethane, butane and propane. Most of the pipeline capacity for natural gas liquids — some 3.2 million barrels a day — will be needed by 2020, according to the projections.

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If spending falls short, oil and gas development could be constrained, the report warns.

“Sufficient infrastructure goes hand in hand with well-functioning markets,” ICF says. “Insufficient infrastructure can constrain market growth and strand supplies, potentially leading to increased price volatility and reduced economic activity.”

INGAA President Don Santa said he was confident that there would be enough capital to fund the infrastructure buildout.

“Clearly there is a lot of interest in this space on the part of the capital markets,” Santa said. “Some years will be challenging (especially as) some of this is going to be front-loaded. But the track record gives us confidence that it is achievable.”

Pipeline operators have been able to lure capital by organizing as tax-advantaged master limited partnerships, entities that can issue publicly traded ownership shares but are treated like partnerships, with income and tax liability distributed to investors.

“The MLPs have been a very tax-efficient way of raising capital that has resulted in a lot of steel going into the ground,” Santa said. “There’s a demonstrated benefit to it.”

Marty Durbin, head of America’s Natural Gas Alliance, stressed that supportive policies as well as money are needed to link gas production with consumers in the Northeast and other parts of the country.

“We’ve got all this production that not only is here today but ready to come on,” Durbin said. “We don’t want to be stuck in a place where we (are trying to) figure out how do we get that last mile of pipeline built to the power generator (or) wherever the end use is.”

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