The North American midstream industry is growing fast—that’s the biggest takeaway from the INGAA Foundation’s latest report on midstream infrastructure expansion to 2035. The report, “North American Midstream Infrastructure through 2035: Capitalizing on Our Energy Abundance,” was conducted by ICF International on behalf of the gas pipeline trade group and projects a proliferation of crude and liquids production.

“This is the seventh study we’ve done in the past 20 years with the first one published in 1993 … It’s interesting that the interval between doing these studies continues to shrink. We used to do these once every four or five years, but the pace of change in the industry, particularly with the shale revolution, continues to pick up,” Don Santa, president and CEO of the Interstate Natural Gas Association of America (INGAA) and INGAA Foundation, said at a news conference in Washington, D.C., to introduce the report.

In only three years, there have been several seismic shifts in the midstream industry, with a renewed focus on liquids and exports.

Kitimat and more

“As gas production has shifted to the wet plays and NGLs and domestic crude oil production have taken off, we couldn’t just look at natural gas pipelines in isolation. Contrast this with the last report in 2011, when we only had one LNG export facility— Kitimat in British Columbia, Canada—showing up in the modeling, and we still had some incremental LNG supplies being imported into the U.S., Now there are [multiple] export facilities that have been approved in the U.S. and this is a much bigger part of the picture,” he continued.

According to ICF, the biggest change from the 2011 study is the dramatic increase in oil and liquids production that requires new processing, transportation and storage capacity. Gas wells have decreased since 2011, but production remains strong due to improved drilling techniques, along with associated gas from liquids and oil production.

“The current slate of gas transportation projects generally require less miles of pipe and rely to a greater extent on using existing infrastructure in different ways, such as adding compression to existing lines and reversing lines to accommodate production from new regions,” said the report’s author, Kevin Petak, ICF International vice president of fuel markets analysis, during the news conference. Despite the need for fewer miles of pipe, the cost estimates are higher in the new study, increasing from $94,000 per inch-mile in 2011 to $155,000 per inch-mile. The bulk of this new gas, liquids and crude pipe will be brought online in the next six years.

The report also included construction related to other activities that were overlooked in the previous study, including NGL fractionation, exports to Mexico, compression in gas gathering systems and crude oil gathering lines and pumping needs.

“There has been a rapid transition of the energy markets creating a critical need to get this production out of the shale plays and into the demand markets,” Marty Durbin, president and CEO of America’s Natural Gas Alliance, said during the news conference.

This is critical to maintain the just-in-time flow of supplies to demand centers, which helped keep gas prices relatively stable this winter despite record-breaking temperatures and heating demand. Durbin said that while there were price spikes on the spot market, these typically make up a very small percentage of trades.

As an example, he noted that on Jan. 7, one of the coldest days of the season, there was 18 billion cubic feet (Bcf) of natural gas demand, but spot market trades accounted for only 1% of total trades that day.

New England’s needs

While the U.S. midstream system is the most extensive in the world, there are some constraints, such as those in New England, and the need for expanded capacity as production flows increase, Petak said.

“This study has been initiated to more fully consider recent trends and investigate the impacts of those trends, particularly robust shale gas and tight oil development, on future infrastructure requirement,” Petak added.

The cost estimate for the infrastructure build-out increased dramatically since publication of the 2011 report. Previously, ICF and INGAA anticipated a total of $261 billion to be spent on midstream growth from 2011 to 2035, with 82% focused on gas infrastructure. The changes in production—along with new demand—has caused this estimate to increase to $641 billion from 2014 to 2035, with 49% focused on gas-related projects and 42% focused on crude.

The next six years will see the heaviest period of growth, though investments will remain strong throughout the study period. Investments in new gas transmission capacity are expected to be $313 billion throughout the study period, or an average of $14 billion annually, through 2035. This is nearly double the 2011 forecast of $8 billion per year.

Gathering and processing

Gathering and processing investments are expected to be $4 billion per year, up from the previous $2.5 billion forecast in 2011. Investments in laterals to and from production fields are expected to double to $2 billion per year. Storage and LNG export investments are expected to average nearly $3 billion annually. NGL pipeline investments are expected to be $30 billion total, or $1.3 billion per year, nearly double what the previous report forecast.

“Absent these pipeline additions, alternative modes of transportation could include rail shipments and trucking. However, pipelines are generally thought to be the most cost-competitive option for NGL transport,” the report said. The report also forecasts $2 billion per year being invested in NGL fractionation and export facilities.

Oil transportation investments will be one-quarter greater as the report anticipates $75 billion being spent over the projection period on improving the oil pipeline system to handle an additional 10 million barrels per day (bbl/d). This is primarily due to the increase in production out of the Bakken and the Eagle Ford. Oil storage is expected to experience $12 billion per year in investments, which will increase the total crude midstream investments in the projection period to $270 billion.

The report only considered new infrastructure construction and not replacement or enhancements to existing infrastructure, but it did consider the repurposing of gas infrastructure for use in oil and liquids transportation as being new construction.

As industry observers would anticipate, the Northeast is one of the fastest-growing regions for new midstream construction due to the proliferation of the Marcellus and Utica Shales. The continued development of these plays is also having a significant impact on pipeline needs as more of these systems are being forced to reverse direction of the flows as regions convert from demand centers to supply centers.

“New infrastructure will be required to move hydrocarbons from regions where production is expected to grow to locations where the hydrocarbons are used. Not all areas will require significant new pipeline infrastructure, but many areas (even those that have a large amount of existing pipeline capacity) may require investment in new capacity to connect new supplies to markets,” according to the report.

Growth assumptions

The report assumed that U.S. GDP would grow at a 2.6% annual rate with the population increasing at a 1% annual rate after 2014. Liquids and oil investments will remain strong due to the assumption that oil will continue to have stronger prices at or above $100 per bbl. Oil and condensate production is expected to increase an average of 2.3% per year to 18.2 million barrels per day (MMbbl/d) in 2035 from current levels of 10 MMbbl/d. NGL production will grow by 3.2% per year to 6 MMbbl/d by 2035.

Gas will continue to increase its market share of the utility industry as the population and economic growth will drive annual electric load growth of 1.3% and the expected retirement of 60 gigawatts of coal plant retirements in the U.S. and Canada. Overall gas consumption is expected to increase at a rate of 1.8% per year to 120 Bcf/d by 2035 in the U.S. and Canada.

Roughly 75% of this demand will be focused on the power sector with the majority of the remainder coming from the petrochemical and manufacturing industries. LNG exports are expected to account for 9 billion cubic feet per day (Bcf/d) with 5 Bcf/d of gas being exported to Mexico by 2035.

While improved economics help, Petak noted that midstream growth was based on new supply-and-demand models and would not work to inhibit economic growth.

“The midstream infrastructure development is driven by supply and demand trends and assumed to not be a constraining or liming factor on market development,” he said. This is clearest in the case of gas projects where gas prices are expected to average between $5 and $6 per million Btu, high enough to support growth, but not place a huge burden on the economy.

In a low-growth case, infrastructure demand and expenditures are still very high at a total of $465 billion from 2014 to 2035, with the decrease in spending related to reduced market development.

“This new infrastructure will add an average of between 312,000 to 433,000 jobs per year through 2035 with added benefits across the entire domestic economy and in different parts of the country,” Petak said.

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