January 2011 Vol. 66 No. 1


Pipeline Outlook: Studies Indicate Strong Years Ahead

While oil and gas transmission pipeline construction has slowed compared to 2008, projections from two different studies still predict a solid market for the next few years and continued growth in natural gas and consumption through 2030.

Report from Douglas-Westwood
It is forecast that $193 billion will be spent on onshore pipeline projects worldwide through to 2015, according to data in energy business analysts Douglas-Westwood’s third edition of The World Onshore Pipelines Report 2011-2015.

The report notes that in recent years, levels of activity in the onshore pipelines market have been affected by what can be considered, in relative terms, short-term macroeconomic factors.

This has particularly been the case in developed regions such as North America whose economies have been most affected, but less so in developing regions such as Asia, where strong economic growth has been maintained.

In these developed economies, the report says, the global economic downturn had the dual effect of both destroying energy demand as well as reducing the availability of credit.

This combination led to many proposed pipeline projects either being delayed or in some cases cancelled altogether, which is highlighted by the trend of declining annual expenditure – a trend set to produce a significantly reduced annual industry expenditure in 2012.

However, over the forecast period 2011-2015, these short-term factors will ultimately begin to once again give way to more long-term and industry specific drivers.

Beyond 2012, the report notes that continued growth in global oil and gas demand and the associated production increases (fundamental long-term drivers of activity), will require significant investment in pipeline infrastructure.

In North America, increasing investment in the development of unconventional energy sources, such as shale gas and oil sands, is set to create a shift in the location concentrations of production and will require major investment in new pipeline projects to link the new energy sources with existing pipeline networks and new markets.

Meanwhile, in Asia, soaring energy demand is set to continue to support strong levels of investment in domestic pipeline networks, as well as many trans-national and trans-regional projects designed to help meet long-term energy requirements.

In Europe, the desire to create greater energy security through supply diversification and greater regional network integration is set to drive investment in a number of regional and trans-regional projects.

The World Onshore Pipelines Report from Douglas-Westwood forecasts an 11 percent increase in kilometers of pipelines installed over the period 2011-2015, compared to the historic 2006-2010 period. Nearly 74 percent of the associated expenditure is expected to be spent in Asia, Eastern Europe and the FSU and North America. More than 68 percent of this expenditure is expected to be spent on gas pipelines.

According to the report, Asia stands out as the largest forecast market – by both length of pipeline construction and associated expenditure – accounting for $55 billion of forecast capital expenditure.

Douglas-Westwood officials say the forecasting process involved the scrutiny of all announced pipeline prospects on a project-by-project basis. This process resulted in a significant number of announced pipeline projects being “slipped out” of the forecast period. Also, some projects currently expected to go ahead will slip, but likewise some new projects will certainly come to fruition over the forecast period – compensating somewhat for potential project slippage.

In light of the strength of market drivers and the volume of announced projects, Douglas-Westwood expects the onshore pipelines industry to recover strongly and experience substantial and sustained levels of investment over the forecast period.

For more information on The World Onshore Pipelines Report 2011-2015, visit http://www.dw-1.com/shop/shop-infopage.php?longref=547~0

INGAA study
North American pipeline construction is expected to remain strong. Shifts in supply from traditional to unconventional sources are projected to continue to be the key driver of future pipeline construction.

The Natural Gas Pipeline and Storage Infrastructure Projections Through 2030 study, prepared for INGAA by ICF International, analyzes future natural gas infrastructure requirements under various market scenarios and anticipates a range of investments over the next 20 years, primarily to handle increased domestic production from unconventional shale basins and tight sands to the existing network.

The study finds the U.S. and Canada will need 28,900-61,600 miles of additional natural gas pipelines through 2030. New infrastructure will be needed throughout the U.S. and Canada and not just to move natural gas across long distances between regions. According to the study, all regions will need natural gas infrastructure to serve growing demand and/or shifts in demand. Even regions with mature production basins will continuously need additional development.
North America accounts for 19,260 miles of planned pipeline miles and 8,839 miles of pipelines under construction. More than 4,600 miles of the planned pipelines represent projects in Alaska and Canada. They include the 364-mile Beluga to Fairbanks (B2F) gas pipeline that calls for a 24-inch line extending from Cook Inlet to Delta Junction and a 12-inch line from Delta Junction to Fairbanks. The project will be a spur pipeline to a major Alaska natural gas pipeline, when one is built, to move gas into south-central Alaska markets, with a connection at Delta Junction or Glenmallen.

2020 for Alaska
Although both of the Alaska natural gas pipeline projects planned by TransCanada and ExxonMobil and BP/Conoco Phillips (Denali) have held open seasons, neither is expected to begin service until around 2020.

Another project involves a 700-mile NGL pipeline planned in Texas by DCP Midstream. The route of the DCP Sandhill Pipeline runs from West Texas fractionation and storage sites along the Texas Gulf Coast including Mont Belvieu.

DCP says this system should relieve capacity constraints affecting producers in these regions. The DCP Sandhills Pipeline, with an estimated 2013 in-service date, will have a target capacity of 130,000 bpd.

As to construction activity, the most significant North American construction project is TransCanada’s U.S.-Canada cross border Keystone XL Gulf Coast Expansion Project. The route of the 1,661-mile, 36-inch crude oil pipeline begins at Hardisty, Alberta and extends southeast through Saskatchewan, Montana, South Dakota and Nebraska. It incorporates a portion of the Keystone Pipeline (Phase II) through Nebraska and Kansas to serve markets at Cushing, OK before continuing through Oklahoma to a delivery point near existing terminals in Nederland, TX to serve the Port Arthur, TX marketplace.

The $7 billion Keystone XL Expansion is scheduled to begin operations in 2012.

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