June 2013, Vol. 68, No. 6
Features
Shale Plays Remain Key To Nation’s Economy, Jobs And Energy Security
Pipeline & Gas Journal, in partnership with the Interstate Natural Gas Association of America (INGAA), held its 9th annual Pipeline Opportunities Conference on March 26, at the JW Houston Marriott Hotel and Convention Center in Houston.
Among the topics discussed at the conference were oil and gas prospects for 2013 and beyond, the shale gas boom, prospects for LNG exports and pipeline infrastructure to satisfy new supply sources.
In the first session, Pipeline Research Council International (PRCI) President Cliff Johnson and Richard McNealy, program manager-operations and integrity, provided overviews of PRCI’s partnership with the natural gas industry and its research focus on an industry wide goal of zero leaks and the industry’s top 10 research and development needs.
Johnson also discussed the establishment of PRCI’s Technology Development and Deployment Center that opened in Houston in 2012. He explained that PRCI has been progressively building a unique, world class repository of pipeline damage samples to support technology development and educational opportunities.
Other highlights of the session included speaker McNealy’s overview of PRCI’s project to evaluate data and establish the reliability of in-line inspection (ILI) crack detection tools. The project will include a complete and comprehensive study of existing ILI and NDE/in ditch data that is available from pipeline operators to establish the performance reliability of detecting, identifying, and sizing/characterizing cracking and crack-like features in pipelines.
In the Oil and Natural Gas Outlook session, BENTEK Energy’s Director-Energy Analysis, Jack Weixel, provided an informative forecast for each commodity.
According to Weixel, there is a robust market emerging for natural gas. “There is more demand, more supply and natural gas is becoming a larger piece of the energy solution for the U.S.,” he said.
On gas prices, Weixel said, “It’s going to be a new game going into this summer vs. last. We’re entering the summer with a higher gas price which is going to have some impact on supply and demand going forward.
“Price-wise, we’re anticipating April prices to settle out at $3.76, which is nearly double the price of gas as we entered last summer. Higher prices will make gas less attractive, particularly for the power utilities, but good for production.”
Crude growth continues
Turning to domestic crude production, Weixel said production through 2018 is projected to grow by 4.4 MMbpd, which is impressive although there are ramifications for the global oil market with that as well.
Weixel said big increases are expected in the Eagle Ford of light sweet crude. Also, big growth is anticipated in the Bakken, Rockies and the Permian.
He also noted that in Canada, oil sands production from Alberta is expected to reach 1 MMbpd, along with oil coming from just north of the Bakken, in what is considered the Saskatchewan portion of the Bakken.
He also anticipates a large portion of the oil production to go to coastal markets via new pipelines shown in the accompanying figure.
Turning to energy prices, Weixel warned that industry should get ready for cheaper energy. “With the Henry Hub expected to average in the $4.30 range, WTI prices are expected to drop by more than 25 percent over the next five years,” he said.
As to exports, Weixel said the U.S. is on track to export more gas than we import. “In 2005, the U.S. needed net imports of 10 Bcf/d from Canada. In the past year, that dropped to 6 Bcf/d. Going forward, the outlook is even grimmer for Canadian pipelines that are exporting to the U.S.”
He anticipates net gas imports to go negative in 2017, to the point where the U.S. is actually a net exporter.
As for LNG, he sees exports at 3.6 Bcf/d, along with an increase of 2.3 Bcf/d of increased exports to Mexico. “Right now, we’re exporting 1.3 to 1.5 Bcf/d of gas to Mexico, which is projected to increase to 700 to 800 MMcf/d by 2018 due to increased power sector growth,” he said.
Spectra outlook
In Spectra Energy’s Pipeline Construction Outlook and Projects session, Brian McKerlie, vice president-business development, overviewed the company’s commitment to keeping up with plans to spend $1 billion dollars a year between 2007 and 2012 on expansion projects. He also shared a slide listing the projects.
The Spectra executive also called attention to the Express-Platte Pipeline System. The company recently purchased 100 percent interest in the 1,717-mile, crude oil system for $1.49 billion. The Express pipeline carries 380,000 bpd of crude to refining markets in the Rocky Mountain States. The Platte pipeline, which interconnects with the Express pipeline in Casper, WY, transports crude predominantly from the Bakken and Western Canada to refiners in the Midwest. Platte’s capacity ranges from 164,000 bpd in Wyoming to 145,000 bpd in Illinois.
He also discussed the company’s New Jersey-New York expansion, Team 2014, AIM, Open and Nexus projects with in-service dates ranging from 2013 to 2016.
Also in the session, Joseph Ramsey, group vice president, Spectra Energy, overviewed project execution and obstacles the industry needs to overcome.
According to Ramsey, it is getting harder and harder to get regulatory approval for projects, especially interstate pipelines that go through the FERC process.
“Along with the permit delays is opposition from land owners that often results in having to resort to condemnation in order to obtain right-of-way,” he said. “Certainly we are also dealing with legal and public relations challenges because of public opposition to projects, especially where companies are trying to undertake new pipeline construction, an expansion or Greenfield project in an area where there has not been a lot activity in recent years.”
Giving Spectra’s New Jersey-New York project as an example, he said, “What we’ve found in the northeast is that these folks are very vocal, very opinionated and they know how to work the social media and to get the ear of politicians.”
Ramsey pointed out that the New Jersey-New York project is the first major, large diameter, high pressure gas pipeline to be constructed into Manhattan since the 1950s. “It involves only five miles of pickup and relay of 12 and 20-inch pipe with 42-inch pipe, primarily coming out of our Linden, NJ, compressor station. Plus 15 miles of Greenfield 30-inch pipeline from Staten Island through Bayonne and Jersey City and under the Hudson River to Manhattan. It also requires nine horizontal directional drills,” he said.
As to the cost, he said the capital expenditure for the project ran $1.2 billion. “When you work out the cost per mile, it is $60 million a mile,” he said.
Noting that project completion is scheduled Nov. 1, 2013, he said, “It may be finished early which is a tribute to the folks we’ve hired to handle this project. Our main contractor is Henkels & McCoy, and Michels Corporation is responsible for the drills. J.L. Allen Co. is doing the compressor station work and Gulf Interstate Engineering is responsible for a lot of the detail design work.”
INGAA report
Cathy Landry, director of communications for INGAA, provided a look at what could be expected in the near-term in Washington, with particular reference to the U.S. gas industry.
She opened by saying the situation in Washington is about the same as last year and could be summed up in one word, “stalemate.”
“When it comes to natural gas and natural gas pipelines, gridlock in Washington is a good thing,” Landry said. “The less Congress can do to mess up the situation for gas – since gas is winning on the environmental front – the better. If Congress, or the administration, steps in and does things that impinge upon the ability to find and development new markets, it could mean problems.”
She also expressed concern regarding PHMSA’s efforts to ensure that grandfathered pipelines (built before 1970) are certifiable and can be safely operated.
Landry noted that it is not known what PHMSA will be asking the pipelines to do to prove these older pipelines are certifiable and safe. “It could mean more inline inspection or hydrostatic testing, which could turn out to be a big issue,” she said.
Other hot button issues she discussed included LNG exports and cyber security.
Keynote comments
Keynote luncheon speaker Nick Stavropoulos, executive vice president of gas operations, PG&E Corporation, started by telling attendees the company was making real progress to make the company’s natural gas system the safest in the nation following the 2010 pipeline accident in San Bruno. Then he backed up that bold statement with statistics about accomplishments in safety-related areas over the past year. Including the fact that PG&E has satisfied seven of the 12 National Transportation Safety Board’s recommendations as a result of its investigation into the accident in San Bruno.
Of the five remaining safety recommendations, the NTSB considers PG&E’s progress “open,” which means acceptable pending completion. PG&E expects to complete action on three more recommendations by year-end, including revisions and improvements to its integrity management program.
“Our employees continue to work hard every day to make our natural gas system the safest in the nation,” said Stavropoulos. “We are making real progress that can be seen and felt by our customers, employees and regulators. We still have work to do to achieve our ambitious goal, but the change that is under way is real and measurable.”
A major focus of the Pipeline Construction Outlook session was on new and planned projects. Kelly Wilkins, senior manager, Enbridge Business Development, told attendees his company had spent over $20 billion since 2007, expanding and extending its pipeline systems across North American.
He also discussed the company’s $35 billion worth of projects to re-pipe, re-connect and expand domestic supply to U.S. and Canadian markets.
The Enbridge official said, “What has happened in the last three to five years is amazing and it is an incredible time to be in this business. The fundamentals between supply and demand are charting new territory and creating a whole new venue for infrastructure demands.
“Who would have ever dreamed that we would be building two-way pipelines across the country? Who would have ever dreamed that we would have nearly one million barrels hauled on crude oil rail cars to different markets?”
Turning to mainline expansion projects, he mentioned the Upper Clipper and Southern Access projects. “These projects came online in 2008 and we are already expanding their capacity to 570,000 bpd and 560,000 bpd, respectively.”
In discussing the Eastern Access, PADD II, he said some of the projects currently working include Line 5, a light, sweet line that goes from Superior, WI into the Sarnia Upper Great Lakes region that feeds expansions into Line 9, which goes from Sarnia to Montreal.
Enbridge is also working with the Energy Transfer Group on a project to convert a natural gas line to crude service that will provide more supply to the Eastern U.S. Coast, increase capacity into Montreal and Quebec and provide an initiative to feed the East Coast refineries.
Market drivers
Also in the session, Mark Bridgers, principal, Continuum Advisory Group, gave his perspective on changes pipeline contractors and engineers face in the near-term.
To put this in perspective, he said, “The pipeline and energy sector is operating in a bubble that
is protected from what is going on in the rest of the U.S.
“There is 8 percent unemployment outside of the pipeline and energy industry today. States, excluding Texas, North Dakota and a handful of others, have significant budget troubles. The political process is at a logjam and we’re getting no long-term legislation.”
For this reason, he warned, although the shale oil and gas market has been one of the major job creation engines since 2009, regulations are being proposed to try and choke that off.
Nevertheless, he expects domestic oil and gas to continue to create jobs, making the pipeline and energy sectors the most attractive in the entire U.S. economy.
Looking at the market drivers that are impacting pipeline activity, he said, “Replacement activity is being almost entirely driven by aging infrastructure and regulatory requirements.”
Bridger expects 10 to 20 years of various types of pipeline replacement activity go take place in the U.S. “The challenge is going to be how to get that work paid for and do it at a pace without punishing the rate payers,” he said.
In looking at how overhead, underground and pipeline contractors are doing, he said, “Going all the way back to 2003 this has been a very attractive market in terms of returns. There was a little bit of a dip in performance in 2011 but we’re already beginning to see some of the financial statements from FERC for 2012 which indicate that 2012 is going to be a good year for most utility contractors. Also, 2013 is likely to be fairly good year as well.”
On LNG, Bridgers does not see a wide spread LNG export market from the U.S. “I think what is much more likely is very structured and focused exportation of LNG. There is a financial upside to keeping that product here in the U.S. and not allowing other countries to access that cheap resource,” he said.
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