November 2014, Vol. 69, No. 11
Features
Pipeline Construction Outlook Strong Both In Domestic, International Markets
The United States and Canada will require an annual average midstream natural gas, crude oil and natural gas liquids midstream infrastructure investment of nearly $30 billion per year, or $641 billion total over the 22-year period from 2014 to 2035, a new study finds.
The report, North American Midstream Infrastructure through 2035:Capitalizing on Our Energy Abundance, conducted by ICF International on behalf of the INGAA Foundation, updates a 2011 infrastructure report to reflect dynamic changes in the natural gas, NGL and crude oil industry in recent years. America’s Natural Gas Alliance was a co-sponsor of the report.
The report notes that about $14.2 billion per year, or $313.1 billion total, midstream natural gas investment will be needed from 2014 to 2035 to accommodate new gas supplies, particularly from the prolific shale plays, and growing demand for gas in power generation, industrial applications and exports. Natural gas midstream infrastructure includes mainlines, laterals, processing, storage, compression and gathering lines.
Meanwhile, some $2.5 billion per year, or $56 billion total, of investment will be needed for NGL infrastructure (transmission pipelines, pumping, fractionation and NGL export facilities), while $12.4 billion per year, or $271.8 billion total, of investment will be needed for crude oil infrastructure (gathering pipeline, lease equipment, mainline pipeline and pumping, storage laterals and storage tanks).
This total midstream investment is expected to create more than 432,000 jobs, add approximately $885 billion to U.S. and Canadian economies, and bring in over $300 billion in federal, state/provincial and local taxes.
The study also finds that new infrastructure will be required to move natural gas, NGLs and crude oil from regions where production is expected to grow and to areas where demand is expected to increase. Not all areas will require significant new pipeline infrastructure, but most areas will require new investment to connect new supplies to markets.
Pipeline investments
More than 500,000 miles of new pipeline and almost 17 million horsepower for new compression and pumping capabilities will be needed for gas, NGL and oil gathering and transport throughout the projection period. Total pipeline, compression, and pumping expenditures are projected to total almost $310 billion throughout the projection period. More than 60 percent of the new pipe and compression will be needed for natural gas gathering and transport, with oil and NGL gathering and transport accounting for the remainder.
Pipes with a diameter greater than 24 inches will account for more than 40 percent of the pipeline and gathering line investments even though they account for less than 5 percent of the total miles added during the study period. This is because pipes of that size have a much greater unit cost than smaller diameter pipes. Pipes with diameters less than or equal to 8 inches account for the majority of new pipe mileage that is needed over time, but investment in such facilities is more modest at roughly 20 percent of the total investment. These smaller diameter pipes are mostly used for gathering gas, oil, and NGLs.
Not surprisingly the largest share of regional investment in midstream infrastructure will occur in the Southwest (New Mexico, Texas, Oklahoma, Louisiana and Arkansas), which historically has been an area of significant hydrocarbon development. Midstream infrastructure investment in this area is expected to total more than $220 billion throughout the projection period. The area experiences significant investment in infrastructure, supporting development of oil, gas and liquids. Midstream infrastructure associated with oil development accounts for almost half of the region’s investment in new midstream infrastructure. This is not surprising because more than half of the refineries in the U.S. are located in the area. Investment in gas-related infrastructure also is important for the region because it will be home to significant growth in gas production and load growth at petrochemical and LNG export facilities.
Canada and the central U.S. also are likely to experience significant investments in new midstream infrastructure as a result of the robust development of resources within those areas. These regions account for almost $140 billion and $110 billion, respectively, in midstream investments. Gas infrastructure investment in these areas is needed to support the growing production of shale resources and to facilitate pipeline transport to markets and export facilities.
The Northeast also is poised for midstream infrastructure growth, with investments totaling more than $80 billion through 2035. The area is home to gas-prone development from the Marcellus shale play that spurs almost $70 billion in investments in gas-related infrastructure.
International
Internationally, 65,746 miles of pipelines are in various stages of construction and planning. Of these, 33,801 miles account for project in the planning and engineering phase and 31,945 miles are in various stages of construction.
By geopolitical regions, pipeline mileage under construction in 2014 is as follows:
South-Central America and Caribbean – 6,099;
Middle East – 2,355;
Africa – 8,558;
Asia Pacific – 25,636;
Former Soviet Union and Eastern European countries – 15,781; and
Western Europe and European Union countries – 2,381.
Despite several African nations continuing to deal with ongoing pipeline theft and threats to oil companies, industry analysts say many African nations hold promise for future activity. For example, East Africa exploration activity is projected to increase after foreign oil and gas companies made a series of sizable discoveries in Mozambique, Tanzania, Uganda and Madagascar.
Moreover, the U.S. Energy Information Administration estimates that South Africa holds 390 Tcf of technically recoverable shale gas resources. Environmental concerns led the government to place a moratorium on shale gas exploration from April 2011 to September 2012. In October 2013, the government released proposed new regulations to govern the exploration of shale resources; however, international companies are still awaiting shale exploration permits.
Regardless of the challenges, pipelines are being planned and constructed in the region.
Saudi Arabia refiners and petrochemical producers are planning to increase exports to Asia as a result of the U.S. becoming more energy self-sufficient. Just as Saudi Arabia is working to increase exports, other Middle East countries are as well.
Not surprisingly, much of the focus in the Middle East at this time is on development of the Shah Gas Development in United Arab Emirates – one of the largest natural gas fields in the Middle East.
Italy’s Saipem was awarded the EPC contracts for the gas processing plant, sulphur recovery unit and nearly 155-miles of related pipelines. Also a joint venture of Spain’s Tecnicas Reunidas and India’s Punj Lloyd won a contract to construct the gas gathering pipelines.
Abu Dhabi Gas Industries has contracted with Dodsal Engineering & Construction to install two gas pipelines under a $764 million contract. The 52-inch diameter, 185-mile pipelines will extend from Habshan to Maqta and then to Taweelah. The project is scheduled to be completed by June 2015.
The National Iranian Oil Engineering and Construction Company is constructing a 941-mile-long pipeline to transport oil from the Caspian port of Neka to Jask in the Gulf of Oman. The initial capacity of the pipeline will be 1 MMbpd.
Although work is underway on the 488-mile, 43-inch diameter Iran-Pakistan (IP) gas pipeline, recent press reports indicate completion may be delayed a full year due to sanctions imposed on Iran by world powers and Pakistan falling behind on constructing the 435-mile segment of the pipeline it its territory.
China and India
The 2014 Energy Information Administration Outlook projects major economies are likely to become increasingly reliant on imported liquid fuels and natural gas. According to the report, China and India will each import at least 65 percent of their oil and 35 percent of their natural gas by 2020– thus becoming more like Japan, which relies on imports for more than 95 percent of its oil and gas consumption.
As to area activity, China National Petroleum Corp. (CNPC) began construction in 2013 on its third West-to-East natural gas pipeline. The pipeline will have a total length of more than 3,107 miles and a design capacity of 30 bcma.
CNPC has also proposed the fourth and fifth West-to-East Gas pipelines and reports indicate the projects are in the planning phase. Both pipelines are anticipated to have a capacity of 45 bcma.
Nations in Eastern Europe and the former Soviet Union are constructing and planning extensive pipeline networks to export oil and gas to Europe and the Asia Pacific region.
One example is South Stream, Gazprom’s 2,400-km, multi-billion-dollar global infrastructure project to construct a gas pipeline with a capacity of 63 bcma across the Black Sea to southern and central Europe for the purpose of diversifying export routes and eliminating transmit risks.
The project, backed by Russia’s Gazprom is not without its problems. The European Commission has ordered a construction moratorium over concerns with Russia’s dual role as pipeline owner and gas supplier and the crisis in the Ukraine.
However, a recent Associated Press story drew attention to the fact that a clutch of countries are breaking ranks with the Europe Union’s efforts to put economic and diplomatic pressure on Russia over Ukraine and building a pipeline meant to carry huge amounts of Russian gas to their doorstep.
According to the report, Austria, Hungary, and Serbia — the first two EU members, the third a candidate to join — have said they will build their sections of the project and others may follow.
Also underway is development of the giant Shah Deniz Stage 2 project to bring gas directly from Azerbaijan to Europe for the first time, opening up the Southern Gas Corridor.
A consortium led by BP and the South Caucasus Pipeline Company awarded $735 million in contracts for 300 miles of pipelines and associated infrastructure in Azerbaijan and Georgia to a joint venture group made up of Italy’s Saipem and Azerbaijan’s Azfen.
Once completed, 1625 bcma of gas produced from the Shah Deniz field will be transported to consumers in Georgia, Turkey, Greece, Bulgaria and Italy. First gas is targeted in late 2018.
Also, Transneft is constructing the 435-mile Kuyumba-Taishet and 311-mile Zapolyarye-Purpe pipelines that will send oil to the Asia Pacific region. Completion of both oil links is expected by the end of 2016.
Novatek, Russia’s second-largest gas producer, is developing the $27 billion Yamal LNG project with Total and China National Petroleum Corporation. The first production unit, with annual capacity of 5.5 million ton, is due to be launched in 2017.
Also, the State Oil Company of Azerbaijan (SOCAR), Petroleum Pipeline Corporation of Turkey (BOTAS) and Turkish Petroleum Corporation (TPAO) awarded WorleyParsons a five year contract for engineering, procurement and construction management services for the 1,144-mile-long Trans Anatolian Natural Gas Pipeline project. TANAP is designed to transport Caspian natural gas from the Georgian-Turkish border to Turkey’s western border with Greece. Initially it will carry production from Azerbaijan’s Shah Deniz Stage 2 project.
Shale gas in Europe could add as many as 1 million jobs to the economy, make industry more competitive and decrease the region’s dependence on energy imports, according to a recent study commissioned by OGP and carried out by the independent consultancies Poyry Management Consulting and Cambridge Econometrics.
While shale gas is not expected to increase near-term pipeline construction activity, a number of EU countries are activity pursuing major pipeline investment programs.
Poland’s Gaz-Systems has announced plans for the construction of around 2,000-km of new gas pipelines from 2014-2023 in western, southern and eastern Poland.
In Colombia, the second and third phases of the 450,000 bpd Bicentenario pipeline are expected to start operating in late 2015 or early 2016. When completed, the $4.2 billion pipeline will transport heavy crude from the Llanos foothills and the lowlands of Casanare. Bicentenario is also constructing two 600,000 bbl storage tanks at Covenas.
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