Between the recent pipeline accidents near Marshall, MI, and in San Bruno, CA, and the fact that the current natural gas pipeline network was set up decades ago to serve the eastern mega-market that now is developing its own supply, the natural gas transmission sector faces a number of challenges going forward.
Speaking at the 2010 Marcellus Summit at Penn State this week, Rick Smead, director of Navigant Consulting, said a combination of more infrastructure and a tweaking of the current pipeline system will be necessary to serve the shale plays that are being developed nationally, which is why the market currently is so oversupplied with natural gas despite the drop-off in Gulf of Mexico drilling.
"It's massively oversupplied with supplies from nontraditional areas and an awful lot of what we're coping with is how to deal with that," he told the audience. "The economic downturn really did cause a big drop-off in drilling, so a lot of people expected supply to have dropped off by now. What happened was the total rig count went down a lot, but the horizontal rig count going for gas is now higher than it was in 2008. Basically, horizontal drilling for shale is going strong in every major play.
"The amount of daily natural gas deliverability nationally that was added between early 2005 and mid-2008 exceeds the total thermal content from all the oil we import from Saudi Arabia."
Looking at the Marcellus in particular, Smead said the area is benefited by the fact that so many pipelines are close by. "Big shale players do a lot of wells and have a pipeline through it, [and] it's not like Alaskan gas that takes a $60 billion pipeline just to get it to the middle of Canada someplace."
These shale plays are "right under the existing interstate pipeline network." While noting that a lot of new projects need to be built to expand existing pipeline and gathering systems, Smead said there are other challenges as well. Back in 2006, "you had these huge pipelines from the Gulf Coast headed up to the Northeast," he said. "What's happened is: Houston we have a problem. When you get a beast like Marcellus at the market end of the whole pipeline network, every major pipeline is experiencing major changes in its flow and contracting pattern... All the major pipelines need to reinvent themselves."
He added that Rockies gas further complicates the situation. "We've got Rockies supplies going both east and west. So Rocky Mountain gas is competing directly with Marcellus [gas] in Ohio, and pretty much backing out anything that was coming from the Gulf Coast. What that is doing is sending all of the southern gas toward Florida. The end result is that a very static network of big interstate pipelines is just in the wrong place in a lot of situations. This is going to involve facility changes" and reinvention.
This time of transition in the natural gas transmission sector comes during uncertain times, when the public and some government officials are questioning the safety of the nation's current pipeline grid.
Commenting on the Michigan oil pipeline leak of hundreds of thousand of gallons of crude into a tributary of the Kalamazoo River in July and the early September explosion of a natural gas pipeline in San Bruno, CA, that killed eight people (see Daily GPI, Sept. 28; Sept. 13), Linda Daugherty, deputy associate administrator for policy and programs at the U.S. Department of Transportation (DOT), said the recent incidents "never should have happened." As safety regulators, "we need to make sure this never happens again."
The pipeline mishaps put the spotlight on pipeline safety and regulations in Washington, DC (see Daily GPI, Sept. 17) Addressing the San Bruno explosion, she told the Penn State audience that "this is the one that scared all of us because it was in our home where we feel safe," referring to the fact that the explosion occurred in a subdivision.
"I could tell you that the pipeline that failed is an older pipeline, that it was built prior to our regulation. We still don't know what exactly happened here... Handling natural gas is something we have to do with care and we have a responsibility to the public to make sure we are using the best technology and that we are doing things right... Pipelines can operate safely around people. They can do that. There are 2.5 million miles of pipeline that do that everyday."
Daugherty noted that the department currently faces a regulatory reauthorization, noting that people concerned in Congress -- in an election year -- have put "a lot of proposals on the table," including changes to pipeline safety laws. "That means our regulations may change. It means our regulations may get tighter. We're going to have tougher penalties for those companies that violated regulations. We have to address concerns."