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Report: Shales to Help Drive Billions in Midstream Spending

Connecting wellheads -- particularly those in shale gas fields -- to gas-fired turbines and burner tips will require billions in spending on midstream infrastructure over the next 25 years, according to a new report. Adding to the projected demand for new pipe, storage and other facilities is the increasing focus on liquids-rich gas production.

The United States and Canada will require an annual average natural gas midstream infrastructure investment of $8.2 billion, or $205.2 billion overall (in 2010 dollars), over the nearly 25-year period from 2011 to 2035, according to a study sponsored by the Interstate Natural Gas Association of America (INGAA) Foundation.

The capital investment requirement includes mainlines, laterals, processing, storage, compression and gathering lines. The report's reference cases suggests that 43 Bcf/d of incremental mainline capacity will be needed from 2010 to 2035. It said mainline capacity is projected to account for about half of the total capital required for midstream infrastructure.

Projections for natural gas liquids (NGL) and oil infrastructure were also developed. Combined, the natural gas, NGL and oil midstream sectors will require spending of $10 billion per year, or a total of $251.1 billion (2010 dollars) over the study period to meed projected needs.

"Natural gas liquids production is projected to increase by about 2% annually through 2035," the report said. "Ethane, propane, butane and pentanes-plus are projected to increase by 2.3%, 2.1%, 1.7% and 1.6% per year, respectively...NGL-heavy plays included the Eagle Ford [Shale] in South Texas, parts of the Marcellus [Shale] and the Utica Shale play in West Virginia, Ohio and Pennsylvania, the Bakken oil play of North Dakota, and the Niobrara and Green River shale plays located in Wyoming and Colorado."

"North American Natural Gas Midstream Infrastructure through 2035: A Secure Energy Future" was produced by ICF International and updates a 2009 infrastructure report.

"This report shows a vibrant natural gas market in the future, and it also demonstrates the need for additional midstream infrastructure to support it,"said INGAA Foundation President Don Santa. "The good news is that the natural gas industry has a proven track record of constructing and financing this level of infrastructure."

Santa, who also is CEO of INGAA, said interstate pipeline expenditures alone met or exceeded $8 billion per year in three of the years between 2006 and 2010, according to Federal Energy Regulatory Commission data. "This is a strong indication that the industry can and will be able to meet the nation's gas infrastructure needs," he said.

New infrastructure will be required to move natural gas from regions where production is expected to grow and to areas where demand is expected to increase. Not all areas will require new gas pipeline infrastructure, but many areas (even those that have a large amount of existing pipeline capacity) may require new investment to connect new supplies to markets, according to the report.

"The largest share of gas pipeline investment is required in the supply-rich Southwest region (21%), followed closely by the Central (19%) and Southeast (19%) regions," the report said. "The Northeast region houses both growing Marcellus Shale supply and major demand centers and will require 15% of the infrastructure investment over the next 25 years."

In recent years gas producers and marketers have been the principal shippers on these new supply-push pipelines. Anchor shippers have been willing to commit to long-term, firm contracts in support of the projects. Going forward, producers should continue to be motivated to ensure outlets for their gas supplies via pipelines, according to the report.

The report's reference case projects real natural gas prices that rise from $4 to between $6 and $7/MMBtu (in 2010 dollars) by 2021 through the end of the study period. It also assumes U.S. population growth at an average rate of about 1% per year and U.S. gross domestic product growth at an average 2.8% per year. Electric load is assumed to increase at an average 1.3% per year, while oil prices average about $80/bbl in real terms.

Natural gas consumption in the U.S. and Canada is projected to increase by an average 1.6% per year through 2035. Total gas use is projected to rise to about 109 Bcf/d in 2035. Incremental demand growth between 2010 and 2035 is 35 Bcf/d, of which 26 Bcf/d, or 75%, occurs in the power sector, according to the report.

According to the report, regions with the largest gas demand growth will be the Southwest, followed by the Northeast and Southeast. "These areas all exhibit significant power generation demand growth," the report said. "Canada also sees large demand growth, not only related to power generation but also from natural gas required for oilsands production and development."

From a newly projected gas resource base of almost 4,000 Tcf, U.S. and Canadian gas supplies are projected to grow by 38 Bcf/d from about 75 Bcf/d in 2010 to about 113 Bcf/d in 2035, which is seen as adequate to meet expanded demand projections in 2035. Unconventional gas supplies account for all of the incremental supply as production from conventional areas declines. Unconventional supplies (shale gas, coalbed methane and tight gas plays) will account for about two-thirds of the gas supply mix in 2035, according to the report.

The study also assumes that announced near-term midstream pipeline infrastructure projects are completed. Unplanned projects are included in the projection when the market signals need of capacity.

Given robust development in the U.S. shale patch, it shouldn't be surprising that liquefied natural gas (LNG) imports are projected to continue to have a modest role in the U.S. supply picture, although they will post increases, according to the report. "Net LNG imports will make up approximately 2.5% (2.8 Bcf/d) of U.S. and Canadian gas supply in 2035, compared with 1.7% (1.3 Bcf/d) in 2010," the report said.

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