Natural gas pipeline construction hit a 10-year high in 2008, led by "massive" system additions in the Southwest and Gulf of Mexico, as construction of delivery lines raced to keep up with the unprecedented expansion of natural gas reserves and production in new shale plays across the country, as well as new import and storage locations.

Eighty-four natural gas pipeline projects were completed last year in the Lower 48 states, representing the most pipeline construction activity in a single year in more than a decade, the Energy Information Administration (EIA) said in a report issued last Wednesday. Construction activity was robust everywhere but in the West. The $11.4 billion worth of projects added 44.6 Bcf/d of capacity.

This represented a nearly three-fold increase over 2007, when $4.3 billion was spent to complete 50 projects that added 14.9 Bcf/d of capacity. Projects last year included both long-haul pipeline additions and shorter, though large-diameter, extensions to access three new liquefied natural gas (LNG) terminals and several underground storage fields.

The scale of the natural gas pipeline projects completed in 2008 was "exceptional," the EIA said. The capacity added for each of the top 15 projects exceeded 1 Bcf/d, with the largest being 2.6 Bcf/d. A total of 3,893 miles of new pipeline were constructed in 2008, which was more than double the 1,663 miles of pipeline added in 2007, the agency reported.

"The push for access to new supply sources has led to rapid infrastructure growth in relatively undeveloped production regions such as the Rocky Mountains, as well as additions to well-established natural gas transportation corridors such as Northeast Texas, where industry is exploiting unconventional resources," the agency said. It also cited imports of LNG as contributing to the robust pipeline construction.

The EIA expects the strong pace of pipeline construction to continue over the next several years. "The 78 proposed projects scheduled for completion in 2009 indicate that the second-highest level of capacity additions in the last decade could be completed during the year. However the on-schedule completion of all currently anticipated projects as designed is very unlikely. The current economic downturn has limited financial options for projects and contributed to a significant decline in natural gas spot prices.

"Nonetheless the fundamental conditions for the build-out of the pipeline system remain intact, given the need to access and exploit unconventional resources, such as tight gas, coal-bed methane and natural gas from shale formations," the agency said.

Many of the individual pipeline projects that were completed in 2008 had "industry-wide implications" because of their size and scope, according to the EIA. Specifically, it cited the 2.6 Bcf Sabine Pass LNG Line, which runs from the Sabine Pass LNG terminal to southwestern Louisiana; it has interconnections with six interstate pipelines; the western leg of the Rockies Express Pipeline (REX-West), which links expanding gas production from Wyoming and western Colorado to Midwest markets; and the Southwest Supply Header System (SESH) , which transports supplies from the Perryville Hub in Delhi, LA, to Florida Gas Transmission's interconnect in Lucedale, MS.

"These construction projects, as well as other transportation additions out of the North Texas and Rockies producing regions and additions related to LNG projects, have already had an impact on regional pricing dynamics. For example REX-West has allowed for greater integration of the Rockies and Midcontinent markets, such that prices in the two regions appear to trade in sync, with only transportation costs separating price quotes on average," the EIA said.

Of the 84 completed pipe projects, 65 projects added 35.2 Bcf/d of capacity to the interstate network, while the remaining 19 projects represented a 9.4 Bcf/d expansion of the intrastate system, the EIA said.

Southwest, GOM Additions 'Massive'

The pipeline additions in the Southwest and Gulf of Mexico region last year were "massive," the agency said. "Capacity additions of 22.6 Bcf/d were three times the level of the previous year, while the 1,382 miles of new pipeline was nearly double the previous year's addition of 700 miles of pipeline. The estimated cost of the infrastructure additions was $3.3 billion, compared with the 2007 total of $2.5 billion."

Of the 30 pipeline projects constructed in the Southwest, 13 were related to new pipelines or expansions in the Northeast Texas area or to new flows from development of supplies from the Barnett, Woodford or Fayetteville shale formations, the EIA noted. These expansions accounted for approximately 72% (1,001 miles) of the added pipeline mileage in the region and 30% (6.7 Bcf/d) of the added capacity in the region. The most significant projects took place on intrastate systems owned by Enterprise Product Partners and Energy Transfer Partners LP.

The Southeast region saw significant pipeline activity in 2008 as well. Nineteen pipeline expansions were completed in the Southeast region in 2008, representing 10.1 Bcf/d of additional capacity and 891 miles of new pipeline. The added capacity, which cost an estimated $3.5 billion, was greater than that of any year in the last decade, the EIA said. The increased activity in 2008 is expected to continue through 2011 and beyond, even if some planned projects are not completed, it noted.

Some of the biggest pipeline projects completed in the Southeast last year were SESH, which provides new access to growing unconventional supplies from the West -- the 1.1 Bcf/d pipeline is a joint venture of Spectra Energy and CenterPoint Energy Gas Transmission; Gulf South Pipeline Co. LLP completed a large-scale expansion of its system in the region to provide a similar outlet for southwestern supplies; and significant pipeline capacity was added in the Southeast in conjunction with the completion of new underground storage capacity. Energy South completed the 30 Bcf Mississippi Hub storage facility near Jackson, MS; and SG Resources Mississippi LLC constructed the Southern Pines Energy Center in Greene County, MS.

Fifteen pipeline projects were completed in the Northeast region in 2008, representing 5 Bcf/d of additional capacity and 491 miles of new pipeline, the EIA said. The mileage and capacity additions last year were the "highest for this region in EIA's 11-year database of pipeline construction activity...EIA anticipates growing construction activity in the Northeast through 2011 and beyond."

The largest projects completed in the Northeast last year were related to bringing regasified LNG to market from import terminals. Dominion Resources completed an integrated pipeline project that expanded pipe capacity from its Cove Point LNG terminal in southern Maryland; Suez LNG North America Inc. completed a pipeline project to support its Neptune LNG offshore port, located about 10 miles offshore Gloucester, MA; and the 182-mile Millennium Pipeline was completed after many years in the planning process, with Algonquin Gas Transmission and Empire Pipeline expanding their systems to receive gas from Millennium.

The construction pace in the Northeast is expected to continue. Thirty-two pipeline projects, totaling as much as 8.5 Bcf/d of new capacity, have been announced, submitted for regulatory review or approved for development between this year and 2011, according to the EIA. The development of the Marcellus Shale in Pennsylvania and New York is spurring the construction of pipeline infrastructure in the region, particularly large-scale expansions of existing pipelines, the agency said.

El Paso's Tennessee Gas Pipeline plans to construct approximately 125 miles of 30-inch diameter pipeline and add about 46,000 hp of compression in its existing pipeline corridor in Pennsylvania to transport growing Appalachian production to Northeast markets. The project would add 200 MMcf/d of transportation capacity, the EIA said.

And it noted that numerous proposals to expand existing pipe infrastructure to provide an outlet for increased supplies from the Rockies are also under construction. Once REX-East is completed this year, Rockies supplies will have access to many interstate pipelines from REX-East's terminus in Clarington, OH.

Critical Central Region Capacity Built

Fifteen pipeline projects were completed in the Central region last year, adding 6.5 Bcf/d of capacity, which was the "region's largest in the EIA's 11-year database of pipeline additions," the EIA said. "Infrastructure expansion out of the region has been critical for producers in recent years because demand growth in the region is significantly lower than the growth in available supplies. This imbalance has resulted in numerous new pipeline projects, such as the expansion of the Kern the West and the Cheyenne Plains Pipeline to the East." It noted that a portion of the REX pipeline came online in 2008 to help ease the imbalance.

"Other significant infrastructure projects during 2008 included the creation of the White River Hub, a new market center in Colorado, and several compression upgrades boosting capacity at existing pipelines. Altogether the infrastructure improvements in the Central region in 2008 cost more than an estimated $2.4 billion, compared with overall expenditures of $1.6 billion in 2007," the agency noted.

"Very little capacity was added to the West region infrastructure in 2008. Only two natural gas pipeline projects, together adding 70 MMcf/d of capacity at a combined cost of $41 million, were completed in the region during the year," the EIA said. El Paso Natural Gas upgraded its system to add 30 MMcf/d of capacity to its Phoenix Lateral to serve Arizona, and Tuscarora Gas Transmission constructed a new compressor station on its system in Modoc County, CA.

"This was the fourth consecutive year in which there was little activity in the West region, which is primarily characterized as a consuming region with extensive demand in the electric power sector," the EIA said.

"Although pipeline construction activity in the West region will likely continue to be limited in the next few years, several significant projects are underway. The largest project currently proposed for the region is El Paso Corp.'s Ruby Pipeline, which will transport Rockies natural gas to a terminus near Malin, OR. The 680-mile pipeline, which could begin operations as early as 2011, will have an initial capacity of 1.5 Bcf/d."

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