Pipelines Accommodate Expanded Market
Serving a projected 30 Tcf natural gas market in 2010 will
require "substantial" expansion of the existing interstate pipeline
and storage infrastructure, but the level of construction isn't
expected to be out of line with what the two areas have experienced
in recent years, according to a study released last week by INGAA
Foundation Inc. This means that pipe and compressor manufacturers
and construction contractors shouldn't face any problems in meeting
the demand, it said.
The cost of expanding the gas pipeline system in the United
States between 1998 and 2010 to meet projected demand growth will
be approximately $30-$32 billion, which translates into an annual
average of about $2.3-$2.5 billion, according to the study. The
projected annual average is only "somewhat higher than the actual
average annual capital expenditures (of $2.3 billion) over the last
15 years," said Arlington, VA-based Energy and Environmental
Analysis Inc., which prepared the report for the INGAA Foundation.
Half of these expenditures will be earmarked for construction of
new inter-regional pipeline capacity, 26% to replace existing
pipeline and compressor facilities, 15% for demand-area projects
to connect new end users or supply LDCs with incremental volumes,
and 9% for new production-area links to move gas within supply
areas, the report noted. It estimates about 2,000-2,100 miles of
new pipeline, including replacement facilities, will be built each
year between 1998 and 2010.
In a breakdown according to regions, the study forecasts the
greatest amount of expenditures (about $14.7 billion) will be spent
in the East and Midwest on projects to transport gas from Canada.
The Mid-continent and the Southwest also are expected to see
"substantial activity," spending about $11.8-$12.3 billion on
projects to supply new gas demand in Florida and other states in
that region, it said.
The costs to expand gas storage during the same 1998-2010
period are projected to total $2.2-$2.4 billion, or about $180-$190
million each year, according to the study, "Pipeline and Storage
Infrastructure Requirements for a 30 Tcf Gas Market."
The study finds that achieving a 30 Tcf market in 2010 is
"economically possible," but it concedes that a lot hinges on
economic growth and the rate of nuclear and coal power plant
retirements. The latter is especially important considering that
the gas industry is banking on the power generation market to
provide the greatest growth in gas demand over the next decade. "On
average, power generation is expected to make up about 4.5 Tcf or
60% of the 7.6 Tcf growth needed to reach a 30 Tcf U.S. gas
market," the INGAA Foundation study noted. The industrial sector is
expected to be the next largest contributor, adding about 1 Tcf of
the 7.6 Tcf growth.
For gas to beat out coal in new generation plants, the report
concluded that delivered gas prices must stay below the approximate
range of $5-$6/MMBtu. In both the generation and industrial
markets, gas also will go head-to-head with residual and distillate
fuel oils when delivered gas prices reach 80%-140% of crude oil on
a Btu basis.
To meet anticipated demand, the INGAA Foundation study said
producers will have to grow domestic production from 19.7 Tcf in
1997 to more than 26.2 Tcf in 2010, which is an increase of
2.2%-2.3% annually. Under this scenario, annual gas well
completions will have to rise to 18,000 by 2010 from 11,600 in
1996. The will require more than a doubling of the annual
nominal-dollar investment in non-associated gas drilling to $26
billion from $12.8 billion during the same period, the study
estimates. Susan Parker