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Pipelines Accommodate Expanded Market

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

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