Serving a projected 30 Tcf natural gas market in 2010 willrequire “substantial” expansion of the existing interstate pipelineand storage infrastructure, but the level of construction isn’texpected to be out of line with what the two areas have experiencedin recent years, according to a study released last week by INGAAFoundation Inc. This means that pipe and compressor manufacturersand construction contractors shouldn’t face any problems in meetingthe demand, it said.

The cost of expanding the gas pipeline system in the UnitedStates between 1998 and 2010 to meet projected demand growth willbe approximately $30-$32 billion, which translates into an annualaverage of about $2.3-$2.5 billion, according to the study. Theprojected annual average is only “somewhat higher than the actualaverage annual capital expenditures (of $2.3 billion) over the last15 years,” said Arlington, VA-based Energy and EnvironmentalAnalysis Inc., which prepared the report for the INGAA Foundation.

Half of these expenditures will be earmarked for construction ofnew inter-regional pipeline capacity, 26% to replace existingpipeline and compressor facilities, 15% for demand-area projectsto connect new end users or supply LDCs with incremental volumes,and 9% for new production-area links to move gas within supplyareas, the report noted. It estimates about 2,000-2,100 miles ofnew pipeline, including replacement facilities, will be built eachyear between 1998 and 2010.

In a breakdown according to regions, the study forecasts thegreatest amount of expenditures (about $14.7 billion) will be spentin 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 onprojects to supply new gas demand in Florida and other states inthat region, it said.

The costs to expand gas storage during the same 1998-2010period are projected to total $2.2-$2.4 billion, or about $180-$190million each year, according to the study, “Pipeline and StorageInfrastructure 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 oneconomic growth and the rate of nuclear and coal power plantretirements. The latter is especially important considering thatthe gas industry is banking on the power generation market toprovide the greatest growth in gas demand over the next decade. “Onaverage, power generation is expected to make up about 4.5 Tcf or60% of the 7.6 Tcf growth needed to reach a 30 Tcf U.S. gasmarket,” the INGAA Foundation study noted. The industrial sector isexpected to be the next largest contributor, adding about 1 Tcf ofthe 7.6 Tcf growth.

For gas to beat out coal in new generation plants, the reportconcluded that delivered gas prices must stay below the approximaterange of $5-$6/MMBtu. In both the generation and industrialmarkets, gas also will go head-to-head with residual and distillatefuel oils when delivered gas prices reach 80%-140% of crude oil ona Btu basis.

To meet anticipated demand, the INGAA Foundation study saidproducers will have to grow domestic production from 19.7 Tcf in1997 to more than 26.2 Tcf in 2010, which is an increase of2.2%-2.3% annually. Under this scenario, annual gas wellcompletions will have to rise to 18,000 by 2010 from 11,600 in1996. The will require more than a doubling of the annualnominal-dollar investment in non-associated gas drilling to $26billion from $12.8 billion during the same period, the studyestimates.Susan Parker

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