Energy companies will have to cough up a total of $68 billion for new pipeline and storage facilities in North America over the next 14 years if they hope to cash in on the still-expected 30 Tcf U.S. market for natural gas by then, according to a new study commissioned by the INGAA Foundation. But higher capital costs in the wake of the Enron Corp. financial fiasco could delay some of the building.

The bulk of the investment — $47.7 billion, or $3.2 billion per year — will be needed to build pipeline capacity additions in the United States between now and 2015, said the study, which was conducted by Arlington, VA-based Energy and Environmental Analysis Inc. (EEA). The figure includes the construction costs for the U.S. portion of an Alaskan gas pipeline during this time period, and additional “peak day” pipe capacity to serve power generation.

An estimated $17 billion, or $1.1 billion a year, will be required for new pipeline facilities in Canada, according to the new INGAA report, “Pipeline and Storage Infrastructure for a 30 Tcf Market: An Updated Assessment.” The new capacity would pave the way for increased deliveries from eastern Canadian and existing production areas in Alberta and British Columbia, as well as Arctic gas supplies from Alaska and the Mackenzie Delta.

At least for the short term, EEA Director Bruce Henning and INGAA Foundation Chairman John Somerhalder, also president of the El Paso Pipeline Group, indicated that a number of pipeline projects are being put on hold in the U.S. due to higher capital costs in the wake of the collapse of Enron Corp.

For instance, Somerhalder noted that there was “less certainty” about an expansion project of Southern Natural Gas, an affiliate of El Paso. The “momentum [is] in that direction” for other industry pipeline projects, he said, but he doesn’t anticipate it will last long.

Henning noted that the competition for capital to fund pipeline projects will be tighter in the immediate future. “In order to have this happen [raise $68 billion], the pipelines are going to need adequate rates of return. In order to have the capital market decide that they can put this together, the pipeline investments [will] have to compete with outside investments,” as well as compete within their own companies for capital, he said.

The study further projects that companies will need to spend a total of $2.8 billion, or $190 million a year, on new storage facilities in the U.S., and an additional $400 million, or $30 million a year, in Canada to serve incremental storage load requirements.

It estimated that nearly 70% of the storage capacity additions will be required in the Northeast and eastern Canada to meet the growing peak-month demand in New England, the Northeast and eastern Canada. All told, these markets will require an additional 334 Bcf of working gas capacity, with about 75% of the additions needed before 2010, the INGAA Foundation study said.

The infrastructure investments are based on the U.S. gas market reaching 30 Tcf by 2010-2015. The 30 Tcf demand figure was first cited in an INGAA Foundation study in January 1999, and the latest study concludes it is still feasible. It estimates gas demand in the U.S. will climb to 29.5 Tcf by 2010, and to 31.3 Tcf by 2015.

Not surprisingly, gas consumption for power generation is expected to be the principal driver toward a 30 Tcf market, according to the study. It estimates domestic generation gas demand will grow about 106% from 4.18 Tcf in 2000 to 8.6 Tcf by 2015. All other demand sectors also will see growth during the 14-year time period, although not as spectacular, it said.

The INGAA Foundation study anticipates that the biggest growth in gas demand will be seen in the South Atlantic states, Florida and the Mid-Atlantic states. Regions that historically have not had large gas demand, such as the West North Central and Mountain regions, also will experience high percentage increases, it noted.

But the West South Central, California and Northeast regions will remain the dominant gas demand markets. The study anticipates that the West South Central market will continue to consume around 22% of U.S. gas by 2015, California 15%, and the Northeast about 11%.

On the supply side, the INGAA Foundation study predicts the U.S. will have to rely largely on non-traditional sources for natural gas in the future, such as Alaska, the deepwater regions of the Gulf of Mexico, the Rocky Mountains and eastern Canada, to meet domestic demand. The Gulf Shelf, the source of much of the country’s gas now, will play a reduced role in the years ahead.

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