The cost to build major natural gas pipelines is rising, particularly in the Marcellus Shale, according to a new report.
“All North America geographical regions appear to experience consistently higher pipeline costs than prior years,” said Julia Sagidova, a gas analyst with Ziff Energy Group and lead author of “Pipeline Costs in Shale Gas Regions.”
Ziff estimates that average pipeline costs in seven major shale regions increased to almost $200,000/inch-mile this year, nearly triple the rate in 2004. The Marcellus topped the seven shale regions considered in the report at costs approaching $300,000/inch-mile. An inch-mile compares the cost of different diameter pipelines over a single mile.
Costs are rising for common reasons, according to Bill Gwozd, vice president of gas services for Ziff. “One of the reasons is just the increased cost of material,” he told NGI, noting that the cost to manufacture steel pipe had risen to more than $700/metric ton in 2010, up 30% from $550/metric ton in 2009.
While those increases are partially offset by higher unemployment rates that may have brought down the cost of labor, they are exacerbated by “construction environmental push back” that increases project costs by adding delays.
Although the report doesn’t specifically outline why the Marcellus is more expensive than other shale regions, Gwozd said the population density of the northeast might play a role. Pipelines near communities must be thicker to meet safety requirements, and hand-excavation is often necessary when pipelines “crisscross,” Gwozd said.
Also, because many pipeline projects in Appalachia are incremental compression projects, the report measures Marcellus costs using a metric called “cost per flowing volume,” in addition to the standard inch-mile. “The mixture of investment in some places is more pipeline and in some places is more compression,” Gwozd said. Those costs are adding up, though.
The average cost of pipelines planned for the Marcellus between 2011 and 2014 is roughly double that of all pipelines in 2009, according to Ziff. “The bottom line is we’re seeing pipeline costs grow literally right across North America, but in the Marcellus there are some of the more expensive pipeline projects,” Gwozd said.
The Marcellus projects considered in the report include three proposed by Tennessee Gas Pipeline Co., a capacity increase on the 300 Line, the Northeast Upgrade Project and the Northeast Supply Diversification Project (see related story).
The report covers only larger projects, those above 100MMcf/d in capacity and $100 million in cost. The Ziff database compiles company engineering assessments for more than 120 pipelines from the past decade. While the report does not exclusively consider pipelines for shale projects, is is categorized as a shale report because that is the fastest growing segment of natural gas production and driving most new projects, Gwozd said. The report looks at projects in the Marcellus, Eagle Ford, Haynesville, Barnett, Woodford, Fayetteville and Horn River areas.
The Ziff estimates differ from those in a new report from the Interstate Natural Gas Association of America (INGAA) Foundation, which assumes that costs will remain $90,000/inch-mile through 2035 (see related story). Gwozd declined to comment on the INGAA report but said Ziff compiles data directly from pipeline company engineers.
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