The new large natural gas pipelines now under construction have grabbed a lot of the headlines in recent months, but in the next few years, there likely will be a “wave of smaller, significant expansions” of existing and greenfield pipes across the country, the head of the Interstate Natural Gas Association of America (INGAA) said Monday.
INGAA President Don Santa Jr. moderated an executive roundtable at Pipeline & Gas Journal magazine’s Pipeline Opportunities Conference in Houston. He said projections of natural gas demand and tighter supplies by the INGAA Foundation in 2004 have now “come to fruition.” The INGAA report, which updated a 2001 study, took a close look at U.S. pipeline, storage and liquefied natural gas (LNG) infrastructure requirements and evolving gas supply and demand trends (see Daily GPI, July 20, 2004).
“We now have an abundance of shale plays, more LNG, and now more pipeline projects under construction,” said Santa. And unlike market-driven pipe construction in the past, most of the new projects are producer-driven.
“Most projects are driven by producers today, no doubt about it,” said Scott Parker, president of Kinder Morgan Natural Gas Pipelines. Kinder Morgan’s pipe investment over the next “couple of years” is equal to about $700 billion, and all of the company’s pipe projects are “producer-pushed.” Producers, said Parker, “have a wealth of investment in the ground, and what they’re trying to do is increase the value of all of their production” with the new pipes.
The producer-driven pipelines have led to a new way of thinking by pipeline operators, Parker said.
“Earlier in my career, you used to build a pipeline around your assets,” said Parker. “You didn’t worry about someone else’s assets. With a producer-driven pipeline, you try to connect with everything you can…connect to 15 or 20 markets to sell premium gas. At the end of the day, you put more interconnects in, you put more lines in, you need a lot more meters, you need more contractors.”
Kinder Morgan’s “biggest, most exciting” project is the producer-driven Rockies Express (REX), a $4.4 billion pipe, which will run west to east out of the Rockies. The costs are staggering, but Parker said like all of Kinder Morgan’s projects, it is front-end loaded, with as much spending as possible done well ahead of construction. The costs are not a concern to the cash-rich producers that want to see their gas get to market.
A year ago, said Parker, “we had the materials locked in on this project.” REX has “very big producer names, with great credit.”
But Parker admitted that the “big projects don’t happen very often,” nor does he expect the trend to continue.
“There is about 30 Bcf of storage capacity building under way,” Parker told the audience. “We expect to see more greenfield projects coming, and you’ll see some pretty hefty investment in storage.” He added, “You tend to find that the markets will react to the projects. The large projects will still get built, but the smaller [ones] will be built to enhance the downstream.”
Spectra Energy’s Bill Yardley, group vice president of Northeast Transmission and Storage, also expects to see smaller pipeline projects moving forward over the next few years.
“We see more moderately sized projects, in the $50-500 million range,” Yardley said. “A lot of them will be organic, mainline expansions.” Spectra also plans to expand its salt cavern storage over the next few years to prepare for coming expansions. “After 2009, we’ll see some growth.”
Parker and Boardwalk Pipelines’ Brian Cody, senior vice president of business development, both expect LNG to have a big effect on the pipeline and storage industry.
“Whenever LNG shows up, it will change the landscape dramatically” for pipelines, said Cody. “It will create a second realm. When it comes into play, users are going to want quick offloads over short periods of time.”
“This is a great time in the industry, and I don’t see that going away,” said Parker. “Maybe the big projects will slow down, but we still expect to see a lot of smaller projects out there.”
Cody added that he’s “never seen this high of an activity level” in the pipeline business. “It’s an extremely exciting time in the industry.”
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