The winter of 2013/14 saw several interesting developments related to US pipelines, particularly with respect to natural gas liquids (NGLs) and gas demand in the Northeast. The enormous supply of NGLs being produced from the Utica and the Marcellus drove the construction of over 420 miles of NGL pipeline to the Gulf Coast in Q4. Additionally, Kinder Morgan began an open season for the conversion of over 1,000 miles of existing pipeline and 200 miles of greenfield construction to transport NGLs from the Utica and Marcellus to the Gulf Coast. NGL demand shows signs of remaining strong in the coming years. NOVA Chemicals Corporation is currently completing the retrofit of its cracking facility in Ontario to make it capable of utilizing up to 100% natural gas liquid feedstock, and processed its first barrel of Marcellus ethane last month.
The polar vortices experienced in the Northeast during the winter highlighted other infrastructure constraints, with natural gas prices in New England and the Northeast spiking to over five times Henry Hub prices on several occasions, despite the proximity of the Marcellus. The construction of pipelines to the Northeast has historically been constrained by the federal requirement that operators secure 10-year commitments from customers before building a new line. Power generators that consume natural gas would be unable to remain competitive if they were bound to such firm contracts. As a result, in January of 2014, New England governors petitioned ISO-New England to implement an unprecedented electricity tariff structure that would effectively pass the cost of long-term gas pipeline contracts on to electricity ratepayers in New England. If this plan is accepted by FERC, it will spur significant natural gas pipeline construction in the next several years.
The latest edition of Douglas-Westwood’s North American Pipeline Database identifies almost $50 billion of potential expenditures on pipeline construction 2014-2020. Alternatives such as rail have gained popularity in recent years as quick fixes to the nation’s lack of infrastructure, but pipelines show clear signs of remaining the workhorse in the long-term.
Neha Rustagi, Douglas-Westwood Houston
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