The Outlook For Pipeline Construction - NAPCA Convention-Hoffmann_Presentation.… · THE INGAA...

THE INGAA FOUNDATION, INC.

The Outlook For Pipeline Construction

April 25, 2013National Association of Pipe Coating Applicators

Rich HoffmannExecutive Director

The INGAA Foundation, Inc.


EXCELLENT


CONSTRUCTION OUTLOOK: A FUNCTION OF MANY FACTORS

SUPPLY

DEMAND

COMPETITION

EXISTING INFRASTRUCTURE

ECONOMY

PIPELINE SAFETY

politics


SUPPLY


Source: Modified from Schlumberger presentation, 2005

SHALE FORMATIONS OF THE U.S.


SHALE FORMATIONS OF THE U.S. and CANADA

Shale formations are widely distributed.

Liquids content vary by location, which affects the economics of development.

Source: NEB, “Understanding Canadian Shale Gas,” 2009


SHALE FORMATIONS OF THE U.S.


PRODUCTION OUTLOOK

1EIA. Annual Energy Outlook 2012. (Page 3)


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NPC EIA Clean Skies(mean)

PGC ICF EIA ICF PGC ICF

2003 2008 2011 2012 2013

SHALE ASSESSMENTS BY YEAR(TCF RECOVERABLE)


DEMAND

Power Generation

Manufacturing: Ammonia Plants; Methanol plants; GTL; Direct Reduced Iron Plants; Ethylene Plants; Propane Dehydration; Propane and Butane Export

Long-term contracts

Strategic –Sustainability

US Governors—a NGA 2013 agenda priority

Cleaner Air


Anticipated Growth in Electric Generation

Source: Bentek Energy, “Supply & Demand for Natural Gas and Crude Market Outlook – 2012 and Beyond “

Gas Demand from Power Up 5 Bcf/d (24%) in 2012

U.S. Power Burn Drives Demand Growth


COMPETITION

RENEWABLES- Energy Sprawl

NUCLEAR

COAL –Expected plant Shutdowns…..

NATURAL GAS: POTENTIAL TO LEAD ECONOMIC RENAISSANCE

Source: CME Group, A CME/Chicago Board of Trade Company

Change in CME Monthly Settlement Prices Since January 2007

-100%

-50%

0%

50%

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150%

200%

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300%

Natural Gas Corn WheatSoybeans Silver GoldCopper Crude Oil Coal


EXISTING INFRASTRUCTURE

Source: Interstate Natural Gas Association of America, PennwellMapSearch


2011 PROJECTED CHANGES IN GAS FLOWS (2010 - 2020)

Source: ICF 2011

2013 SUPPLY AND DEMAND CHANGES WILL SIGNIFICANTLY CHANGE PIPELINE

FLOWS OVER THE NEXT 10 YEARS Increases in flows from

the Gulf Coast to the east are due to increases in Mid-continent shale gas production.

Modest increases in the Rockies both east and west.

Marcellus gas production growth displaces gas flows into the U.S. Northeast (shifts within the Northeast are not depicted on this interregional flow map).

Declining conventional production in Alberta and increasing gas consumption for oil sands development causes flows from western Canada to decline. Source: ICF International

© 2013 ICF International. All rights reserved


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Rockies Express East (1,800)

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PROVEN TRACK RECORD OF BUILDING PIPELINE INFRASTRUCTURE

16,000 MILES IN 10 YEARS

115.00 Bcf/d Total16,178 Miles

Colorado Corridor23 Projects

29 Certificates12,930 MMcf/d

New England Corridor22 Projects

31 Certificates9,773 MMcf/d

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3435

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Ruby Pipeline (1,456)

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East Texas Corridor18 Projects22 Certificates22,125 MMcf/d

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Fayetteville Corridor12 Projects23 Certificates20,240 MMcf/d

Major Pipeline Projects CertificatedJanuary 2000 – February 2010

Source: FERC. Office of Energy Projects


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Sources: Derived from Ventyx Velocity Suite, the C Three Group’s U.S. Electric Transmission Database and FERC’s Transmission Database

Projects

Clarksville, OK-Chamber Springs Rd, AR Wempleton, IL – Paddock, WI

Cross Sound Cable Arrowhead, MN – Weston, WI

Lamar, CO – Holcomb, KS Split Rock, SD – FoxLake, MN

Spurlock, KY - Stuart/Zimmer, OH Trimble Co., KY – Tap of Ghent-Speed, IN

Meadowbrook, VA- Greenland Gap, WV -Mt. Storm, WV

Fort Martin, WV- North Longview, WV - 502 Junction, PA

Jacksons Ferry, VA – Wyoming, WV Prairie State, IL – Baldwin, IL – Rush Island, MO

Palmers Corner, MD – WASA, DC-Potomac River, VA

Energy Gateway Central Path C: Populus, ID–Terminal, UT

Neptune: Sayerville, NJ - W. 49th Street Trans-Allegheny Interstate Line (TrAIL)

Voltage Level (kV)

765

500

345

230

DC

HIGH VOLTAGE INTERSTATE TRANSMISSION LINES BUILT

January 2000 – September 20111,113 Total Miles

IMPACT OF MARCELLUS PRODUCTION GROWTH ON REGIONAL FLOWS (2012-2025)Change in Average Annual Flows (MMcfd)

© 2013 ICF International. All rights reserved


THE ECONOMY


ECONOMIC CONTRIBUTIONS THROUGH 2035

Upstream Capital Expenditures (SHALE):[ANGA -2011]

$1,654 Billion

Natural Gas Midstream Infrastructure Requirements:[INGAA FOUNDATION/ ICF 2011]

$ 205 Billion

GAS PRICE STABILITYAs supply grows, price remains low, stable

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Lower 48 gas supply has grown by 20 Bcfd since 2000, up 50%

Cold weather

Hurricanes Katrina & RitaCold weather

Strong global economyPrice run-up with crude oil

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Henry Hub Gas Price

Gas Supply

Coldest winter in 25 years

Lower 48 Gas Supply

Bcf/ Day

Henry Hub Gas Price

$ per MMBtu


ECONOMIC BENEFITS OF GAS ABUNDANCE

Lower utility costs have saved U.S. companies and consumers an average of $566 million a day1. = $203B

—Bank of America Merrill Lynch study on benefits of low natural gas prices

Savings from lower gas prices will add an annual average of $926 per year in disposable household income between 2012 and 2015

—IHS Global Insight study on economic contributions of shale gas

By 2025, the $11.5 billion U.S. manufacturers are projected to save annually by burning gas should allow them to make other investments and create as many as a million more jobs.

—Robert McCutcheon, the U.S. industrial products leader at PriceWaterhouseCoopers3.


SAFETY


GUIDING PRINCIPLES OF PIPELINE SAFETY

Our goal is ZERO incidents

We are committed to safety culture

We will be relentless in our pursuit of improving

We are committed to applying integrity management principles on a system-wide basis

We will engage our stakeholders


APPLY RISK MANAGEMENT BEYOND HIGH CONSEQUENCE AREAS (HCAS)


Estimated statistics based on survey results:

• 5 million people reside near our pipelines (200,000 miles)

• 100% of population lives near 33% of pipeline (67,000 miles)

• 64% of the 5 million people live in HCA (8,000 miles)

• 128,000 miles have been assessed (64%)

• 89% of total population live near these assessed pipelines

APPLY RISK MANAGEMENT BEYOND HCAS


IM expansion will drive more program & physical work:

Phase 1: 90% of nearby population using IM principles by 2012

Phase 2: 90% of the population nearby pipelines using ASME B31.8S by 2020 – 128,000 miles

Phase 3: 100% of the population nearby pipelines using IM principles by 2030 – 32,000 miles

Phase 4: The remaining ~20% of mileage with no population using IM principles beyond 2030 – 40,000 miles

tool runs, pipeline modifications, pipeline repairs/replacements/testing,…

APPLY RISK MANAGEMENT BEYOND HCAS


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DEMONSTRATE FITNESS FOR SERVICE ON PRE-REGULATION PIPELINES


DEMONSTRATE FITNESS FOR SERVICE ON PRE-REGULATION PIPELINES

Where records to establish MAOP are inadequate or pipe is untested, INGAA members will apply Fitness for Service (FFS)

FFS methodology will drive need for more physical work…

125,000 miles of pre-regulation pipe – records review ongoing

Potential FFS process for these miles could lead to: Pressure test

Pressure reduction

Pipe replacement

Use of alternative in-line inspection

Repair, replace or status quo

Technology development, tool runs, pipeline modifications, pipeline repairs/replacements/testing,…


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SHORTEN PIPELINE ISOLATION & RESPONSE TIME TO 1 HOUR IN

POPULATED AREAS


SHORTEN PIPELINE ISOLATION & RESPONSE TIME

Recent survey representing ~70% of INGAA mileage:

29,800 valves total – 5,000 already automated – 17%

And for >12” in populated areas:

5,900 valves – 1,800 already automated – 31%

Valve automation, communication, actuators, etc,…


politics


SITUATION: GRIDLOCK


Source: Jay Carney, 3/11/13

WHITE HOUSE PRIORITIES

Budget and Deficit

Gun Control

Immigration

Domestic Energy

CybersecurityCould be Natural Gas Pipeline Issues


CONGRESSIONAL PRIORITIES

Budget and Deficit

Domestic Energy

Cybersecurity

Could be Natural Gas Pipeline Issues


DOMESTIC ENERGY

Natural gas production

LNG exports

Pipeline permitting


PIPELINE CONSTRUCTION:THE NUMBERS


INFRASTRUCTURE NEEDED- [2011]

• The US and Canada will require midstream natural gas investment of $205.2 billion over next 25 years ($8.2 billion per year).

• New infrastructure will be required to move natural gas from regions where production is expected to grow and to areas where demand is expected to increase.

• Natural gas consumption expected to grow 1.6% per year

• Total natural gas use expected to rise to about 109 Bcfd

Source: The INGAA Foundation


INTERREGIONAL PIPELINE EXPANSIONS

Roughly 29 Bcfd of incremental pipeline capacity is built from 2011 to 2020 and from 2021 to 2035 an additional 14 Bcfd is built. A total of 43 Bcfd of incremental pipeline is needed to accommodate increasing gas supply that is necessary to satisfy market needs over time. Note that these maps do not generally show intra-regional pipeline expansions such as those that occur within the Marcellus shale production area.


MILES OF NEW PIPELINE ADDED

Most new pipe (about 16,500 miles) is gathering line, which is generally smaller diameter pipe that is planned for and financed as part of upstream project development.

An average of almost 2,000 miles of new transmission line are added each year, which is well within the range of recent years.. Roughly 1,400 miles per year are mainline miles, while about 600 miles per year are for lateral connections to power plants, processing plants, and other facilities.

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EXP PIPE Lateral PIPE NEW PIPE Gathering PIPE

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Miles of Pipe

EXP PIPE Lateral PIPE NEW PIPE

Source: The INGAA Foundation-2011


THE U.S. HAS THE INFRASTRUCTURE TO SUPPORT LNG EXPORTS


NORTH AMERICAN LNG IMPORT/EXPORT TERMINALS (PROPOSED/POTENTIAL)

Source: FERC. Office of Energy Projects. December 5, 2012.


DETAILS FROM 2011 INGAA

FOUNDATION REPORT:

MIDSTREAM INFRASTRUCTURE

REQUIREMENTS FOR OIL AND

NATURAL GAS LIQUIDS


MAJOR NGL FLOW PATTERNS 2010


MAJOR NGL FLOW PATTERNS 2035


NGL PIPELINE INFRASTRUCTURE

• Significant pipeline expansions and new pipelines to accommodate growing

NGL production:

• Gulf Coast,

• West Texas, and

• Oklahoma.

• Other areas for new NGL pipeline capacity :

• Marcellus & Utica,

• Bakken, and Niobrara.

[Roughly 80 percent of the new NGL infrastructure]

• ~2 million barrels per day of new NGL transmission lines -- 2010 and 2035.


Major Crude & Condensate Flow Patterns 2010


Major Crude & Condensate Flow Patterns 2035


OIL PIPELINE INFRASTRUCTURE

• Building new pipelines to deliver oil from Western Canada to the refineries of

the Central US and Gulf Coast is expected to continue.

• Over 5 Million Barrels per Day of new oil transmission capacity will be

required. Also, reversing capacity on some existing oil pipes where changes in

supply sources affect oil movement patterns.

• Current and pending projects will increase capacity from western Canada by

1.3 Million Barrels per day

• Significant pipe capacity is also built to the Pacific Coast to facilitate exports

from ports in British Columbia.

• Additional oil pipeline capacity is also built out of the Rockies


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ENVIRONMENTAL GROUPS FOCUSING ON MIDSTREAM

PRUDENT NEEDED


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SUMMARY


CONCLUSIONS [The April 2011 ICF Reference Case]

Significant Gas Market Growth: power sector gas use doubles

Significant Infrastructure Needed to support growing long run

demand in many regions including the Southeast, Northeast, Southwest and Canada.

Significant supply development and growth in gas production. Shale plays with large quantities of oil and natural gas liquids, which

have needs for new pipeline infrastructure

Gas prices that rise from $4 per MMBtu in real terms to between $6 and $7 per MMBtu in the longer-term.

ICF Reference Case represents a “middle of the road”case. A variety of variables could change and result in more or less gas growth.


CONCLUSIONS

Midstream Infrastructure Development

From 2010 through 2035 approximately :

1,400 miles per year of new gas transmission mainline.

550 miles per year of new laterals power plants, processing facilities, and storage fields.

16,500 miles per year of new gathering line.

800 miles per year of new oil transmission line. [+5MMBpd]

500 miles per year of new NGL transmission line. [+2MMBpd]


CONCLUSIONS (continued)

Expenditures are significant

One-third of the mainline infrastructure requirement will be for oil and NGL pipelines.

Future market growth and supply development hinges on uncertain assumptions

CONTINUING CHANGE =

NEED FOR INFRASTRUCTURE UPDATE

OUTLOOK = EXCELLENT


Contact Information

Rich Hoffmann

Executive Director

The INGAA Foundation, Inc.

20 F Street N.W., Suite 450

Washington, D.C.

[email protected]

www.ingaa.org

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