The shale-driven pipeline future

Production from US shale plays is expected to continue growing for the next few years, driving stable investment in pipeline infrastructure. The latest edition of the DW North American Pipeline Database identifies US$ 22 billion in expenditure for the construction of over 23 000 pipeline between 2014 and 2020.

Permian crude

Over 1100 miles of transmission pipelines relate to the transportation of Permian crude and are planned to be built by the end of 2014. These lines will buffer the pricing of Permian crude from temporary disruptions in refineries and in the existing takeaway infrastructure and potentially enable greater volumes of production. The capacity of pipelines to be installed from the Eagle Ford by 2017 actually exceeds expected production and will similarly ensure consumers’ stable supply.

The Bakken

Unlike the Eagle Ford, the Bakken is challenged by its remote location, due to which Bakken oil has historically sold at a discount to WTI and Brent. Over 1000 miles of pipelines transporting Bakken crude are planned for construction by 2016 and will collectively lower the Bakken discount (which was around US$ 5 lower to WTI for the majority of 2013).

Transportation

A decrease in this discount will also diminish the cost competitiveness of rail (the primary competitor to pipeline transportation). Transportation by rail and natural gas flaring have both grown tremendously in the past several years due to North Dakota’s short construction season, rugged terrain and distance from the Gulf Coast. The extent to which flaring and rail will be replaced by pipelines in the future is debatable.

Given the volatility of energy markets and the steep production decline curves of unconventional wells, the capital cost of pipeline installation for gas transportation is often difficult to justify. The value of natural gas produced from the Bakken is, moreover, dwarfed by that of Bakken oil. About 70% of Bakken oil is transported out of North Dakota by train.

Utica Shale

The Utica Shale has lagged in production to date, in comparison to other major shale plays, but is expected to see a spike soon, largely due to impending developments in pipeline infrastructure and refining capacity. A joint venture between MarkWest Energy and the Energy & Minerals Group has commenced operations of two processing facilities with a combined 325 milllion ft³/d of capacity in the Utica since 2012.

The joint venture is currently building two more 200 million ft³/d facilities that are expected to be in service by mid-2014. Companies such as Access Midstream and M3 Midstream are additionally building fractionation facilities which will eventually necessitate the construction of Y-grade pipelines. By 2017, the Utica Shale has been forecast to supply approximately 5% of the nation’s NGLs, trailing closely behind the Marcellus at 9%.

Adapted from press release by Hannah Priestley-Eaton

Read the article online at: https://www.worldpipelines.com/business-news/13122013/the_shale_driven_pipeline_future/