May 2012, Vol. 239 No. 5

Features

INGAA Study Examines Economic Benefits Of Midstream Infrastructure Development Through 2035

Midstream investments from 2012–2035 to accommodate natural gas, oil and NGL resource development will require more than $200 billion, according to an Interstate Natural Gas Association of America (INGAA) Foundation report.

This study, completed by Black & Veatch, is the first to highlight the economic benefits – jobs, labor income, value added, economic output and federal, state and local tax generation – of constructing, operating and maintaining the midstream infrastructure needed to transport domestic energy.

The new report is based on data compiled in the INGAA Foundation’s North American Midstream Infrastructure through 2035 – A Secure Energy Future study, completed by ICF International in 2011.

The study found that, in 2010 dollars, natural gas midstream infrastructure capital investment in North America for the next 25 years is estimated to be over $205 billion with an additional $46 billion in capital investment for NGL and oil pipeline infrastructure.

As a result of this investment, on average 2,000 miles of new natural gas transmission lines and laterals are anticipated to be added each year through 2035 in combination with more than 200,000 horsepower of compression, 24 Bcf of gas storage capacity and 1.3 Bcf/d of annual processing capacity additions. An additional 1,300 miles of oil and NGL transmission pipelines would also be constructed each year, on average.

In the current study, the data was narrowed to include only the U.S. lower 48 states and offshore Gulf of Mexico investments, which were divided into six regions. The largest expenditure category ($90 billion) will be for natural gas mainline pipeline. This is large diameter pipeline (20- to 42-inch) that is projected to have an all-in average installed cost per mile of $2.8 million in the 2035 Midstream Report.

This expenditure category is followed in dollars spent by expenditures for small diameter (0.5- to 6-inch) gathering pipeline ($29 billion) and lateral pipeline (6- to 24-inch diameter, $26 billion). These pipelines are estimated to have an all-in average installed cost per mile of approximately $100,000 (for gathering pipeline) and $2.2 million (for lateral pipeline).

Near-term estimates through 2013 and through 2016 also are developed. The estimated economic impact of these investments is measured in terms of employment creation, income generation, output, taxes generated and value added to the U.S. economy and study regions.

The report notes that these large investments in natural gas, NGL and crude oil midstream infrastructure will result in significant benefits for the U.S. economy in the near term and long run. Total economic impacts through 2035 arising from the $200 billion in midstream infrastructure plus nearly $29 billion spent operating the new midstream facilities during the evaluation period are estimated to include:

• The support of more than 125,000 jobs on average each year from 2012 through 2035;
• More than $171 billion in labor income;
• Approximately $260 billion in value added;
• More than $511 billion in total output; and
• Federal, state and local tax revenue of nearly $57 billion.

The report shows that many of the jobs supported are construction jobs. Other jobs, including those related to the pipeline’s operation and management will be permanent positions. Also pointed out is that data from the U.S. Bureau of Labor Statistics indicate the average annual wage in the pipeline transportation industry was $64,820, or more than $20,000 higher than the U.S. average for all jobs ($44,410).

Economic and job benefits are expected to be seen throughout the forecast period, according to the report. In the near-term, the study projects an average of nearly 160,000 jobs will be supported in both 2012 and 2013 and an average of more than 135,000 jobs will be supported from 2012 through 2016.

Natural Gas Impacts Dominate
Of the total impacts, a large majority (approximately 83% of each category) is attributed to natural gas midstream investments, with oil investments (approximately 10%) and NGL investments (approximately 7%) accounting for the remainder of the economic impacts. Natural gas investments and O&M expenditures alone will support an average of over 103,000 jobs each year from 2012 through 2035, generate nearly $47 billion in federal, state and local taxes and add more than $420 billion in total economic output.

Other Considerations
The study analyzes neither the economic impacts from exploration and production activities nor the impacts on households and manufacturers that will benefit from lower natural gas, oil and NGL prices. Though economic impact studies consistently have found large benefits associated with natural gas development, they have received some criticism for failing to directly address certain issues of concern such as the socioeconomic impact and disruption to local communities when projects are constructed.

Specific concerns include a “boom to bust” impact and harm done to local roadways, especially during the well drilling phase.

This study does not analyze either the economic effects from exploration and production nor on households and manufacturing. But it notes that such concerns serve as a call for local decision makers to recognize that natural gas development will have local impacts that can require mitigation efforts.

“It is clear from the impact analysis that there will be substantial tax revenues generated at the federal, state and local levels as upstream and midstream investments occur. With proper coordination and timing, it is possible that local impacts can be minimized through the allocation of development- induced tax revenue to impacted areas.”

The study also suggests that “economic theory and practical experience tell us that the impact of a construction project is not permanent and a construction project likely will generate the vast majority of economic impacts in a three- to four-year period. What is interesting about the projected upstream and midstream investments, however, is that the number and magnitude of projects projected to be built through 2035 are so large (and projects are generally contiguous) that, as a whole, the construction of upstream and downstream projects will tend to have a fairly steady impact on the national economy and many regions will experience sizable expenditures for new projects for decades to come.

“The long-term nature of such projects impacts imply that state and local governments could further benefit by teaming with private industry and local institutions to ensure that an increased share of local workers have training opportunities for the well-paying jobs associated with future natural gas development. Employment of local workers will help local populations benefit directly from regional development. Similarly, if regions with the large natural gas plays can attract new natural gas and oil related industry and supplier investment, the ripple effects shown for any region in this analysis would increase over the projections made in this study.”

Conclusion
It is clear there will be short-term and long-term benefits associated with midstream facility construction and operation. Every region of the U.S. stands to realize substantial economic benefits as the midstream investments unfold. Benefits and impacts will be greatest for those regions containing large gas plays that will be economical to develop, but this analysis also shows that there will be significant economic benefits to those regions having an industrial base that supplies the midstream natural gas and oil pipeline industries with goods and materials such as pipe, compressors, etc.

Given the competitive advantage of being in close proximity to natural gas investment locations, midstream infrastructure development presents an opportunity for suppliers of materials used in such investments to reverse or at least slow the decades-long decline seen in most manufacturing in the US.

In addition to the economic impacts quantified in this study, other studies have concluded that there will be other national benefits in the form of lower energy prices, increased energy security and lower emission associated with a switch from coal to natural gas in electric generation and increased natural gas usage in industries processes. Combined, the reports says these benefits make a compelling case for the continued and prudent development of the nation’s natural gas and liquid hydrocarbon plays.

To view the full report, visit: http://www.ingaa.org/EconomicImpactReport.aspx.