May 2017, Vol. 244, No. 5

Features

2017 Shaping Up as a Time to Build Pipelines

About the same time in early February that one part of the U.S. federal government was freeing up a stalled multibillion-dollar interstate oil pipeline in the Midwest for Texas-based Energy Transfer Partners (ETP), another part of the Trump administration gave the greenlight to ETP’s Rover Pipeline for moving Appalachian natural gas supplies to market in the Northeast. The symbolism and momentum felt huge, even in a continuing depressed commodity price environment.

As a result of the latter approval by the Federal Energy Regulatory Commission (FERC), ETP executives told news media bullishly that they expected the 700-mile interstate natural gas pipeline to be flowing supplies through parts of West Virginia, Pennsylvania, Ohio and Michigan, delivering 3.25 Bcf/d from Appalachia to the Midwest and Canada in a phase one startup in July with a second phase scheduled to kick in near yearend.

Shortly thereafter, ETP’s Joey Mahmoud, executive vice president for engineering, told a U.S. House energy subcommittee hearing there are 20 Bcf/d of stranded gas in the Utica/Marcellus Shale plays that need new infrastructure to get to market. ETP’s newly approved Rover line satisfies only a small fraction of this total demand.

“That means there is a need for many pipelines to be built in that region to de-bottleneck the capacity there,” Mahmoud told the hearing.

ETP’s good fortune seems to be the new bellwether of oil and gas pipeline infrastructure development, although the forces of opposition at the outset of 2017 seemed just as strong as the reinvigorated energy infrastructure supporters who have taken on a new swagger with the change of political administrations.

While the Trump administration has committed to freeing energy companies from excessive regulation to expand U.S. production and infrastructure, FERC reported earlier this year that federal regulators approved 15% more gas pipeline capacity (18.7 Bcf/d) and doubled the number of miles of pipe (1,175) last year compared to 578 miles in 2015. There were also five liquefied natural gas (LNG) export projects approved, representing a combined capacity of 5.28 Bcf/d.

“As an economic regulator, FERC recognizes the value of infrastructure in making markets more efficient, promoting competition, and enhancing reliability and resiliency,” said former FERC Chairman Norman Bay, after resigning in January.

What doesn’t show up in the glowing growth statistics last year is the lag time between regulatory approvals and projects being put in service. That is growing, too. It often has taken two to three years to get steel in the ground and new pipeline capacity in service. As such, the amount of pipelines going into service in 2016 declined by 10% year-over-year to little more than 7 Bcf/d from 7.8 Bcf/d in 2015, FERC’s data show.

The Interstate Natural Gas Association of America (INGAA), which includes all of the major U.S. interstate gas pipelines, estimates this year just the major projects that are “ripe” or “nearly ripe” amount to $12.5 billion in infrastructure investments. Three of those collectively total over $11 billion – Dominion Resources Inc.’s Atlantic Coast Pipeline, EQT Midstream/NextEra Energy Inc.’s Mountain Valley Pipeline and Spectra Energy/DTE Energy’s Nexus Pipeline.

Two-thirds of these projects are targeted for startup in 2018 or later; one-third are to come online by the end of this year, and none of them include the billions of dollars of pipeline replacement and enhancement work ongoing at major utilities from California to Massachusetts (see April P&GJ).

Between the regulatory processes and court challenges, pipelines face more hurdles than just wary landowners. ETP’s controversial Dakota Access Pipeline (DAPL) was in court again in February immediately after its final federal approvals from the Trump administration. To the north in Canada, with all of its abundant energy resources and massive infrastructure, the national government at the end of 2016 stressed the need for more economic and environmental balance to its economy, and one of the pillars of that balanced structure was what Canadian officials called “world-leading” pipeline safety standards, along with “clean growth and climate change.”

An example is the Enbridge Energy Partners’ multibillion-dollar Line 3 oil pipeline approved late in 2016 by Canada’s national government, but required more than two years for the National Energy Board’s (NEB) hearings.

In the months and years ahead, the development of seemingly diverging energy policies among the neighboring NAFTA nations will be watched closely by energy analysts. Canada is the leading U.S. trade partner, and energy – pipelines particularly – historically have been a big part.

Late last year, the Canadian government through its ministers of resources and transport, announced the approval and denial of several major infrastructure projects under the umbrella of decisions they touted as “creating good, middle-class jobs while protecting environmentally sensitive areas.” Their message was clear – energy development has to include environmental safeguards. It is a message that has resonated in the United States over the past years, but was often criticized as involving too much regulatory overreach.

Deconstructing Projects

It is also instructive to deconstruct some of the Canadian and U.S. projects that have received greenlights at the start of 2017, detailing the myriad of conditions that go along with an approval to build these multibillion-dollar undertakings. The $6.8 billion Trans Mountain expansion project in Canada, for example, is subject to 157 binding conditions addressing Indigenous peoples, socio-economic and environmental impacts touching all parts of the project’s engineering, safety and emergency preparedness aspects. Clearly, much more than state-of-the-art building techniques and materials are needed to successfully complete energy infrastructure projects today.

The Trans Mountain expansion is to double the existing natural gas pipelines between Edmonton, Alberta and Burnaby, British Columbia to provide more global market access for Western Canada’s vast energy supplies. There are supposed to be about 15,000 new jobs riding on this construction project.

To unleash this project, the Canadian national government said it relied on a vast array of information and data, including the NEB’s recommendation report, a greenhouse gas (GHG) assessment by Climate Change Canada, input from Canadians and specific consultations with the Indigenous people. In the U.S., part of the ETP disputed DAPL project’s belated permitting problems developed out of unsuccessful consultations with Native American tribes.

With the continuing U.S. shale boom, even in the midst of marginal commodity prices, the need to debottleneck pipeline networks continues in the hottest production areas. As new transmission lines are built, the effort helps ramp up demand for more distribution pipeline interconnections tapping into local end-uses. Congressional members expressed this in the February hearing on “Modernizing Energy and Electricity Delivery Systems: Challenges and Opportunities to Promote Infrastructure Improvement and Expansion.” The elected officials did not readily understand the difference between liquid and gas pipelines, both of which can serve markets along interstate routes.

“DAPL as a crude oil pipeline is a little bit different than natural gas,” Mahmoud explained to the House energy subcommittee. “On the connectedness of an interstate natural gas pipeline, the process for getting access to that gas resides with the states at the public service commissions which is where work needs to be done to help consumers get systems to distribute that gas.”

Elected officials increasingly are getting used to the fact that transport of volatile energy cargoes is much safer in pipelines than by rail by a factor of 3.5 to 4.5 times, according to industry sources, such as Mahmoud.

The issue of local benefits to major interstate energy infrastructure projects is especially germane in dealing with the concerns of Indigenous tribes on both sides of the U.S.-Canada border.

Canada’s federal government, in approving major new infrastructure projects in late 2016, specifically committed to “working in partnership” to build on existing collaborations to develop what were described as “co-developed advisory and monitoring committees” with Indigenous communities.

Calling out the Trans Mountain and Enbridge Line 3 extension pipeline projects, Canadian national officials asked for an Economic Pathways Partnership for each project to “make it easier for Indigenous groups to access existing federal programs that help them participate in and benefit economically from this project.”

“Our duty is to permit infrastructure so Canada’s resources get to market in a more environmentally responsible way, creating jobs and a thriving economy,” said Jim Carr, minister of natural resources in the Canadian government.

Cuts Both Ways

He noted announcements in late 2016 approving and rejecting major projects cut both ways. Finding the Enbridge Northern Gateway project was “not in the public interest” he called a tough, but necessary decision.

At the House subcommittee, Chad Harrison, council-member-at-large for the Standing Rock Sioux Tribe, whose reservation is adjacent to part of the DAPL route with the water crossing in south-central North Dakota, said too often the Native American tribes see major energy projects benefiting everyone except Indigenous peoples and their lands.

“Expanding and improving our nation’s energy infrastructure need not always be about burdening tribes,” Harrison argued. “Instead, I am here today to talk about the opportunities that we have to develop infrastructure right; to do it in a way that one community does not always bear the burden of providing prosperity for our nation.”

Pipeline sponsors, such as ETP, TransCanada, Enbridge and others, will readily tout the economic benefits of these projects, and regulators echo these claims because they are essential to weighing the overall public benefits against the environmental impacts needing mitigation to approve the projects.

While still disputed in legal challenges, DAPL at early 2017 production volumes will transport half of the total production coming from the Bakken, facilitating royalties from production to the landowners and state, and for many Native Americans who have oil and gas leases or production on reservation property. DAPL created an estimated 12,000 jobs during construction as a new critical link from the Bakken formation, whose production field activities have spawned up to 80,000 jobs in North Dakota.

It also brought hundreds of millions of dollars in investment in heavy equipment and thousands of construction jobs to the state, according to ETP officials. At the beginning of 2017, DAPL had already spent over $3.54 billion on construction and development of the pipeline and continued to invest hundreds of millions of dollars a month into the U.S. economy as it moved to finish the project before summer. The project will result in an estimated $156 million in sales and income taxes during construction, and $55 million in property taxes annually, based on ETP’s estimates.

The ETP story on the Rover Pipeline is similar with millions of dollars of goods and services being purchased from local businesses along the entire route in three states. It has the potential to generate significant sales tax revenue for local economies.

“The project’s estimated 10,000 construction employees will be staying at local hotels, eating in restaurants, and shopping at local businesses,” an ETP spokesperson emphasizes.

Additionally, the increased use of local professional services such as engineering, real estate, legal, and skilled trades, including surveying and construction, as a result of the project generate added state income tax revenues. Rover estimates $147 million in property tax revenue will be paid annually to the states and counties crossed by the $4.2 billion pipeline project. “This is funding that can be used to improve public services such as fire, police, roads, and local schools,” the spokesperson said.

In Canada, Kinder Morgan’s $6.8 billion expansion to double the capacity of the Trans Mountain Pipeline built in 1953 means doubling up on the 1,150-km (715-mile) oil line in some challenging topography between Alberta and BC. “The expansion will create a twinned pipeline increasing the nominal capacity of the system from 300,000 bpd to 890,000 bpd,” said a Kinder Morgan spokesperson, who readily lists the positive economic fallout the project promises for local and provincial jurisdictions.

Among them are: 980 km (610 miles) of new pipeline, with 73% of the route using existing right-of-way; 193 km (120 miles) of reactivated pipe; 12 new pump stations; and the Westridge marine oil shipping terminal in Burnaby scheduled for expansion with three new berths. Refined products, synthetic crude oils and light crude oils will be carried in the existing pipeline with crude oil planned for the expansion pipe.

From a macro-economic standpoint, the Kinder Morgan backers tout the first 20 years of expanded pipeline operations as providing an estimated $46.7 billion, including both federal and provincial, that can be used for public services, such as health care and education. British Columbia gets about $5.7 billion and Alberta receives nearly $20 billion. In construction, the project holds out the hope of up to 15,000 jobs.

“Estimates indicate it will also create the equivalent of 37,000 direct, indirect and induced jobs annually during operations,” said a company spokesperson, noting that construction is set to start in September with the line going into service in late 2019.

As part of a broad Kinder Morgan “Aboriginals Relations Policy,” Trans Mountain and its sister Canadian projects pledged to provide “procurement, employment and workforce development opportunities” to Aboriginal communities and Aboriginal groups affected by the project, and will consider mutual benefit agreements (MBAs).

Enbridge’s proposed $7.5 billion, 1,660-km (1,031-mile) Line 3 Replacement Program (L3RP) across three Canadian provinces and into two upper Midwest states involves replacement of all remaining segments of the company’s Line 3 pipeline between Hardisty, Alberta and Superior, WI along with construction of associated facilities. It is characterized as the largest project ever undertaken at Enbridge.

The project includes replacing 34-inch pipe with 36-inch pipe from Hardisty to Gretna, Manitoba, then on to Neche, ND and to Superior. Segments of Line 3 from the U.S.-Canada international border to Neche, and near the Minnesota-Wisconsin border to Enbridge’s Superior Terminal, will be replaced with 34-inch pipeline, and are under separate segment replacement projects.

Line 3 Replacement calls for replacing the existing pipe with advanced, up-to-date pipe materials that will be combined with today’s most sophisticated construction methods, resulting in restoration of one of Enbridge’s primary pipelines along its mainline crude oil system.

“Under the L3RP, the majority of the existing Line 3 will be fully replaced with new pipeline and associated facilities on either side of the Canada-U.S. international border,” the spokesperson said. Like many of the other projects now under construction or close to it, 2019 is the target year for beginning commercial service, moving over 750,000 bpd.

Enbridge officials said replacing the pipeline is the most efficient way to maintain the reliability of a critical oil transportation artery such as Line 3, and it’s also the “most timely and reliable transportation” approach for moving Western Canadian crude oil to refineries in Chicago, the U.S. Gulf Coast, and the eastern U.S. and Canada.

A separate engineering challenge on this project is the need to close operations and decommission the existing Line 3 in conjunction with building the new pipeline. It is crucial to Enbridge because it is responsible for the line – forever – after the decommissioning, so the company has a vested interested to see that it is done correctly, meeting all regulatory requirements.

“In general terms,” Enbridge summarizes pipeline decommissioning as a process involving the “removal of all oil from the pipeline; cleaning it out; physically disconnecting the pipeline; segmenting it; and continuing to monitor it.”

Building, rebuilding and decommissioning are all part of the energy infrastructure conundrum, and it is a part that lends itself to bipartisanship and “all-of-the-above” approaches to policy as articulated on Capitol Hill this past winter by the president of the Laborers’ International Union of North America (LiUNA), which has been an activist supporter of some of the more politically controversial U.S. pipeline projects.

“LiUNA members support a reasonable, rational, fact-based, all-of-the-above energy policy that creates middle-class jobs, meets America’s growing energy needs, fosters energy independence, protects the environment and minimizes GHG emissions,” union President Terry O’Sullivan told the House energy subcommittee. “This isn’t a Republican or Democratic issue; it’s an American issue. Every American benefits from good roads, safe bridges, clean drinking water and affordable energy.”

Richard Nemec is a Los Angeles-based contributing correspondent for P&GJ. He can be reached at: rnemec@ca.rr.com.