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Energy companies are ploughing almost $50bn into new and planned pipelines over the next five years to cash in on a boom in natural gas demand and regulatory changes under US President Donald Trump.
Midstream companies are building or planning 8,800 miles of pipelines across the country to meet record liquefied natural gas exports and data centre demand, according to Wood Mackenzie, an energy consulting firm.
American natural gas consumption is expected to climb 1 per cent this year to an all-time high of 91.4bn cubic feet per day, according to the US Energy Information Administration. Exports of LNG from the US, the world’s biggest exporter, hit a record in September of 9.4mn metric tonnes.
As demand for natural gas has rocketed, more supply is needed. But that supply cannot be shipped out in large quantities because of the lack of pipelines and processors, the facilities needed to refine natural gas for transport.
“There’s an inability to move gas out of the Permian Basin,” said Jamie Welch, chief executive at Kinetik, a pipeline company focused on the region.
As crude production has soared in the Permian Basin — the area stretching from west Texas to south-eastern New Mexico, where more than half the country’s oil is produced — so has natural gas, a byproduct of oil production.
Ageing wells are leading to rising volumes of natural gas and an inability to get rid of it.
Natural gas prices at Waha, the West Texas index, have occasionally fallen below zero, forcing operators to pay to get rid of it or to flare or burn it to maintain oil production.
“In some areas, they’ve had to slow down crude production. Things get backed off,” said Brad Iles, chief executive Brazos Midstream, a pipeline and processing company.
Investments and construction backlogs at the country’s biggest pipeline companies are hitting record highs. Kinder Morgan, which moves 40 per cent of the country’s natural gas, has a $9.3bn backlog of pipelines that have secured customers, the largest in seven years.
Canadian-headquartered Enbridge, which moves 20 per cent of consumed American natural gas, has a C$13.9bn ($10mn) backlog.
The Houston-based giant plans to spend at least $2.3bn in growth capital expenditure this year and may increase it to as high as $3bn in the next two to three years, nearly double the amount it had been projecting as recently as a few years ago.
“It’s one of the best opportunity sets in our lifetimes, in our careers,” said David Michels, chief financial officer at Kinder Morgan.
There are eight LNG export terminals in the US, nearly all of them along the Gulf Coast, with more proposed expansions under way, according to the EIA.
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There are more than 375 proposed data centres across the country that together would account for more than 180GW of additional power capacity, according to East Daley Analytics.
But now pipeline operators are teeing up projects across the country and much of the activity is focused on Texas.
In the Permian Basin, 9.1bn cubic feet of pipelines are being built or expanded. Along the Texas, Louisiana and Mississippi Gulf Coast, there is 12.4 bcf of new pipelines under way, according to East Daley Analytics.
Late last year, Matterhorn Express, the newest natural gas pipeline in the Permian, opened and is now fully subscribed. Operators are already looking at expanding it.
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“It’s all systems go,” said Caitlin Tessin, vice-president of market innovation and Gulf Coast business development at Enbridge. “The customers and the market are hungry for natural gas.”
But the wild card with natural gas in the Permian is crude production. So long as oil prices stay above the mid-$60s per barrel, gas production will continue to increase.
“If oil prices collapse into the 50s, then you’ll lose a lot of gas because they will stop drilling for oil,” said Eugene Kim, research director, Americas gas, at Wood Mackenzie.
