Is Shale Gas a Pipedream?

Ken Silverstein | Jul 21, 2011

 

Don't get starry-eyed over all that projected shale-gas. It's one thing to dig it out. It's another to transport it. And at least one trade group says that massive amounts of investment must now go into creating the pipelines that would carry that fuel.

That's a huge task. But add in the concerns of community organizations that fear such development would not just disrupt their local ecologies but also increase the dangers from pipeline accidents. While that angst is legitimate and must be addressed by pipeline companies, shale-gas has the potential to supply energy here for the next century.

"The good news is that the natural gas industry has a proven track record of constructing and financing this level of infrastructure," says Don Santa, chief executive of the Interstate Natural Gas Association of America.

Santa's organization commissioned ICF International to review the country's anticipated pipeline infrastructure needs in a world where unconventional forms of gas such as shale gas are expected to make up two-thirds of the total natural gas mix by 2035. It makes a few assumptions that range from a price of $4-$7 per million Btus as well as an increase of 1.3 percent in the expected electricity demand per year for at least a decade.

To get there, the United States and Canada will require an average yearly investment of $8.2 billion, or $205 billion over the next quarter century. Santa notes that the industry has invested $8 billion during a three year period from 2006 to 2010 -- a "strong indication" that it will continue to make the necessary capital allocations if the regulatory environment permits.

By 2030, the U.S. and Canada will need approximately 29,000 to 62,000 miles of additional natural gas pipelines as well as 370 billion to 600 billion cubic feet of additional storage capacity, says the study. If the country does not to rise to the challenge, it would create supply disruptions and price volatility would increase.

But developers are hard-pressed to invest if the impediments to construction are too onerous and there is not enough gas to keep the new lines filled to capacity. Developers also want to make it easier for gas distributors to enter into long-term contracts that help pay for the lines.

Regulators are, largely, sympathetic. They are concerned about potential energy shortages and any subsequent rolling blackouts. To cope, the Federal Energy Regulatory Commission is trying to get all regulatory agencies to coordinate their schedules and reviews. The goal is not to subvert the permitting process but rather, to streamline it.

"To meet the growing demand for natural gas, the Commission must continue to respond quickly when companies propose to expand and construct needed pipelines and related facilities," says FERC. "The Commission has expedited the certification of natural gas pipelines by having Commission staff actively participate in projects (that pre-file)."

More conciliation

The first step for developers is to determine whether new pipelines are needed and whether the price of natural gas supports construction such that companies can obtain firm contracts to finance them. The next step is to propose a route the line will take.

Overall, there still must not be any significant affect on either the natural habitat or the landowners who lease their rights-of-way. Those precautions will inevitably lead to the rerouting of any pipeline system, although in some cases the federal government may exercise its right of eminent domain.

Under the best of circumstances, the opposition to new construction is intense. The process to get the permits and to overcome the environmental and zoning questions is lengthy and expensive. And in the aftermath of a gas pipeline explosion that killed 7 people in Northern California a couple years ago, the outcry for reforms has magnified.

"The American public is apprehensive about natural gas pipelines - and understandably so," says Santo, with the Interstate Natural Gas Association of America. "One accident is too many. Still, despite recent accidents, pipelines are the safest way to transport energy -- safer than rails or roads -- according to the U.S. Department of Transportation."

Generally, the need for new gas supplies and the infrastructure to carry the gas remains a top priority. Achieving a consensus among stakeholders is key. Shale-gas producers are at the heart of this debate and have been asked to be more conciliatory and share the chemicals they are using to drill. Likewise, the pipeline developers that will transport the fuel must acquiesce to safety and environmental concerns. Only then can the natural gas sector fulfill its promise.


EnergyBiz Insider has been named Honorable Mention for Best Online Column by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.

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