Pipeline Lack Hurts Energy Production

Published June 3, 2015

Thanks to what’s sometimes called the “shale revolution,” America has re-emerged as an energy superpower.

Even with prices 40 percent lower than a year ago, we remain the world’s No. 1 producer of crude oil and other liquid hydrocarbons. Imports of oil have dropped from 60 percent of consumption to about 35 percent just in the past five years. We’re also the world’s largest producer of natural gas.

Both our oil and natural gas output would be even higher if not for regulatory and infrastructure constraints.

For example, crude oil exports have been virtually prohibited by law for more than 40 years while federal regulatory agencies have been slow to issue permits for the export of liquefied natural gas (LNG).

Drilling for oil and gas on the outer continental shelf and federal lands is largely prohibited, while several states and local governments have imposed bans on hydraulic fracturing.

The Jones Act, which requires all goods shipped between U.S. ports be carried on American-built, owned and operated vessels, makes it more expensive to ship petroleum products from Corpus Christi to New Jersey than from Corpus Christi to Rotterdam.

But the most serious nonregulatory constraint on expansion of America’s oil and gas production — other than low prices — is a lack of pipeline capacity, both upstream and downstream.

For example, as production of natural gas has surged in the Marcellus and Utica shales of the Northeast, investment in pipeline and processing plant infrastructure has lagged. Consequently, Marcellus gas sells at up to a 50 percent discount to the national benchmark at Henry Hub, a distribution hub on the natural gas pipeline system in Erath, La.

Although 10 new pipelines have been proposed to alleviate these takeaway constraints, the projects will take years to complete and some may never materialize because of pushback from environmentalists and the difficulty of securing long-term supply agreements with electric utilities.

In terms of downstream bottlenecks, President Obama’s veto of the Keystone XL pipeline is perhaps the most egregious example.

Opposition from environmentalists and aboriginal groups has also stalled the Enbridge Northern Gateway project in western Canada, while another Canadian aboriginal group recently turned down a $1 billion fee to help push through a proposed gas pipeline and LNG terminal in British Columbia.

A proposed dual pipeline between Albany, N.Y., and Linden, N.J., that would transport Bakken crude oil south and refined products north also faces environmental and community opposition.

This lack of pipeline capacity helps explain why so much crude oil is now moving by rail tanker car. In 2008, only about 10 million barrels of oil were transported by rail. Last year’s volumes exceeded 300 million.

Though this growth has been a boon to the rail industry, moving crude oil long distances by train is more expensive than by pipeline, and spill rates are considerably higher.

Oil transport by rail is also under fire from environmentalists, with seven groups filing a lawsuit on May 14 challenging recently issued safety rules for trains hauling oil.

Despite projected expansion of renewable energy sources and pushback from anti-hydrocarbon groups, the U.S. Department of Energy, in its latest Quadrennial Energy Review, predicts we’ll still be dependent on oil and natural gas to meet more than 60 percent of our energy needs in 2040.

Because of our prolific shale plays, we should be able to supply virtually all of our future consumption from domestic sources. But this won’t happen unless we make the requisite investments in essential infrastructure, especially pipelines.

Each year, our pipelines safely carry more than 14 billion barrels of crude oil and trillions of cubic feet of natural gas. Upgrading and expanding both upstream and downstream pipeline networks can help sustain our energy renaissance while creating thousands of new jobs.

On the other hand, not investing in pipeline infrastructure will stifle energy growth, leave us vulnerable to supply disruptions, and weaken energy security.

[Originally published at the Star-Telegram]