March 24, 2008
Dominion Resources is about to make a major investment in its pipeline infrastructure. Its Ohio subsidiary has filed an application with Ohio regulators to replace nearly 20 percent of its 21,000-mile pipeline system over 25 years at a current cost of $2.6 billion. Once approved, modernization will begin next year.
The utility's undertaking is not uncommon. Quite a bit of the infrastructure was laid in the 1950s and 1960s and over time, the lines have corroded. Moreover, the growth in natural gas-fired power plants has increased and put pressure on developers, who say they need greater access to gas-rich areas as well as more pipeline capacity.
Many natural gas utilities throughout the country are implementing similar programs. Ohio's public service commission, for example, has approved such a deal at Duke Energy Ohio in Cincinnati. Among the benefits cited by the commission are the improvement in pipeline safety and an expected reduction in system restoration. The subsequent cost savings will help pay for both Duke and Dominion's implementation.
"A focused and prioritized replacement of approximately 4,100 miles of Dominion's system is needed to ensure continued safe and reliable natural gas service to customers in the future," says Bruce Klink, president, Dominion East Ohio. "The pipelines recommended for replacement are older pipelines that are either cast- or wrought-iron or bare steel pipelines that do not have the coating or corrosion protection used today."
The demand for natural gas is expected to grow by 2 percent a year until 2020. To meet that, the Interstate Natural Gas Association of America says that roughly $61 billion of investment in natural gas pipelines and storage facilities is necessary. About $19 billion of that would be needed just to replace aging pipelines. Altogether, the organization says that 46,000 miles of new interstate natural gas pipelines are needed in North America.
The biggest expansions right now are taking place in the Rocky Mountain region as well as in northeast Texas. Together, the two areas comprise about half of all current development in the United States. The biggest such project is the Rockies Express, which is a $4.4 billion undertaking by Kinder Morgan, Sempra and ConocoPhillips that will run nearly 1,700 miles from western Colorado to Ohio. Scheduled to be completed in June 2009, it will have a capacity of 1.8 billion cubic feet of natural gas a day.
Meantime, El Paso Corp., the largest transporter of natural gas in North America, proposes to build a pipeline from Wyoming to the California-Oregon border. If the $2 billion Ruby Pipeline is approved, construction would begin in 2010. Spectra Energy, furthermore, is planning to build a 650-mile line at a cost of $3 billion to move gas from the Rockies west to Oregon.
Constrained Infrastructure
To be sure, the permitting process is onerous. In most cases, the Federal Energy Regulatory Commission evaluates the need for a project and whether sufficient financial support exists before turning its attention to environmental and land-use issues. Developers must then meet with the various constituencies to ensure property rights and ecological issues are addressed. The process can oftentimes take years, which also involves winning approval from state and local agencies.
FERC, in fact, is trying to expedite strategic pipeline projects by getting all regulatory agencies to coordinate their schedules and reviews. The so-called "fast track" initiative is part of the White House's federal energy plan. The thought is that multiple layers of jurisdiction may be necessary but need not have the effect of bringing the permitting process to a crawl. While this tack has sped up the process, the interstate gas association says additional changes are needed.
Permitting conflicts invariably increase the costs of projects and consequently delay the construction schedules -- in effect, contributing to whether they become a success or failure, says the association. The logical fallout is that certain regions would have constrained infrastructures and higher natural gas prices. The gas group is therefore strongly encouraging additional funding to regulatory staffs and greater public outreach programs to inform affected jurisdictions.
The goal, it adds, is to attract the $61 billion necessary to meet the expected future demand for natural gas. Opponents of more pipeline development are naturally concerned with the environmental footprint and the potential for leaks and other accidents.
Developers, though, are hard-pressed to invest that capital if the impediments to construction are too arduous and there is not enough gas to keep the new lines filled to capacity. They also want to make it easier for gas distributors to enter into long-term contracts that help pay for the lines.
Community outreach is a big part of the permitting process and must all be done before builders file anything with regulators. The proposed course of a particular line is often a major stumbling block, for example, leading developers to suggest a different route. While policymakers approach deals with open minds, they have tended in recent years to reason that the strategic infrastructure serves the greater good.
The New England market, in particular, needs additional natural gas resources. There, NiSource, DTE and National Grid are preparing to make their Millennium line operational in November. Meanwhile, Columbia Gas of Ohio will start spending in 2009 nearly $2 billion over 25 years to replace 19,000 miles of pipelines. It will use a new plastic pipe that is less susceptible to corrosion and easier to repair if damaged, allowing the company to increase delivery capacities along many parts of its system.
It's all part of a broader trend to build more pipelines to meet the expected future demand for energy. Each specific proposal will no doubt get vetted by regulators, who want to know if deals are financially viable and environmentally responsible. If so, they will likely get the stamp of approval.
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