How Low Oil Prices Affect the Pipeline Industry
“This makes sense, because pipelines to be constructed in 2015 already will have been in the planning and regulatory approval process for several years,” Landry says. “The real question is how current and anticipated market conditions will affect the commitments by pipeline shippers for projects that would be constructed several years from now.”
The INGAA Foundation conducted a study last year looking at midstream infrastructure for natural gas, natural gas liquids (NGL) and crude oil, forecast to 2035. While the report was published before oil prices dropped below $50, it did include a low-growth scenario that assumed oil would drop below $70 per barrel.
“It is worth noting that the low-growth case assumes that oil prices decline over the projection period (through 2035), and we of course do not know how long the current low-price situation will last,” Landry says. “Still, the low-growth case examined by ICF (the study’s author) gives you a sense that, yes, low oil prices will have an impact on pipeline development.”
While the base case for the study predicted $640 billion in midstream investment from 2014 to 2035, the low-growth case with lower oil prices predicted pipeline investment at $465 billion for the same period. Mileage dropped from the base level of 542,500 miles to 449,937 miles in the low-growth case.
“While there was a drop, the investment and mileage numbers remain big,” says Landry, adding that she suspects that the amount investment declines will depend on where the price goes and for how long the price remains low.
“Even though there likely will be at least some reduction in pipeline construction, it’s important to remember that an enormous amount of construction still is expected to take place,” Landry adds. “This continued demand for new pipelines, even in a low price environment, makes sense, because in many cases the new natural gas, crude oil and NGL production is occurring in areas that lack fully developed pipeline infrastructure.”
Landry expects pipeline operators will re-evaluate the projects that are in the planning stages if they get signs from their customers that a project is no longer required.
“Still, much of the work that is being done now involves reconfiguring the existing pipeline system to allow supply from newer sources, particularly shale oil and gas, to enter the extensive pipeline network,” she says. “This work likely will continue to happen.”
As pipeline operators adjust their business to accommodate lower oil prices, Landry
says the companies will be in close contact with their suppliers to assess the new market circumstances.
“I think projects already approved will move forward,” she says, “and there’s still a lot of midstream construction on the horizon.”
