Is a “NEW GREEN DEAL” a Beginning or the End?
Forecasting the 2021-2024 Pipeline & Gas Distribution Market
North America possesses some of the richest energy resources of any global region and two of the absolute “cleanest” extractors and transporters of these resources. The Canadian Prime Minister, Justin Trudeau’s liberal party was reelected to the majority of seats in 2019 followed by Joe Biden winning the U.S. election in 2020. Both countries are trying to reconcile these riches in a world that is transitioning toward a “Green New Deal” that will seek to change the pipeline and gas distribution markets. Is this a new beginning or the end of the gas distribution and pipeline markets as we know them?
Pipeline & Gas Distribution Construction Spending Forecast
2020 was an unusual year due to environmental pressures, COVID-19 ramifications, and U.S. election results leading into 2021 that will set the stage for the next 4 years. Canada’s election took place in 2019 with Justin Trudeau’s liberal partying forming a government and retaining Prime Minster Trudeau. While the “New Green Deal” is a legislative non-starter, the Biden administration is moving toward a “New Green Deal” that will seek to change the pipeline and gas distribution markets. Exhibit 1 frames this transition with slowly falling total spending as long-haul gas/liquid pipeline construction activity decelerates in both the United States and Canada. Long-term, we remain bullish on transmission laterals (50 miles or less), system capacity driven construction, station upgrade, and pipeline integrity. Gas distribution spending continues its stable, slow growth as we enter the back half of this current replacement cycle and continuation of DIMP driven activity.
Exhibit 1
Some North American perspectives to consider:
- Liquid Pipeline & Station — This market is at the end of the current cycle and will continue its decline post 2021. If hydraulic fracturing is outlawed, new construction in this market will decline much more rapidly. Integrity and maintenance activity will remain and likely increase with additional regulation … this, however, is not a replacement for a robust new pipeline construction market.
- Gas Pipeline & Station — The short-haul segment of this market will continue to grow in support of capacity issues and end use demand that is stable. If hydraulic fracturing is outlawed, this market will be highly disrupted and likely decline as the market reacts to these changes. The “power generation renaissance” is largely being achieved with natural gas moving from 23.3 percent of the national energy resource mix in 2009 to 38.1 percent in 2019. The gas additions largely displaced coal and is largely responsible for the reduction in carbon emissions to pre-1990 levels that we enjoy today.
- Stand Alone Station — This activity looks and feels more maintenance-like and Continuum anticipates continued growth, particularly given the forecasted drop in long-haul pipeline work.
- TIMP/Integrity — Continuum sees continued growth and expects owners/operators of gas or liquid pipeline to more frequently look for contractors that can perform both traditional construction activity and integrity related services.
- Gas Distribution New Construction — This market will flatten as industrial, commercial, and residential demand flattens due to unresolved capacity constraints, environmental restrictions, and permit restrictions for new natural gas service.
- Gas Distribution Replacement — 2020 represents a near mid-point of the service and main replacement market and growth rates in the U.S. while Canada is already in the final phases of their replacement activity. The spending growth will slow and then flatten. There is still much work left to do in the replacement of existing assets in the United States and a shift from cast iron and bare steel toward the next phase of replacing vintage plastics is slowly beginning.
- Gas Distribution Integrity — DIMP activity will continue to accelerate due to a regulatory push and parts of this activity show up in the replacement category described above.
- Gas Distribution Ancillary Services — There are multiple examples of utilities demanding a broader service set or turnkey set of service from their contractors. These might include O&M, restoration, paving services, hydro/dry vacuum excavation services, etc., and Continuum anticipates this trend will continue.
Continuum is bullish on focused parts of the market in the short-term. While the Biden and Trudeau administration will aggressively push renewable energy, the benefits of gas-fired power generation including its flexibility and very low cost make it highly competitive. General Electric Company (GE) published a study highlighting on-demand power production nature of gas making it very attractive versus the intermittent and environment-dependent power production associated with solar and wind. Overall, the use of natural gas will continue for decades and will continue to require construction and maintenance to service it.
Canada Transmission & Distribution
Spending Forecast
Pipeline spending in Canada peaked in 2018/2019 due primarily to large capacity, station, and lateral projects already on the books that were continuing to move forward (Exhibit 2). With global oil prices below $80 and falling since 2018, paired with Canada’s inability to construct new pipelines, Canada remains less competitive and we anticipate new pipeline spending will continue to decelerate. In the pipeline construction market, just two new oil pipelines and no new natural gas pipelines were completed between 2014 and 2020, compared to 32 oil pipelines and 33 natural gas pipelines completed in the U.S. over the same period. Following the revocation of the presidential permit for the Keystone XL pipeline, Canada’s Trans Mountain, purchased by the Canadian Government from Kinder Morgan in 2018, becomes the highest priority project. Their announced spending of C$12.6 billion ($9.9 billion) to nearly triple capacity to 890,000 barrels per day (bpd), a 14% increase from current total Canadian capacity is important to improving crude oil capacity in Canada4.
Exhibit 2
The Canadian gas distribution construction markets remain stable and slow growing. Economically, Canada exited a short 2015 recession in early 2016 and since that point, GDP growth remained positive although very slow at below 2 percent until the COVID-19 recession had much the same effect as in the United States, producing a shrinking economy in 2020.
As another potential measure of potential Canadian activity is end-use fuel demand for residential, commercial, industrial, and transportation sectors. It is projected to decelerate for natural gas and liquid fuels (Exhibit 3). More specifically, demand for natural gas will decrease from an average of 515 PJ among these three sectors. As for the transportation sector, a significant decrease in demand for both gasoline and diesel are projected through 2050 as the shift to electric vehicles and their infrastructure accelerates. An alternative use for pipeline and gas distribution infrastructure is hydrogen. In a published vision for its natural gas industry, the government of Alberta describes efforts to ramp up large-scale hydrogen production with carbon capture, utilization and storage (CCUS) and deployment in various commercial applications across the provincial economy by 2030. By 2040, Alberta hopes to have exports of clean hydrogen and hydrogen-derived products to jurisdictions across Canada, North America, and globally.
Exhibit 3
2050 as the shift to electric vehicles and their infrastructure accelerates. An alternative use for pipeline and gas distribution infrastructure is hydrogen. In a published vision for its natural gas industry, the government of Alberta describes efforts to ramp up large-scale hydrogen production with carbon capture, utilization and storage (CCUS) and deployment in various commercial applications across the provincial economy by 2030. By 2040, Alberta hopes to have exports of clean hydrogen and hydrogen-derived products to jurisdictions across Canada, North America, and globally.
U.S. Transmission & Distribution
Spending Forecast
Exhibit 4 highlights the 2014 and 2019 peaks in spending where long-haul pipeline construction activity is the primary driver. Post 2014 and 2019 the slowing of spending is entirely related to a reduction long-haul pipeline construction activity. As an example, within hours of his inauguration, President Joe Biden revoked a critical cross-border permit needed to continue construction on the Keystone XL pipeline, abandoning 1000’s of high paying jobs and an $8 billion project. Pipeline lateral and station construction as well as the gas distribution market are providing the underlying base of activity to support this market sector. Much of this short-haul activity will be related to capacity work which is still an immediate need. This activity is forecasted in all markets except New England and Exhibit 5 highlights potential activity in 2021-2040 and demonstrates a significant slowing post 2023.
Exhibit 4
Given current market conditions, it will not be unusual for pipeline contractors to see a 50% reduction in revenue in 2021 from a 2018/2019 peak. This level of reduction is similar to that experienced from the 2014 peak in spending. In 2022, Continuum anticipates that the markets will have settled down with slow growth moving forward after adaptation to the Biden administration priorities.
The gas distribution market will continue to exhibit much more stability, largely due asset replacement activity that is required by regulatory fiat and safety driven. Both characteristics will resist market and political pressures and after an informal survey conducted by Continuum Capital, even given the COVID-19 impacts during 2020, many gas distribution contractors reported no significant revenue reduction and quietly achieved high or record profit levels.
Exhibit 5
Overall Conclusions
The pipeline and gas distribution markets will persist for decades, albeit they will look different. Despite the transition to the “New Green Deal” being developed by the Biden and Trudeau administrations, Continuum remains bullish on the focused portion of the market that includes pipeline laterals and stations, as well as the gas distribution market in general. We encourage forward thinking pipeline and gas distribution contractors to utilize the next 5-10 years to either get comfortable with a smaller construction market or begin working on how to diversify their businesses toward markets and market sectors that are more likely to thrive.
Is this a new beginning or the end of the gas distribution and pipeline markets as we know them? Continuum Capital sees a new beginning for forward thinking contractors who will embrace change and diversify their business.
Mark Bridgers, Jay Rendos, Ryan Stein and Virginia Bellenkes are consultants with Continuum Capital, which provides management consulting, training, and investment banking services to the worldwide energy, utility and infrastructure construction industry. They can be reached at (919) 345-0403 or MBridgers@ContinuumCapital.net and followed on twitter at @MarkBridgers. For more information on Continuum, visit www.ContinuumCapital.net.
1 Edison Electric Institute, “Transforming the Energy Mix”, June 2020.
2 General Electric Co., “Accelerated Growth of Renewables and Gas Power Can Rapidly Change the Trajectory on Climate Change”, 2020.
3 Canadian Energy Centre, CEC Fact Sheet #5: 50,000 new miles:
A comparison on new oil and gas pipelines worldwide, May 2020, pg 1.
4 “Canada’s Trans Mountain Pipeline Assumes Greater Importance After KXL’s Demise,”, January 25, 2021.
5 Government of Alberta, GETTING ALBERTA BACK TO WORK: Natural Gas Vision and Strategy, October 2020, pg 23.
6 Brady, Jeff, “Biden Order Blocks Keystone XL Pipeline”, NPR,
January 20, 2021.
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