Looking Ahead
A Round Table Discussion on the Pipeline Industry in 2014
By Bradley Kramer
Each New Year brings new challenges and new opportunities. Oil and gas pipeline contractors are seeing their industry under the limelight more and more as public scrutiny has intensified over the last decade. However, the access to newfound resources and the ever growing demand for energy continues to create new opportunities for pipeliners in North America.
With that in mind, North American Oil & Gas Pipelines polled some of the top pipeline construction experts in the United States and Canada to help forecast what lies ahead for the industry in 2014. What follows is a comprehensive overview of the market trends, challenges and opportunities for the coming year from a panel comprised of John K. Allcorn, executive vice president of Willbros; Ben Nelson, vice president of western operations for Michels Pipeline Construction, a division of Michels Corp.; Eric Skonberg, principal engineer at Trenchless Engineering Corp.; Don Thorn, president of Welded Construction; and Kevin Waschuk, vice president of Waschuk Pipe Line Construction.
What is your overall assessment of the North American oil and gas pipeline industry as we enter 2014? Is the market growing, stagnant or shrinking and why?
John K. Allcorn: From our perspective as an engineer and constructor, we expect continued growth in 2014. We believe the need to monetize the tremendous investments made by the industry into producing oil, and gas will continue to drive pipeline and related infrastructure spending. Strong investment in the North American shale plays should continue to drive demand for extracting, processing and shipping the product. Expansion in pipeline systems, new storage facilities and electric power infrastructure are already under way to support those efforts.
In the past year, we have experienced increased demand for our engineering services. Growth in these front-end activities is the precursor to increased opportunities for our construction service lines. From a more macro view, successful technologies have made unconventional production of oil and gas economical. Those industry breakthroughs have proven up large, new reserves in North America that can compete with imported oil and gas. In fact, what we now see is that the United States is poised to become an exporter of both oil and gas. Additional pipeline infrastructure will be required to accommodate that future growth.
Ben Nelson: From my point of view, the market continues to grow. We are all familiar with the shale boom that defines our times, but steady, consistent drivers of work are increased regulations combined with aging pipeline infrastructure. This leads to a lot of replacement, recertification and upgrade work in the industry. It seems to me that as one program of work is completed, three more get started.
Eric Skonberg: I’m optimistic. I see the market continuing to grow, although I see the growth rate slowing down a bit. The reasoning behind the continued growth is an increased contribution of natural gas for power generation.
Don Thorn: The market for 2014 going forward appears to be in a growth phase of the cycle. The growing market is being driven by the continued exploration in the shale areas of Marcellus, Utica and Bakken, along with the direction of power generation to either gas-fired plants or dual fueled gas-coal mixture for generation. It currently appears this will continue for a reasonable period of time, three to five years, which can historically be long vision.
Kevin Waschuk: It’s a busy and exciting time. The market is definitely growing in Canada, as demand for oil and gas continues to be strong. People realize the important role oil and gas plays in our everyday lives. The demand is there, and the product is there.
What effect has public perception of the pipeline industry had on the market? How can the industry counteract these perceptions?
Nelson: Public perception directly affects utilities when they apply for rate cases. It is imperative for gas companies to run a safe, reliable and efficient system so they can receive favorable rate case outcomes that adequately fund their capital programs.
Additionally, overall public perception of our industry affects permitting processes for projects. A few high-profile incidents have made a lot of people worried about a potential negative impact on their neighborhood if a pipeline is located there. This is unfortunate because the country needs pipelines and the products they deliver. It’s the job of our industry to make sure those who live near pipelines aren’t negatively impacted, ever.
Michels incorporates safety into everything we do — and that includes not only our crews, but those who work with us, the communities in which we work and the environment. Furthermore, Michels believes safety and quality are intertwined. Both require an attention to detail. We pride ourselves on our standards of quality. We always look to exceed customer expectations and are on a constant quest to improve what our customers count on us to provide: best-in-class services, product installed to specification and documentation.
Skonberg: The public attitude toward the pipeline industry adversely affects the industry. I think as an industry we need to better educate the public about the safety of pipeline transportation and also on the fact that natural gas has a smaller carbon footprint than other fuels.
Thorn: The recent pipe failures on existing systems, which have been highly publicized, have caused a high level of concern within the public and special interest groups that transportation via pipes is not a safe process. Increased awareness of the advanced technical tools available, the number of systems operating without issue and the continued system integrity work that is being accomplished by the industry will help. However, it isn’t the number of flights that occur on time and without issue that makes the news in the aviation industry, but the ones that don’t that make headlines.
Waschuk: The pipeline industry has been a key topic in the media, as we all know, but as true pipeliners, we’re resilient and deal with those challenges.
Allcorn: We welcome the opportunity to talk about new technological advancements in pipeline construction. We believe the public can gain a better understanding of the situation when they have all the facts.
We have been very involved in the field of pipeline integrity. We are deploying new techniques that feature safer and more environmentally compatible designs and construction processes. As construction is inevitable during periods of market expansion, the industry needs to continue to reinforce the long-term benefits of reliable and safe delivery of our nation’s energy needs by the pipeline industry.
What effects have general regulatory conditions had on the pipeline industry?
Skonberg: It’s having a negative impact. In my opinion, the whole process has become too political. With the Keystone XL pipeline being a prime example, the process has been driven all by politics, leading to the fact that nothing gets done. On the other side, the [Federal Energy Regulatory Commission (FERC)] process is becoming less political. If Keystone had been just another FERC project, it certainly would have been approved, but the opposition to pipelines and to energy in general has become very organized to the point of being professional. Any project now is opposed without question.
Thorn: The regulatory issues have generally slowed the permitting process and in some cased, combined with organized group protests, seemed to have stopped projects before they have gotten beyond the planning stage.
Waschuk: The process of dealing with the regulatory conditions has an impact, and they can cause delays that can be very frustrating. However, regulatory approvals are vital and must be met and dealt with. These are processes that have been around forever, and owners and contractors have to comply. There are more levels now than we used to deal with, as the media has hyped energy projects.
Allcorn: The emerging new regulatory environment, chiefly focused on confirming the safety and integrity of the nation’s pipeline infrastructure, will result in many new opportunities for the contractor community to assist in the deployment of new technological solutions, such as our Integra Link offering. Certain industry sources believe this new market opportunity is in excess of $50 billion.
Nelson: They’ve had a major impact. Some big ones are class change projects and maximum allowable operating pressure (MAOP) validation hydrotesting. Integrity management regulations have encouraged our clients to know their assets better, and we’ve seen increased pigging, anomaly inspections and repairs and coating replacement. We see this trend leading to more pipeline replacements as regulations such as the 2014 Integrity Verification Process take effect.
What opportunities exist in the market? Is now a good time to be in the pipeline industry? Why or why not?
Thorn: Getting products to the usable market from locations that do not currently have the needed infrastructure makes this a good time to be in the market. Existing infrastructure, for most areas, exists to transport natural gas to market. With the production in different, new locations, the direction of some systems may be reversed from a south-to-north flow to a north-to-south direction. With this will come added construction, but primarily the need to date has been gathering and short branch systems. New additional needs exist with the movement of natural gas liquids and crude from new producing areas.
Waschuk: There are plenty of opportunities in our market, from conception, construction and completion of major projects. From the variance of jobs available, there is a wide array of skill sets required. It’s a busy time for new construction. It’s a good time to be in pipeline industry.
Allcorn: Our business is positioned to address the best pipeline engineering and construction markets in the world, right here in North America. New technologies have made it possible to develop enormous hydrocarbon reserves in Canada and the United States. New developments are in regions where there is little energy infrastructure. Capital flows into these markets are both enabled and encouraged by our political and economic models. As a result, there are significant opportunities to build new pipeline systems and related facilities and infrastructure for oil and gas production. There is also a robust market developing for proving the integrity of existing systems and bringing them up to current day design and operating specifications. It’s a great time to be in the industry.
Nelson: It’s a very competitive industry that rewards contractors who bring value to their clients. Value comes in a lot of forms, including safety, quality, schedule acceleration, innovation and overall project cost. If we can provide value, we will be successful. Those who don’t will struggle to find rewarding opportunities. We also put a premium on having talented people. We put exceptional teams in place, and successful projects and repeat business follows.
Skonberg: Yes, it’s a good time to be in the market. This goes back to the question above about the overall market. There will be new pipeline construction and new growth, mostly fed by increasing demand for natural gas.
What do you see as the biggest challenges facing the market? Whether it be funding, finding qualified people to complete the work or legal and regulatory issues, what forces in the industry may limit the amount of pipeline work despite the demand?
Waschuk: From a construction point of view, the challenges we face are related to resources, from finding qualified people, dealing with equipment demand and timing issues all come to mind. Being ready and having your ducks in a row is vital. People drive the market. In the Canadian market, we are well aware that our industry is aging.
Allcorn: We believe the biggest challenges will be presented by competition for a limited workforce. Skilled crafts and project management personnel, as well as engineering and technical employees with experience relevant to our industry, are in great demand. We have not seen any viable projects delayed or canceled due to funding issues, although regulatory delays have impacted a few. Competition from other transportation resources may limit the amount of pipeline work in certain regions as congestion and physical access to markets become success criteria.
Nelson: Finding qualified people to do the work is a challenge that is driven by many factors, including project schedule constraints and seasonal peaks. When workloads are managed to minimize some of the peaks and valleys, we can all benefit.
Also, while it’s more of an issue for our customers, the environmental and regulatory climates have been issues. We support our customers by doing all we can to help them and to keep projects advancing smoothly.
Skonberg: Finding and motivating good people is the biggest challenge. Pipelining by nature demands a lot of travel and long hours, so finding talented people who are willing to put up with that is going to be tough. I think the answer, or one of them, comes down to recruiting, and it’s not just limited to engineers and college-educated people. A very positive way to go about it is through internships. Give them a summer job in the pipeline industry, and by doing that you have to remember that you have young people and you’re taking them away from home and having them live in a hotel for several months. You’re going to have to hold their hands a little bit at first, but once they’re exposed to it, they’ll be happy to come into the industry. That applies to laborers, welder helpers and young engineers alike.
Funding pipeline projects is straightforward. They’re profitable, and funding will always be available. And I’ve already talked about the regulatory process being too political.
Thorn: One of the biggest challenges will be replacing and training skilled tradespeople for the expansion of work at a time a significant number of the baby boomer generation are reaching the planned retirement period of life. Among other issues, the industry needs to address for long success the following: 1) Growing the needed safety culture within our industry, 2) Education and training to use the new technical equipment, and 3) Development of an applied quality assurance/quality control (QA/QC) program to ensure quality is at the level required to protect our industry and ensure its acceptance by the public.
What areas of the business can be improved to help the market succeed long term? Are there contracting practices, specifications, education and training or new research that should be explored?
Allcorn: There is always room for improvement to strengthen our abilities. For our company, focusing on the values and processes are important for us to meet our key results. Safety is a value we hold dear and we are not only improving our measured results, but also sharing our successes with the industry to create a safer work environment for all our stakeholders. We have teamed with the Texas Veteran’s Commission, Texas Workforce Commission and the Veteran’s Administration to provide on-the-job training and career opportunities for returning veterans. We are active in industry forums and trade groups to identify and address technical and operational issues. We want to continue to seek solutions that benefit our engineering and construction practices, along with the owner/operators who comprise our customer base.
Nelson: Planning, planning, planning. Whenever possible, we work with our customers to provide input before construction starts. This helps to avoid constructability and timeframe issues as well as change orders and design changes, all of which are as troubling for the contractor as for the owner.
Skonberg: It comes back to public education and promoting pipeline safety. The biggest misconception we have is that pipelines blow up and kill a lot of people, and it’s just not true, especially compared to trucking or rail.
Thorn: Reaching the level of trust between the owner and contractor so both fully understand that we are out to achieve the same goal — a safe, secure, quality-built system that provides the energy to grow and feed a robust economic system that ensures success for all.
Waschuk: Having knowledge and information, from a contracting perspective, and having certain guarantees from owners, removes risk. Education and training our youth is vital. We all recognize that they are the future of the industry. There are many initiatives in Canada to educate young workers, such as ongoing training programs from the craft unions. We recognize from the forecast of the work ahead it’s important to be ready.
On the construction side, sideboom operators have been a topic of concern in the last five years. There’s a shortage of qualified operators, and they’re a key component to pipeline projects. With an aging workforce and the boom or bust cycle of the industry, we didn’t look forward enough for when we’re in a boom. Our work is so cyclical, it’s hard for the youth to be attracted.
What specific areas of North America have the biggest potential for growth and why?
Nelson: This is a tough one to answer. Our philosophy is to build a reputation for quality and customer service, and to maintain a presence everywhere so we are well positioned when growth happens.
Skonberg: Most any of the shale plays are growth areas, such as the Bakken and Eagle Ford in Texas, and Pennsylvania obviously. The most potential for growth will be in power generation, which is a bit out of my experience, but areas that are dominated by coal will become new markets for natural gas. The economics are there. Natural gas is competitive with coal on a cost basis, and the environmental push against coal leaves natural gas as the best viable option.
Thorn: Opportunities will continue to exist and grow in the eastern half of the country as the movement of product from new sources of production to other areas that will use it — such as the Southeast, including Florida and the Gulf Coast — for existing energy industry and power generation.
Waschuk: We have in Canada the oil sands in northern Alberta, and the operators are expanding like crazy. Getting more barrels per day is their goal, and they’re spending the money. Shale gas is not something we’ve really experienced on mainline projects, but that is another area of growth that we have in western Canada as well. The resources are there. The shale work now is mostly in distribution and gathering, which is keeping the small-inch contractors very busy.
Allcorn: The new emerging production regions with little take-away capacity offer the greatest potential for growth relative to their current infrastructure. These areas include the shale plays in the Northeast, the Utica and Marcellus, as well as the Niobrara and Bakken in the Northern Plains. The Permian Basin is also an area with great potential. We see growth in well construction, pipeline systems and facilities — all needed to move oil and gas to processing centers and end markets.
What trends have you seen in the market recently? What impact are these trends having on the market?
Skonberg: The lack of qualified personnel is a major trend, though that does not describe the market, where we’re seeing the convergence of power generation and natural gas, as well as chemical manufacturing from natural gas. In general, what impact these developments will have on the market is an increase in consumption of natural gas. The supply natural gas seems to be such that it’s not forcing prices to go up with demand. As long as natural gas prices are low, the pipeline industry will benefit. Demand will continue to increase, and the only safe way to get the product to market is by pipeline.
Thorn: Recently, the driven need to get production to market has resulted in a number of projects being scheduled for construction during winter months. This has resulted in cost impacts to both the owner, in terms of the cost of getting the product to market, and the contractor not being able to forecast production levels and resulting projects that aren’t very successful in many aspects.
Waschuk: The trend in Canada for new mainline construction is staggering. There are so many projects proposed, and eventually they’re going to be built. One way or another, these pipelines are going to be built. The demand and the supply are there. The trend shows us continuing to go down that road. There’s going to be work for everybody. Seen from a contracting point of view, we’re all going to be busy. The industry is going to have to deal with the demand in different ways. We’re still dealing with the same issues and same resources. Being ready and as well prepared as you can be is going to be the key component.
There are so many opportunities. There are some mainline projects proposed on West Coast, in British Columbia, that are providing a new avenue of opportunities that they do not have in the prairies, such as rock drilling. It’s an exciting time.
Allcorn: We have observed a shift to a much more decentralized market for pipeline engineering and construction services. This means many purchase decisions are made at the local level rather than in a corporate capital projects group. Our addressable market now includes upstream, midstream and downstream customers. We provide services for smaller diameter gathering systems and liquids transport pipelines. We focused on our traditional market of large diameter and cross-country pipelines. Consequently, we have broadened our service offerings and now provide both our engineering and construction services through multiple regional offices positioned to respond quickly to the needs of this new market.
Nelson: Quality control is a big one. Our clients expect it, but as an industry we are all over the board. Our leadership team is working with customers and industry organizations to try to establish these standards. This is a big job that requires everyone’s input.
Bradley Kramer is managing editor of North American Oil & Gas Pipelines.
Contact him at bkramer@benjaminmedia.com.
