It’s no surprise to anyone involved with oil and gas pipelines in North America that the industry is facing challenges. Everything from low oil prices to increased political opposition has forced stakeholders to reevaluate and reposition to improve revenue and efficiency and ensure safe and successful projects in the future.
Ralph Cantafio is president and managing partner of the Denver-based law firm Cantafio Hammond, a practice focused on oil and gas law and contract negotiation. He is also an adjunct professor and lecturer at Colorado Mountain College, the University of Colorado – Denver and Western State Colorado University, with experience in a broad range of oil and gas related issues.
Cantafio spent some time answering my questions for this month’s cover story (see p. 20). In the process he laid out the three biggest challenges in terms of land acquisition and developing oil and gas pipeline projects:
1. Market Conditions: “The overall market and tanking oil and natural gas prices are so depressed that it makes the fundamental economics of projects very challenging. Financing is always one of the great issues in the oil and gas industry. It’s really difficult to align revenues on one side and long-term capital investment on the other. What we have seen in Colorado, Wyoming and Utah is that projects are stalled because the economics of when the project was scoped out don’t exist anymore.”
2. Bank Financing: “It’s really difficult these days to get banks to invest in a project, especially on the upstream side but also midstream. It’s problematic in that most projects have a certain amount of investor financing but also bank financing. Banks just are not as willing to invest a loan in projects. It’s more onerous, more expensive, takes longer and the rates aren’t as attractive.”
3. Non-Traditional Stakeholders: “In the post-Keystone XL pipeliner generation, third-party groups are using the legal process to slow projects. There has been a major emphasis on educating and outreach in the industry as part of their due diligence. You have to take into account third-party stakeholders that may get involved with the environmental impact statement. These organizations are very sophisticated and well heeled. They tend to be true believers. They’re doing this because they believe oil and gas products are very negative in terms of greenhouse gas emissions and climate change. They’re making a statement in terms of stewardship and preserving the land for their children, grandchildren and great grandchildren.”
Despite these challenges, pipelines are still a necessity to move the increasing amount of oil and gas produced in North America and to replace aging infrastructure that could other pose a safety hazard. As the industry reorganizes in response to the downturn, the industry can’t lose sight of the projects still needed to meet rising demand and ensure pipeline integrity for the future.