Pipeline investment: An important priority

By Robin Rorick

North American pipeline capacity is in the spotlight after a decade of surging oil and natural gas production in the United States and Canada. While the most famous pipeline, Keystone XL, is one that hasn’t been constructed, the tens of thousands of miles of pipelines transporting oil and natural gas every day demonstrate the benefits – and impressive safety record – of this crucial infrastructure.

More than 199,000 miles of liquid pipelines crisscross the United States. According to the latest data collected as a part of the Pipeline Safety Excellence initiative, pipelines transported about 16.2 billion barrels of crude oil and petroleum products in 2014 at a safety rate of 99.999 percent. Pipeline Safety Excellence, launched in 2014 to ensure continual safety improvements, also reported that pipeline releases along the sensitive areas of the right-of-way dropped 50 per cent from 1999 to 2013.  Particularly, two causes that have been excessive in the past have significantly decreased.  These are corrosion incidents, which are down 76 per cent, and damage from third-parties, which have declined 78 percent, in this same time period.  While these trends show progress, the industry focus is prevention of all incidents, so operators continue to advance technology that can better detect threats to pipeline integrity.

The industry also continues to develop safety standards promoting best practices that achieve the industry-wide goal of zero incidents. This year, the American Petroleum Institute plans to issue a new recommended practice, RP 1176, to strengthen the industry’s capability to predict and prevent crack-related pipeline failures by enhancing the gathering, integration, and analysis of data. RP 1174, issued in December 2015, provides operators with an enhanced framework to enable continual improvement of the pipeline emergency planning and response process.  Also issued last December, RP 1175 provides guidance on the development, implementation, and management of a sustainable leak detection program.  Finally, RP 1173, Pipeline Safety Management Systems, was published last summer and provides a scalable and flexible framework ensuring companies continually assess their practices to guarantee the appropriate steps are taken to prevent spills.

Commitment to continual safety improvements is nothing new, but the 21st century energy resurgence has created new infrastructure needs. Prior to the production advances of the past decade, the priority was to transport imported energy from the coasts to points inland. Now that production is surging in places like North Dakota, Pennsylvania, and the Canadian oil sands, infrastructure priorities have shifted. According to a study from Energy Policy Research Foundation, Inc., shipments of crude oil from the Midwest to the Gulf of Mexico jumped from just 50,000 barrels per day (b/d) in 2008 to over 380,000 b/d in 2013, while shipments from the Gulf to the Midwest decreased 500,000 b/d.

For producers, inadequate transportation infrastructure creates bottlenecks that can raise production costs and depress revenue.  The lack of efficient access to markets can lead to lower well-head values and reduced revenues for royalty owners, as well as local, state and federal governments.  Failure to address these limitations could discourage production investment — along with the associated employment and economic advantages that greatly benefit consumers.

Updating energy infrastructure in the United States could generate up to $1.15 trillion in new private capital investment and support 1.1 million new jobs over a 10-year period, according to a study by IHS. Pipeline investment alone could support up to 830,771 average annual jobs.

Pipeline constraints, on the other hand, can be costly to consumers too. According to the U.S. Energy Information Administration (EIA), residents of the northeastern U.S. paid up to 68 percent more for electricity than the national average in the winter of 2014, while industrial users paid up to 105 percent more for electricity than the national average. Failure to expand natural gas and electricity infrastructure in the northeast could cost the region’s households and businesses an estimated $5.4 billion in higher energy costs and more than 167,000 private-sector and construction jobs between 2016 and 2020, according to a study from the New England Coalition for Affordable Energy.

Some progress is underway. EIA reports that over the past 10 years pipeline operators have invested more than $57 billion to complete more than 400 projects, adding about 15,200 miles of pipeline and approximately 151,300 million cubic feet per day (MMcf/d) of capacity to transport natural gas to consumers and businesses. At the same time, according to EIA, operators have announced plans to invest more than $40 billion on 105 projects to add more than 7,500 miles and more than 72,650 MMcf/d in pipeline capacity.

It’s a good start, but more expansion is needed. With a 99.999 percent safety rate, pipelines are among the safest, most efficient methods for transporting energy. To maintain and build upon the economic benefits of North America’s energy renaissance, additional pipeline investment must be a priority.

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