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Gas pipeline industry faces uncertain future after Permian, LNG growth spurt

Natural gas transportation companies may face a leaner environment for growing business through new interstate pipeline and storage projects as developers catch up to shale supplies and the nation reviews other energy options.

The current suite of pipeline projects under development is clustered around the booming production basins in Appalachia and West Texas and around LNG export terminals in the Gulf of Mexico. Development in other parts of the country is relatively quiet. Less than 10 Bcf/d of capacity is expected to come online for the rest of 2019, followed by about 18 Bcf/d in 2020, according to S&P Global Market Intelligence data. In 2021 through 2023, the biggest proposed pipeline projects are all linked to LNG export plants.

"The overall capacity expansion across the U.S. doesn't seem to have the same momentum behind it that it's had over the past decade," said Kevin Petak, a vice president with ICF International and a gas market modeling expert with more than 30 years of experience in the energy industry. Petak said in a July 12 interview that he expected a decline in projects after 2023, a trend that showed up in reports produced by ICF for the Interstate Natural Gas Association of America.

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Noting that 2019 was also a slower year for pipeline growth, Petak said a growing focus on renewable energy sources for power generation and other forms of electrification in the U.S. and the rest of the world is likely weighing on the long-term development outlook. "There is the whole move to a carbonless future that does not bode well certainly for coal, but even for natural gas in the much longer term."

The idea that gas could be a bridge fuel, helping the nation transition to an energy portfolio dominated by renewable energy, makes it harder for pipeline companies to win customer support for projects that are often financed over 20 years, Petak said. "That's the dynamic that you are seeing."

The development of large pipeline projects to support power generation has slowed, Petak said, although pipeline companies are still building laterals to connect new gas-fired generation facilities to their systems. The big new pipeline projects are driven more by LNG exports, which represent a growing source of gas demand. But like the LNG export terminals they support, the future of those pipeline projects will depend on the global gas markets, Petak said.

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Some of the bigger U.S. gas transportation projects include the 2-Bcf/d, EQM Midstream Partners LP-led Mountain Valley pipeline and the 1.5-Bcf/d, Dominion Energy Inc.-led Atlantic Coast pipeline, both Appalachian-connected projects that have stalled with legal and permitting challenges, as well as Permian Basin-focused projects such as a Gulf Coast Express Pipeline LLC project from Kinder Morgan Inc. Permian gas supplies are a bit part of Kinder Morgan's future, and the company expects overall U.S. gas demand to grow more than 30% between 2019 and 2030, driven by LNG exports, pipeline exports to Mexico, power generation and industrial demand.

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In the natural gas storage sector, not many projects have entered the development cycle in the last few years, largely because of the huge supply of U.S. gas and its damper on price volatility.

S&P Global Market Intelligence data shows that infrastructure projects are divided between those in the announced stage and those in advanced development. Two phases of the Brookside gas storage project, which would together hold over 28.2 million Dth of gas, have been publicly announced. Almost 140 million Dth of gas storage, split among various stages of four projects, are in advanced development.

The projects in advanced development include efforts by Pine Prairie Energy Center LLC, Magnum Gas Storage LLC, ENSTOR Gas LLC and D'Lo Gas Storage LLC. The storage projects are located in some of the same hot spots as pipelines, including the Permian and Gulf Coast regions.

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