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The Year in Pipelines: Appalachian supply propels midstream spending

U.S. natural gas pipeline companies continue to spend billions of dollars on new routes and expanded systems to carry more natural gas from the hottest shale plays, including the Marcellus and Utica shales.

An S&P Global Market Intelligence analysis of pipeline data showed the total value of U.S. natural gas pipeline infrastructure grew by 3.6% in 2016, continuing an overall rising trend since the shale boom began to reshape the nation's infrastructure needs. The value of gas transmission assets rose to almost $139.1 billion in 2016, up nearly $20 billion since 2011, according to data collected by the Federal Energy Regulatory Commission on its Form 2.

The growth in the total value of U.S. gas storage and processing infrastructure slowed in 2016 compared to the past two years, but the total value of storage and processing plants also continued an upward trend.

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The patterns are linked to continued supply development and growth, especially the strength of the Marcellus and Utica shales and the pickup in the Permian. "These two areas are among the lowest cost supply areas in North America, and production from the areas grew pretty significantly from 2015 to 2016," said Kevin Petak, vice president at the consulting firm ICF International. "Thus, the infrastructure needs, including pipelines, gathering, and processing assets grew."

Storage grew as well, but mostly for oil and other liquids, Petak said, "as gas storage development has waned after the big buildout that occurred in the prior five years."

An Enbridge Inc. company saw the largest increase in the gross value of its transmission plant assets from 2015 to 2016. Algonquin Gas Transmission LLC reported the largest increase in value in transmission plant assets, rising over $1 billion from $2.1 billion in 2015 to $3.2 billion in 2016.

TransCanada Corp.'s Columbia Gas Transmission LLC saw the second largest increase in value in transmission plant assets from 2015 to 2016, rising about $467 million from $4.8 billion to $5.2 billion.

"What you see in our most recent FERC Form 2 data is years of planning and performance coming together on our Columbia system," said Stan Chapman, TransCanada's executive vice president and president for U.S. natural gas pipelines. "As our backlog of growth projects come online in the Marcellus and Utica production regions, we're providing TransCanada customers new access to low cost supplies combined with connections to some of the fastest growing markets in the United States."

Enbridge and Veresen Inc.'s Alliance Pipeline LP lost the most in transmission plant asset value, dropping almost $24 million from 2015 to 2016.

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The amount of gas moved during the year rose from 2015 to 2016 on several major eastern U.S. pipeline systems. Enbridge's Texas Eastern Transmission LP moved 392.5 MMDth more, going from 3,272.1 MMDth in 2015 to 3,664.7 MMDth in 2016. Columbia Gas transported 299.4 MMDth more, going from 1,460.1 MMDth to 1,759.5 MMDth.

The shifting balance of production regions has put the hurt on some pipelines, however. Energy Transfer Equity LP's Trunkline Gas Co. LLC; Energy Transfer and Kinder Morgan Inc.'s Fayetteville Express Pipeline; and Kinder Morgan and Veresen Inc.'s Ruby Pipeline LLCexperienced three of the five largest decreases in annual transportation quantity, with Trunkline falling by 153.3 MMDth, Fayetteville falling by 110.0 MMDth and Ruby Pipeline by 60.5 MMDth.

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Petak said it was no surprise that Texas Eastern, Columbia Gas, and Transco saw some of the more sizable gas transportation increases. "These lines are receiving incremental supplies from the Marcellus/Utica, so the big growth in production there is contributing to the increase in transport on the lines," he said.

"Conversely, Trunkline has converted some gas line to liquids transport during the past couple years, so that's probably why its transport has recently declined," Petak said. "The Fayetteville Shale production growth took a hit last year, with drilling activity there dropping off to really low levels and down to zero rigs by the second half of last year. Thus, the production in the basin has rolled over and is declining. It is not a cost competitive play with gas prices much below $3 per MMBtu. It is the source of supply for Fayetteville Express, thus the reason for the drop in transport on the pipeline.

"Finally, Ruby has been decontracted by a significant amount over the past year or so, as a number of contracts have come up for renewal," Petak said. "Capacity on the pipeline is generally selling at a discount," he said.

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