Industry stakeholders call for streamlined rail and pipeline permitting to sustain market impacts from oil and gas production when prices are low.

Enhanced oil and natural gas transportation and storage infrastructure is needed to ensure the domestic energy revolution is sustained in the current period of low prices. Streamlining infrastructure permitting processes would aid investor confidence and augment sector investments. Without increased crude oil and natural gas infrastructure, downstream prices could rise due to lack of efficient, low-cost fuel transportation.

On February 3, 2015, the House Subcommittee on Railroads, Pipelines, and Hazardous Materials held a hearing on issues related to the U.S. energy production growth and its impact on the transportation system.  The subcommittee heard testimonies from energy, pipeline, railroad, and rail car manufacturer stakeholders regarding their investment and views of the nexus between energy production and private infrastructure investment.

Streamlined Permitting Process Needed to Ensure Continued Investments

In his testimony, Jason Thomas, Director of Research at The Carlyle Group, stressed the importance of a straightforward and predictable infrastructure permitting process to support project investments. He discussed how delays can directly impact a project’s internal rate of return, and that permitting uncertainty makes it more difficult for businesses to secure capital early in the planning process.

Edward R. Hamberger, President and CEO of Association of American Railroads also outlined three ways policymakers can improve the rail permitting process:

• Extend environmental review provisions of the Moving Ahead for Progress in the 21st Century Act (MAP-21) to railroads. MAP-21 includes various provisions to accelerate environmental review process for highway projects
• Create a single, uniform set of National Environmental Policy Act (NEPA) review categorical exclusions for the Department of Transportation (DOT). Categorical exclusions are broadly granted for projects that do not individually or cumulatively have a significant effect on the human environment
• Extend the National Historic Preservation Act (NHPA) Section 106 interstate highway system exemption to railroads. NHPA Section 106 requires Federal agencies to take into account the effects of their undertakings on historic properties.

Mr. Hamberger also asked for support to extend the expired Short Line Railroad Tax Credit (Section 45G) tax credit program. The tax credit incentivizes short line railroad rehabilitation investments by providing a tax credit of 50 cents for every dollar the railroad spends on track improvements. The Short Line Railroad Rehabilitation and Investment Act of 2013 aimed to extend the tax credit through 2016, but did not reach the House or Senate floors for vote in the 113th Congress.

U.S. Crude Oil Production Expected to reach 19.43 million bbl/d by 2015

Domestic oil and gas production has significantly increased over the past decade due to technological advances in resource recovery methods. The technological advances have led to development of tight oil resources in the Bakken, Eagle Ford, and Permian Basin formations. From 2007-2012, average domestic crude oil production from shale and tight formations increased more than six-fold – from 0.34 million barrels per day (bbl/d) to 2.25 million bbl/d.  In 2014, U.S. crude oil production averaged 8.7 million bbl/d.  The Energy Information Administration (EIA) forecasts production will average 9.3 million bbl/d in 2015 and rise to 9.5 million bbl/d in 2016 – the second-highest annual average production level since 1970.  Alongside increased production, U.S. liquid fuels consumption rose by an estimated 100,000 bbl/d in 2014, reaching 19.06 million bbl/d; and is projected to reach 19.32 million bbl/d in 2015 and 19.43 million bbl/d in 2016.

Additional Infrastructure Needed to Match Growing Production

Industry emphasizes the need for new infrastructure to meet the continued growth.  The Interstate Natural Gas Association of America (INGAA) projects from 2011 through 2035 the need for approximately 850 miles per year in new gas transmission mainline, 14,000 miles in new natural gas gathering lines, 730 miles in new oil transmission lines, and 7,800 miles in new oil gathering lines.  The projected infrastructure additions are estimated to cost approximately $30B per year.

Though rail offers geographic flexibility in delivering across new production locations and routes that lack pipelines, pipelines offer the best option to transport large volumes of petroleum products. Challenges to pipeline expansions include lack of prompt decisions from government agencies for environmental permits and pipeline routes approvals, both of which affect project investments. For interstate pipeline projects approved from January 1, 2010 to October 24, 2012, the Government Accountability Office (GAO) found that the average processing time between pre-filing and certification phases was 558 days, with the timeframe ranging from 370 to 886 days.  Projects that started with the application phase took 225 days to move from formal filing to certification.  Detailed information on timeframes for intrastate projects are not available due in large part to the lack of a lead agency to coordinate multiple reviews required to complete the process.

Oversight of Convoluted Pipeline Network Varies by Interstate and Intrastate Pipelines

The U.S. natural gas pipeline network is comprised of more than 210 pipeline systems spanning 305,000 miles of interstate and intrastate transmission pipelines.  These pipelines have more than 11,000 delivery points, 5,000 receipt points, and 1,400 interconnection points across the country, and 24 hubs that offer additional interconnections.  The major natural gas transportation routes can be categorized into 11 distinct corridors or flow patterns – 5 routes from the Southwest producing areas; 4 routes that enter the U.S. from Canada; and 2 that originate in the Rocky Mountain area.

The Federal Energy Regulatory Commission (FERC) determines the rate-setting methods for interstate pipeline companies, sets rules for business practices, and authorizes siting, construction, and operations of interstate pipelines, natural gas storage fields, and liquefied natural gas (LNG) facilities. An interstate pipeline construction or expansion project takes an average of approximately three years from the time it is announced until placed in service, and can take longer if major environmental challenges or public opposition is encountered.  The interstate pipeline network represents approximately 71 percent of natural gas mainline transmission mileage, with two-thirds of the lower 48 states dependent on the interstate system for natural gas supplies.  Some of the highest levels of pipeline capacity exist on interstate systems that link the southwest production areas with other regions.

In the intrastate permit process, the number of stakeholders and processing steps vary across states and most states lack a single agency to coordinate and implement laws and regulations as with interstate processes. Intrastate pipelines represent approximately 29 percent of pipeline mileage and operate within state borders and link producers to local markets on the interstate pipeline network.  Although intrastate pipeline systems are defined to operate totally within states, an intrastate pipeline company may have operations in more than one state.  As long as these operations do not physically interconnect, they are considered intrastate and are not subject to FERC oversight. The lower-48 states have more than 90 intrastate pipelines.

Originally published by EnerKnol.

EnerKnol provides U.S. energy policy research and data services to support investment decisions across all sectors of the energy industry. Headquartered in New York City, EnerKnol is proud to be a NYC ACRE company.