Natural Gas Boom Drives Pipeline Upgrades

Natural Gas Boom Drives Pipeline Upgrades

Source: http://enr.construction.com, May 7, 2012
By: Jack Buehrer

As an engineer who specializes in natural-gas pipeline safety, Richard Kuprewicz has never been more in demand.

Amid unprecedented production of natural gas and crude oil in the United States alone, Kuprewicz is busy fielding questions from contractors, engineers, federal regulators and the media about the safety of the pipes carrying all that gas underground.

“It’s as it should be,” says Kuprewicz, the president of Accufacts, a pipeline safety consulting firm in Washington state. “There’s all this drilling, there’s all [this natural-gas] production, obviously there’s a need for the construction of new pipeline and improvements to old ones,” adds Kuprewicz, who also visited the aftermath of the deadly 2010 explosion of a natural-gas pipeline in San Bruno, Calif., which killed eight and leveled 38 homes. “Safety consultants, inspectors, regulators—they should have their hands full right now.”

Natural-gas and crude-oil pipelines in the U.S. rarely have faced this level of scrutiny. With domestic natural-gas and crude-oil production increasing year-over-year since 2007—thanks in part to booming shale-gas exploration—experts in energy transmission infrastructure are calling for more capacity. Some existing lines already are being upgraded. But as the boom times roll, experts are raising concerns about pipeline pressure and whether the new pipe being installed is safe.

“The retrofitting of our gas gathering and transmission system is big business, and there is and will continue to be a tremendous amount of activity in terms of improvements,” says Craig Martin, CEO of pipeline engineering giant Jacobs Engineering, Pasadena. “But this enormous new supply of gas, oil and liquid gas and the need to bring it to market is also revealing that this existing system is in real need of an improvement, capacity-wise.”

According to the U.S. Energy Information Administration, as of 2010 (the most recent count), the U.S. had just over 300,000 miles of gathering and delivery pipeline crisscrossing through the lower 48 states. Called the “interstate highway” for natural gas, the trans-U.S. pipeline system consists of more than 220,000 miles of high-strength steel pipe averaging between 20 in. and 42 in. in diameter. Local pipeline systems that deliver natural gas to homes and businesses, known as the “city streets,” make up almost 90,000 additional miles of pipe.

Game-Changer

A 2011 study by the Interstate Natural Gas Association of America (INGAA) projected that, over the next 25 years, the transmission demands of this newfound supply will require the annual construction of nearly 2,000 miles of pipeline in the lower 48 states and the Gulf of Mexico, roughly a 17% increase over current capacity. Additionally, an average of 1,300 miles of oil and natural-gas-liquid (NGL) pipeline will need to be constructed annually. The study predicts more than $250 billion of investment in the new lines.

Although some energy experts dispute INGAA’s numbers, they don’t deny that pipeline builders will be kept busy in the coming decades.

“In terms of crude oil and liquid natural gas, there’s still going to be a huge need for additional pipeline over the next several years, and that is a direct result of production out of these shale formations,” says Rusty Braziel, a Texas-based energy consultant and former Texaco executive. “I don’t see as much need for natural-gas pipeline in the short term, though, because so much capacity was added between 2007 and 2010.”

By all accounts, the resource-rich shale-gas plays in Texas, North Dakota and the Northeast have created enormous opportunities for pipeline builders and operators.

“The past five years have been a real game-changer in terms of our transmission needs because it was never really known how extensive these natural-gas deposits were in the U.S.,” says John Wynne, an economist with infrastructure engineering consultant Black & Veatch, which worked with INGAA to determine the economic impact of INGAA’s projections. “The power industry is expected to invest heavily in natural gas—that’s one big piece. Another piece is getting these new resources to market in areas where there hasn’t historically been a lot of production. That kind of demand is certainly going to increase the demand for pipelines.”

It’s quite a shift from 2005, when experts believed the natural-gas supply in the U.S. was dwindling following a 2002 peak of 19.2 trillion cubic feet (Tcf). But since then, engineers and natural-gas drillers in Texas have improved an extraction method known as hydraulic fracturing, or “fracking.” The process involves drilling horizontally into a layer of shale rock. Then millions of gallons of a highly pressurized mixture of water, sand and chemicals are pumped into the drill hole to break up the shale and release the gas trapped beneath the rock formations.

This type of gas development received its biggest boost in 2005, when fracking was exempted from the federal Safe Drinking Water Act and the Clean Air and Clean Water acts, thus allowing states to regulate the procedure on their own. Almost immediately, producers flocked to the nation’s largest shale-gas plays in Pennsylvania, North Dakota and Texas.

“Looking back, it seems like it happened overnight,” says Chris McCue, head of oil and gas markets for Wilkes-Barre, Pa.-based engineering firm Borton Lawson. The company has nearly doubled in size since developers began exploring the Pennsylvania portion of the nation’s largest shale formation, the 95,000-sq-mile Marcellus shale, which crosses parts of six states. In the 24,000-sq-mile Bakken shale formation—which spans North Dakota and Montana and extends into Canada—drillers have recovered considerable amounts of natural gas and, over the past two years, doubled North Dakota’s oil production, making it the largest oil-producing state next to Texas. However, limited pipeline capacity to transport the resources has created demand for additional transmission lines there, as well.

“The activity here has been as quick as ‘if you can put a project together, put it together,’ ” says Justin Kringstad, head of the North Dakota Pipeline Authority, which formed in 2007 as a result of the growing production of oil and natural gas in the region. “The speed at which they’re drilling these wells and the urgency to get the resources to market has created a situation where there is a real need for more pipeline.”

Stretched Thin

However, safety experts are concerned about the speed and volume required in high-production regions. Though rare, gas-pipeline accidents can result in dangerous and deadly leaks or explosions. Many safety inspectors and specialists fear that pipeline projects have gotten bigger and more expensive while education and regulatory standards have stayed the same.

“A billion dollars used to be a huge project—now it barely gets you started,” said Kuprewicz, the Washington-based pipeline safety consultant. “You look at a lot of these jobs in Pennsylvania and North Dakota, there’s an enormous demand on resources in terms of the talent pool. There’s a gold rush going on, and there are a lot of companies prospecting, wanting to get in on it. But are the resources there? Are you getting quality workers?”

While overall gas-pipeline accidents are down over the last 20 years, 2010 and 2011 averaged more fatalities and serious injuries as a result of such incidents in more than a decade. In 2010, 21 people died as a result of natural-gas line accidents and 105 were injured, while, in 2011, 16 died and 63 were injured, according to the U.S. Dept. of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA), the regulatory agency responsible for inspecting pipelines and tracking accident data. In addition to the victims, the accidents caused hundreds of millions of dollars in damage. Kuprewicz and Mohammad Najafi, director of the Center for Underground Infrastructure Research and Education at the University of Texas, believe the rise in serious incidents is partly because of a lack of trained workers building the pipelines.

“We need more education,” Najafi says. “Our universities don’t provide specialty areas in pipeline engineering, and our graduates end up having to learn on the job or attend conferences here or there to understand [what they’re doing].”

Some also believe the PHMSA, despite being the chief regulatory agency for interstate transmission lines, is largely absent on construction sites, especially in rural areas. In response, agency spokeswoman Jeannie Layson says the PHMSA “routinely conducts construction inspections and undertakes enforcement efforts to ensure all pipeline operators are in compliance” with federal regulations.

The PHMSA currently has 135 inspectors and enforcement personnel on staff, she adds. That number likely will increase by 150, thanks to the passage of Congress’ pipeline safety reform bill in late 2011. The PHMSA conducted about 9,000 inspections of pipeline operators in 2010 and spent more than 20,000 hours on jobsites in 2011, Layson notes.

Kuprewicz says there is room for more oversight. “There are still serious gaps in the checks-and-balance system on these projects in terms of who’s monitoring them and who’s building them,” he says. “We’re seeing several multimillion-dollar pipelines that rupture a year or two after you get them in the ground.”

David Kroon, president of Houston-based pipeline corrosion-prevention firm Corrpro, says such criticisms shortchange the advancements made in pipeline engineering and pipe manufacturing over the past 20 years. Kroon says the industry has made strides with regulatory compliance. Most firms, he says, are implementing their own safety standards and voluntarily applying best practices. “Inspections at the time of construction are far greater than they used to be,” he says. “There is much more attention given to pipe getting into the ground with fewer flaws. It’s important that the regulatory community be vigilant in their inspections, but the bottom line is, we’re building pipelines better now.”

The first federal standards for pipeline safety were created by Congress in 1968 as part of the Natural Gas Pipeline Safety Act, which also created the Office of Pipeline Safety. Gas lines originally had been made from cast iron and coated with tar or an enamel tape wrap to prevent corrosion, the leading cause of accidents in older lines. But after the 1970s, no additional regulations were added until the early 2000s, when the first integrity management standards were created, establishing a set of guidelines that both pipeline operators and regulators were required to follow. The integrity management guidelines mandated that operators inspect their own lines in so-called “high-consequence,” or highly populated, areas and also determine which of their pipelines were at risk.

“Those standards have really leveled the playing field,” Kroon says. “It used to be perceived that, once a pipe was in the ground, we never had to look at it again. No one can say that anymore. And I think it’s showing itself in the decrease in serious incidents over the last 20 years.”

Legacy Lines

The aftermath of a number of high-profile accidents—including the one in San Bruno, in which a carbon-steel line riddled with faulty welds exploded, and the February 2011 explosion of a nearly century-old cast-iron pipe, which killed five in Allentown, Pa.—has led to additional oversight in the form of a bill signed early this year by President Barack Obama. The bill doubles the maximum fine that can be leveled on an operator whose pipelines are in violation of the integrity management standards. Further, the law gave the U.S. Dept. of Transportation—which houses the PHMSA—the authority to order automated shutoff valves on new or upgraded pipes as well as adding more PHMSA inspectors.

Despite what was included in the bill, Kuprewicz says the safety community will remember it more for what was left out, as most of the stricter regulations were absent from the final draft.

“It was a pretty compromised bill,” Kuprewicz says, citing the components regarding worker qualifications and construction quality requirements as among those that were dropped from the bill’s original draft. “It didn’t address a lot of these issues in the end. They’ll do a lot of studies and recommend a bunch of things, but it could have been a lot stronger.”

Meanwhile, utilities such as Pacific Gas & Electric, which operates the San Bruno line, and New Jersey Natural Gas (NJNG) have launched massive efforts to overhaul their pipeline systems. PG&E, which was found to be at fault for the San Bruno accident, expects to be fined as much as $200 million. While it has paid a $70-million settlement to the city, the company has said it plans to invest more than $1 billion in a multiyear program to rebuild its pipeline system and improve inspection and testing.

NJNG plans to spend more than $200 million to replace portions of its existing infrastructure, specifically more than 343 miles—or 60% of the entire system—of cast-iron and unprotected steel lines.

“At the utility level, there is a tremendous amount of activity in response to San Bruno,” says Jacobs Engineering’s Martin. “Some of that is in response to government regulation, but it’s more because of awareness of good business practices.”

Upgrades to existing pipelines are expected to become more commonplace in the coming years.

“You’re going to see a substantial amount of activity—I mean billions and billions of dollars—in [pipeline] infrastructure enhancement over the next five years,” says Scott Smith, a vice president with Black & Veatch. “The problems that are out there in some of these lines are significant. There’s not an overnight fix.”

David Dacus, CEO of Houston-based Troy Construction, says that while the past five years have been defined by new investment, the next decade is going to be about rehabilitation.

“We’re seeing these kinds of jobs escalate year after year,” Dacus says. “Upgrades will be the core of our business for the next several years.”

But Kroon, Kuprewicz and other safety experts say there’s a danger in becoming addicted to upgrades, especially when some of the oldest pipes are still in mint condition.

“Aging is a very poor indicator of a lack of integrity,” Kroon says. “Simply because it’s old doesn’t mean it’s not in good shape. It has to do with how it was constructed and maintained. Some very old pipelines are almost like new in their ability to perform as designed. That’s the ultimate goal, whether you’re talking 50 years ago or today. You want to make sure you’ve got inspections happening during construction because that’s a key element in getting in the ground what you’ve designed.”

Gas Glut

Industry analysts say the country likely will run out of storage for natural gas by autumn due to overproduction in the large shale plays. However, the demand for pipeline will not decline because even the glut of dry natural gas as a result of overproduction in regions such as Pennsylvania and North Dakota will still need transmission lines through which to be carried to market. Additionally, the surplus of dry gas already is creating a shift by producers to drill for liquid natural gas and oil, which is also underserved by the existing infrastructure.

“The pipeline business is not a ‘build it and they’ll come’ business,” says Don Santa, president and CEO of INGAA and former commissioner of the Federal Energy Regulatory Commission. “All of this unconventional gas that’s been produced still needs to come to market and tie in with the existing infrastructure. The price disparity may result in a shift to the wetter [gas] plays in the short term, but that’s still a lot of pipeline that needs to be built. The price for natural- gas supplies certainly will impact the rate of investment in midstream and upstream natural-gas facilities.”

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