Mid-Year Outlook: Oil & Gas Investments Help Push Energy Transition

Lack of investment in oil and gas projects is contributing to higher fuel prices, which in turn could impede the global energy transition to renewable fuel sources, according to Shane Mullins, Industrial Info's vice president of product development for the energy markets.

Speaking to attendees at Industrial Info's U.S. and Canada Industrial Info's May 18 U.S. and Canada Mid-Year Outlook event, Mullins said high fuel prices are contributing to inflation. As a result, "You're not going to be able to sustain the energy transition if we can't afford it."

The Biden administration's call to increase oil and gas production in the U.S. mainly was targeted at bolstering energy security in response to Russia's invasion of Ukraine, Mullins said. But the increased production also will help tame inflation.

"Keep in mind fuel used for transportation is only half of the oil barrel," Mullins said. "Oil is also used to make thousands of products and we can't forget that 43,000 industrial manufacturing plants (in the U.S.) rely on natural gas to keep manufacturing costs down and stay competitive."

"Abundant, low-cost energy from increased oil and gas investment will allow reshoring of manufacturing back to North America to improve supply-chain security and keep the cost of solar panels, wind turbines and batteries down," he continued.

However, several headwinds continue to affect midstream capital expenditures.

"Obviously the Biden administration clearly wants to keep the energy transition on track, so the de-banking of the oil and gas sector and ESG (environmental, social and corporate governance) pressure has been very real, so producers are both focused on capital discipline to operate within cash flows and reducing emissions.," Mullins said.

The good news is both U.S. and Canada production capital expenditures are back on a growth footing, Mullins said, adding: "We are seeing new compression, gas processing, pipeline and export terminal project announcements again."

Natural Gas Pipelines

On the East Coast, environmental groups were able to kill the Atlantic Coast and PennEast Pipeline projects, Mullins said, which would have allowed the Appalachia region's production to grow to 38.5 billion cubic feet per day (Bcf/d), "and now all eyes are on whether or not the?Mountain Valley pipeline?can be completed, and that is looking more like the third quarter of next year at this point."

Industrial Info is tracking five projects tied to the MVP, which runs through West Virginia and Virginia. Subscribers to Industrial Info's Global Market Intelligence (GMI) Oil & Gas Pipeline Project Database can?click here?for a list of detailed project reports. For more information, see May 6, 2022 article--Mountain Valley Pipeline: More Expensive, New Completion Date.

The key areas of current pipeline growth are the Haynesville shale--which covers parts of east Texas, southwest Arkansas and northwest Louisiana--and the Permian Basin in west Texas and eastern New Mexico, along with the Montney and Duvernay formations in western Canada.

Back to the Permian, Mullins said, "Natural gas growth is now outpacing our ability to add another pipeline in time, so we are seeing that replaced by several planned pipeline expansions, which will buy us time to construct a new pipeline, which will need to be approved next year and start up in 2026."

Just a day after the Mid-Term Outlook event, the developers of the?Matterhorn Express Pipeline?said they had reached a final investment decision to move forward on the project. The pipeline would transport up to 2.5 Bcf/d of natural gas 490 miles from Waha, Texas, to the Katy area near Houston, Texas.

Supply for the Matterhorn Express pipeline will be sourced from upstream connections in the Permian Basin, said the developers, who include?WhiteWater?(Austin, Texas),?EnLink Midstream, LLC?(NYSE:ENLC) (Dallas, Texas),?Devon Energy Corporation?(NYSE:DVN) (Oklahoma City, Oklahoma), and?MPLX LP?(NYSE:MPLX) (Findlay, Ohio). The developers said they expect the pipeline to be in service in the third quarter of 2024. Subscribers can?click here?for the related project report.

Permian Pipeline Expansions

For now,?Kinder Morgan Incorporated?(NYSE:KMI) (Houston, Texas) will be?expanding the Permian Highway Pipeline (PHP) and Gulf Coast Express (GCX)?pipelines through additional compression, which could add an incremental 1.2 Bcf/d of natural gas takeaway combined. Subscribers can?click here?for a list of active PHP projects and?here?for a list of active GCX projects. For related information, see April 22, 2022, article -?Kinder Morgan Treads Carefully as Hope Revives for Stalled Natural Gas, LNG Projects.

MPLX LP and its partners, meanwhile, are?expanding the Whistler Pipeline by 0.5 Bcf/d, with completion expected in September 2023. Subscribers can?click here?for a list of Whistler pipeline capacity expansion projects.

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