Shifting Sands - Natural Gas Infrastructure Development

A few years ago, pipeline developers were fixated on the Northeast, whether to take away Marcellus produced natural gas or to bring gas to New England. The pipeline industry argued that there was an obvious need for the infrastructure, despite running into political pushback and the rare instance when a proposed project was withdrawn after failing to secure sufficient shipper contracts. Project developers and those investing in new projects leverage our analytics to spot development trends, such as the waning of interest in the Northeast and a new focus on the Southeast and Liquefied Natural Gas (LNG). But development trends can turn on a dime, especially as opportunistic players catch wind that select projects are on the brink.

The construction of natural gas infrastructure is connected to markets, perhaps more so than many other industries. Developers can't simply decide where they'd like to construct a project and make a determination as to the amount of risk they would like to assume. Instead, developers must be able to demonstrate to FERC, and in certain circumstances, state regulatory commissions, that there is a need for each project. This creates risk for developers, and is designed to assure that only those projects truly needed get built. But the sands of demonstrating project development need appear to be shifting toward increased scrutiny, under certain circumstances.

The trend over the last ten years shows that the focus on the Northeast has waned; the total number of projects peaked in 2014 and 2015, and has returned to numbers seen in 2008 through 2010. The Northeast seems to have been a driver of the peak, with over 1,000 miles of pipeline having been put in-service in the past ten years. In the past ten years, the number of projects, specifically those which are interstate and involve the expansion of existing systems, or the construction of new systems or LNG terminals, has fluctuated. Since 2008, the number of projects initiated with a Certificate application each year has ranged from 17 to 62, and peaked at 62 in 2015.The number of projects pre-filed and those simply initiated with a Certificate application has peaked and declined since 2016.

Not only has the number of applications filed on an annual basis returned to levels comparable to those of 2008 through 2010, but the types of applications and the regions in which these projects are located has also changed. While applications for pipeline projects composed 65.1% of the Certificate projects under review through 2015, in more recent years, they amounted to 50% of such projects.

On the other hand, LNG projects, both terminals and their affiliated pipelines, have become more prolific. For example, the number of pre-filed LNG projects, as a percentage of pre-filed projects, peaked in 2015. And projects that failed in the past, such as Calgary's Pembina's Jordan Cove and Pacific Connector, and those that have stalled, such as Exelon's Annova LNG, are back in full swing before the FERC. The fixation on the Northeast appears to be waning. From 2008 to 2015, projects filed in the South accounted for 38.6% of all Certificate applications. Since, applications in the South have accounted for 46.9% of Certificate applications. Much of this increase has been driven by the growth in liquefaction and the need to drive gas to these facilities from production areas. But beware of trends, as many well-positioned gathering and processing players and other regional players, such as local distribution companies, are ready to pounce on growth opportunities.

These shifts in the type of project, as well as the region, can more broadly be indicative of market trends. Monitoring trends in FERC applications is a sound check and balance against industry positioning and analyst forecasts. Customers of LawIQ's data analytics platform can readily spot these trends, and easily screen projects by such characteristics as the filing date, the region of the country, and the type of project (e.g., LNG versus pipeline). This allows investors in energy companies to find those companies that are strategically positioned to exploit these trends, and allows the energy companies to focus their own development efforts. (A brief overview of our analytics platform is available on our website (https://www.lawiq.com/demo/).

Next in our Tax Changes Impact - Customer Special Series
A deep dive into the impact of the rate cases FERC launched on March 15 against Dominion's Overthrust Pipeline and Oneok's Midwestern Gas Transmission Company.