Can U.S. energy infrastructure keep up with production growth?

Gulf natural gas pipeline explosion

Bad Timing

Just when there was some hope that natural gas prices that have soared in the Northeast could see some light at the end of the tunnel, an explosion on a major pipeline from the Gulf Coast to the Northeast could send spot prices soaring. 

Reuters’ News reported that there is an explosion on the Columbia Gulf Interstate pipeline. This is a major pipeline that brings natural gas from the Gulf to the Northeast. The Columbia Gas Transmission operates one of North America’s largest underground natural gas storage systems, including 37 storage fields in four states with more than 650 billion cubic feet in total capacity. This interstate pipeline system consists of about 3,400 miles of pipeline and 11 compressor stations and is interconnected to nearly every major pipeline system operating in the Gulf Coast. The Energy Information Administration reports that it is the largest interstate natural gas pipeline in the Northeast system operating in the region (9.4 Bcf per day capacity).

Columbia has an extensive network of natural gas pipelines that provide service in the region to the States of Maryland, New Jersey, New York, Pennsylvania, Virginia, and West Virginia, but also extends into Ohio in the Midwest and Kentucky and North Carolina in the Southeast Region. Columbia receives Gulf-of-Mexico natural gas at the Kentucky border from its major trunkline transporter, Columbia Gulf Transmission Company, but it also transports Appalachian (regional) production as well.

It is going to take some time to see who is impacted and whether this will shut down major portions of the line but in the spot markets they will probably buy first and ask questions later. Yet this raises another question about our shale gas revolution and our aging natural gas pipeline infrastructure. As we have learned that even if production this summer soars, our infrastructure needs to be enhanced to take full advantage of our production prowess. Pipeline projects take time and we haven’t even put on the drawing board all the pipelines that we are going to need. Perhaps this winter will speed the process along.

As for oil it is coming back down to earth. A larger than expected build but a draw in Cushing kept WTI supported as the Brent spread comes back in. Less demand for distillates than expected helped anchor crude yet with the natural gas explosion and another storm we may not fall too far. 

Bloomberg News Reports, “Oil Inventories in advanced economies tumbled in the fourth quarter by the most since 1999 because of surprising robustness of demand in the U.S. and other developed nations,” according to the International Energy Agency. The IEA, a Paris-based adviser to oil-consuming nations, also boosted forecasts for global fuel demand this year and the amount of crude that will be required from the Organization of Petroleum Exporting Countries. Stockpiles of crude and refined products in the Organization for Economic Cooperation and Development nations shrank by 1.5 million barrels a day in the last three months of 2013 to end the year at 2.6 billion, their lowest level since 2008, the IEA said. 

“We expect this constructive trend in OECD inventories to continue through 1Q, with some months where we would see less than seasonal builds, especially in the light of positive demand data we are seeing, said Miswin Mahesh, an analyst at Barclays Plc in London.  West Texas Intermediate futures have advanced 1.4% this year, trading close to $100 a barrel today, amid arctic weather and economic recovery in the U.S., the world’s largest oil consumer. The nation’s highest crude output in 25 years, driven by tapping shale formations in North Dakota and Texas, is reducing energy costs for manufacturing and petrochemical industries, aiding the economic rebound.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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