The shale oil and gas revolution in the United States has radically changed the country’s energy outlook. Massive economically recoverable reserves discovered in places such as the Marcellus and Bakken shale formations provide the opportunity for energy independence, new jobs and a manufacturing renaissance that could help put the US economy back on track. Indeed, demand for shale oil and gas continues to rise, even as production volumes increase.
But the United States currently lacks the capacity to transport all its available oil and gas to users, and investors have been slow to support the development of additional pipeline capacity. As a result, crude oil and natural gas liquids (NGLs) are often transported by rail or truck, which is more expensive than pipelines, and an alarming volume of dry natural gas is simply flared at the wellhead. Thus, producers are losing billions, and the country is falling short of capturing the full potential of its shale revolution.
Given the excitement over the opportunities presented by shale discoveries, why has it been difficult to build momentum for investments in natural gas pipelines? There are many complex roadblocks discouraging investors. Crude oil and NGLs command higher prices than gas, so it can be difficult to attract investors that are focused on dry natural gas. In today’s environment, investors are generally unwilling to commit funds to build significant new pipelines using traditional financing models. At the same time, the lack of coordination between the gas and power sectors has hampered demand for long-term capacity among gas-fired electric generators. These and other challenges addressed in this paper have contributed to the lag in the development of natural gas pipeline infrastructure.
Fresh ideas are needed to address these roadblocks if the United States is to capture the full benefit from its shale gas reserves. This piece explores steps in four areas that could hasten development of critical infrastructure, including making it more attractive to invest in natural gas pipelines. We hope these ideas invigorate discussion and help prepare the ground for the next wave of growth—in the industry and across the country.
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