Get That Gas Moving - The Increase of Natural Gas Pipeline Construction and Impacts

by Spilman Thomas & Battle, PLLC

Spilman Thomas & Battle, PLLC

There has been a significant increase in the number of new natural gas pipeline projects being built in the last two years in order to satisfy the nation's energy demand. From 2011 to 2015, FERC approved 111 major pipeline projects with an aggregate of 1,684.8 miles of new pipeline construction. There were three projects that contemplated at least 100 miles of new pipeline construction, but no projects with at least 500 miles of new construction. Over this five-year period, there was an average of 22.2 projects approved per year with an average of 15.18 miles of new pipeline construction per project. The annual average of new pipeline construction approved by FERC during this five-year period was 336.96 miles per year. 
From 2016 to 2017, there were 70 pipeline projects approved by FERC for a combined total of 2,680.33 miles of new pipeline construction. Seven of these projects contemplated more than 100 miles of pipeline construction, with three of those projects contemplating over 500 miles of pipeline construction. During this two-year period, there was an average of 35 projects per year with an average length of 38.29 miles of new pipeline construction. The annual average of new pipeline construction approved by FERC during this two-year period was 1,340.17 miles per year.
This increase in pipeline construction projects over the last two years is staggering. As compared to the previous five-year period, there has been a 62.86 percent increase in the number of projects approved by FERC annually. The average length of those projects also rose by 23.11 miles per project, or by 252.24 percent. The annual average of new pipeline construction approved by FERC rose by 1,003.21 miles per year, or by 397.72 percent. More impressive is the fact that during the combined five-year period of 2011-2015, FERC approved only 38.77 more miles of pipeline construction than it did in the single year of 2017. During those five years, FERC approved 1,684.80 miles of pipeline construction. In 2017 alone, it approved 1,646.03 miles of pipeline construction. 
The increase in pipeline construction is due in large part to two interrelated factors, the first of which is the development of the Marcellus and Utica shales in the Appalachian Basin. These two plays account for 85 percent of the nation's shale gas production growth since 2012. The second factor driving pipeline construction is the majority of the Marcellus and Utica production is coming from areas where there has not historically been significant natural gas production. Accordingly, there is a need to construct transmission pipelines to transport the new production to the market. 
Despite these new projects, there is still a critical need for not only more natural gas pipelines, but for an overall upgrade of the nation's energy infrastructure. The American Society of Civil Engineers evaluates the country's infrastructure every four years. In its last evaluation of the condition and performance of the nation's energy infrastructure, it gave the system a D+. In doing so, the Society recognized a significant amount of the energy infrastructure is either outdated or operating at full capacity.  
The increase in pipeline construction is the result of insufficient and aging infrastructure. However, with this increase in pipeline construction comes an increase in obstacles that must be overcome by the pipeline construction companies. The longer pipelines often cross state borders, which lengthens the administrative approval process while also making it more complex. The increase in the number of projects, as well as the overall length of the projects, also makes it difficult to find a sufficiently skilled workforce to allow the project to be completed on time, as companies now are competing for a limited number of qualified workers. Finally, the increase in construction length increases the number of adverse properties that must be condemned in order to build the pipeline. The cost of these condemnation proceedings increase exponentially, as they not only involve the surface interests of the parcels traversed, but also involve the underlying mineral interests that are affected as part of the residue estate.  
It will take time for the administrative agencies, courts, and the marketplace to adjust to the influx of new pipeline construction projects. However, that adjustment is necessary if the United States is to improve its aging energy infrastructure.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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