WASHINGTON -- Companies will need to invest $641 billion over the next two decades in pipelines, pumps and other infrastructure to keep up with the gas, crude oil and natural gas liquids flowing from U.S. fields, according to a study released Tuesday.
The analysis, prepared by ICF International for two natural gas advocacy groups, predicts that $30 billion worth of new midstream infrastructure will be needed each year through 2035 - triple the $10 billion in average annual investments over the past decade.
"We're in a heavy growth period right now, said Kevin Petak, an economist with ICF who authored the study. "The next six years appears to be a pretty heavy period for expenditure and investment."
Almost half of the projected spending - $14.2 billion per year - will be needed to accommodate new natural gas supplies and connect new shale plays with existing infrastructure and yet-to-be-built facilities, according to the report. The nation will need 35,000 miles of new transmission pipelines and 303,000 miles of gas gathering lines, the study found.
It also found that many of the gas pipeline projects will span shorter distances than projected in an earlier 2011 analysis, though the overall level of investment is similar because of climbing pipeline costs.
The analysis was co-sponsored by America's Natural Gas Alliance and the INGAA Foundation, an advocacy group founded by the Interstate Natural Gas Association of America.
New pipelines envisioned in the report could carry natural gas that now is flared off when it's produced along with more valuable crude, particularly in Montana and North Dakota where gas infrastructure is sparse.
Obama administration officials and energy companies are looking for ways to rein in gas flaring. Producers would rather sell the fuel, and flaring sends greenhouse gas emissions into the atmosphere.
The report also comes as regulators, environmentalists and other stakeholders boost their scrutiny of infrastructure projects that are facilitating today's drilling boom by linking oil and gas development with customers.
The analysis backs the oil and gas industry's assertion that the domestic energy boom is good economic news for the country, projecting that the midstream infrastructure spending will generate 432,000 jobs and $300 billion in tax revenue in the United States and Canada.
The study predicts growing natural gas consumption in the two nations - about 1.2 percent extra per year through 2035 - along with increasing natural gas exports. ICF projects U.S. and Canadian facilities will be able to liquefy and export 9 billion cubic feet per day of natural gas to other countries, in addition to 5 billion cubic feet per day of gas sent by pipeline to Mexico.
ICF based its projection on the assumption that the price of North American natural gas will average about $6 per million British thermal units, in 2012 dollars. In closed at $4.46, down 8 cents, in Tuesday trading on the New York Mercantile Exchange.
Besides investing to deliver natural gas, the study predicts, companies will have to pour $12.4 billion per year into crude oil infrastructure, including pipelines, valves, manifolds and separators, and another $2.5 billion into infrastructure associated with natural gas liquids such as ethane, butane and propane.
Most of the pipeline capacity for natural gas liquids - 3.2 million barrels a day - will be needed by 2020, according to the projections.
If spending falls short, it could constrain oil and gas development, the report warns.
"Sufficient infrastructure goes hand in hand with well-functioning markets," ICF says. "Insufficient infrastructure can constrain market growth and strand supplies, potentially leading to increased price volatility and reduced economic activity."
INGAA President Don Santa said he is confident that there will be enough capital to fund the infrastructure buildout.
"Clearly there is a lot of interest in this space on the part of the capital markets," Santa said - despite challenges especially in early years when investments won't pay off immediately. "But the track record gives us confidence that it is achievable.," Santa said.
Pipeline operators have been able to lure capital by organizing as tax-advantaged master limited partnerships, entities that can issue publicly traded ownership shares but are treated like partnerships, with income and tax liability distributed to investors.
"The MLPs have been a very tax-efficient way of raising capital that has resulted in a lot of steel going into the ground," Santa said.
Marty Durbin, head of America's Natural Gas Alliance, said linking gas production with consumers will require supportive public policies along with money.
"We've got all this production that not only is here today but ready to come on," Durbin said. "We don't want to be stuck in a place where we (are trying to) figure out how do we get that last mile of pipeline built to the power generator or wherever the end use is."
By Jennifer A. Dlouhy