Insufficient investment in natural gas pipelines could lead to more price volatility in the United States and limit structural demand growth, according to a report released Tuesday from BNP Paribas.
Regional and seasonal price spreads decreased across the US as gas drilling technology advanced, new infrastructure reached relatively undeveloped production regions, and more pipelines are in various stages of planning and construction, states the report, which was authored by Teri Viswanath. However, the new infrastructure is largely undertaken by producers, and the asymmetric nature of the development means "most measures of network deliverability to consumers show only marginal improvement."
"Because market access hasn't greatly expanded with the recent pipeline boom, the last section of pipeline that connects with consumers will become increasingly valuable (especially for high-growth regions)," the report says.
Midstream investment is primarily driven by the need for shale gas to supply growing electric power demand, and gas use in this sector is expected to double by 2035. Several regions will see acute demand growth by 2035, including an expected 10 Bcf/d increase in the Southeast, a 7 Bcf/d increase in the Northeast, and a 6 Bcf/d increase in the Southwest, the report said. That demand will need more mainline and inter-regional capacity, similar to expansions in the past. Some 43 Bcf/d of capacity will be needed to transport the gas from production regions to growing demand regions.
"The problem is that radically different market conditions than those present during the planning stage of the recent build-out may threaten this outcome," states the report, adding that new pipelines are facing harsher than expected market conditions. Insufficient follow-on investment could lead to more regional price volatility and a "basis blow-out" or even act as a roadblock to the structural demand growth that is on the horizon.
