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Pipeline Construction Slows, Business and Industry Trends Analysis

The recent low prices for crude oil and natural gas have changed pipeline construction worldwide. In North America, many proposed pipelines have been dropped completely, delayed due to economic reasons or deferred due to regulatory issues.
A major Canada-based company, TransCanada, had proposed a new $13 billion, 48-inch diameter, 1,700-mile crude oil pipeline in 2008 that would run from Hardisty, Alberta south through six U.S. states, ending in Houston and Port Arthur, Texas on the Gulf of Mexico.  The northern end of the American side of the project was rejected by the Obama Administration in November 2015, while the southern end, which runs between Cushing, Oklahoma and the Gulf of Mexico, was completed in early 2014. The fact that the Keystone will not be completed any time soon, if ever, will likely increase the shipment of Canadian crude via railways. 
A major concern to many environmentalists is the fact that the pipeline is intended to carry oil from Canada’s tar sands region (in addition to crude from the Bakken Shale formation, which is produced primarily on the U.S. side of the border). This has turned the proposed pipeline into a flashpoint for political controversy. Producing usable oil from tar sands creates potential environmental costs that are unacceptable to some. Nonetheless, Canada’s oil production has grown very rapidly, and it must have a way to market. TransCanada is considering east-west alternatives, including the $11 billion Energy East Pipeline that could transport 1.1 million barrels per day from Alberta to Quebec City (a distance of about 2,800 miles). The Canadian government is considering an alternative that would send the crude to Canada’s west coast so that it could be sold to Asian markets such as China, completely bypassing the U.S. Meanwhile, crude from the Bakken is being moved largely by tank cars on railroads, creating a massive backload of rail freight in general and causing nightmares for farmers who want to move their grain to market by rail.
A pipeline was opened by Enbridge Energy Company, Inc. (a subsidiary of Enbridge, Inc.) in mid-2014. The Flanagan South pipeline runs from Flanagan, Illinois to Cushing, Oklahoma. It connects with the Seaway (which now runs from Cushing to Freeport, Texas). Together, they transport as much as 850,000 barrels of crude oil per day.
A newer project may get underway over the mid-term to build a natural gas pipeline in Alaska, thanks to the early 2012 settlement of a dispute between energy companies including Exxon Mobil, BP and ConocoPhillips and the state of Alaska. The settlement allows the energy companies to maintain leases in the Point Thomson field (located to the east of the enormous Prudhoe Bay field) in exchange for the assurance that production will begin by May 2016 at the latest. The Point Thomson field holds some of Alaska’s largest and most easily accessible gas reserves, which are planned for export to overseas markets. Initial output from the field will be 10,000 barrels of natural gas condensate and 200 million cubic feet of natural gas per day. An additional 35 trillion cubic feet of natural gas is estimated to lie in Alaska’s adjacent North Slope.
The proposed project could cost between $45 billion and $65 billion, require up to 1.7 million tons of steel and provide employment for up to 15,000 people during construction, as well as more than 1,000 permanently. Capacity is targeted at 3 billion to 3.5 billion cubic feet per day. The goal is to terminate the pipeline at a site where a future processing plant would convert the natural gas into LNG for export to gas-hungry Asian markets. However the ultimate fate of the project depends on whether or not it makes economic sense, based on market prices for natural gas, in addition to regulatory concerns.
Meanwhile, the Canadian government approved plans for a $7.3 billion Northern Gateway project in mid-2014. Owned by Enbridge, Inc., the Northern Gateway pipeline is proposed to carry 525,000 barrels of crude oil per day from a point near Edmonton, Alberta to a terminal in Kitimat, British Columbia where it will be shipped to Asia.
The Canadian government is considering a plan to encourage the development of a $7 billion (Canadian dollars) MacKenzie Pipeline to carry natural gas produced in the Northwest Territories. It could be a major supply of energy to the tar sands operations of Alberta, which utilize vast amounts of gas in order to generate steam for extracting crude from the tar sands. However, the project hit numerous snags, including environmental issues, high construction costs and low market prices for natural gas. If it finally gets underway, the $16.2 billion project would run from the Mackenzie Delta on the Beaufort Sea to Canadian and U.S. markets. Partners in the 1,220-kilometer pipeline include Imperial Oil, Aboriginal Pipeline, ConocoPhillips and ExxonMobil. However, Royal Dutch Shell pulled out of the project in mid-2011. The proposed pipeline had been stalled for more than 30 years, as of 2015.
In mid-2013, Kinder Morgan bucked the major pipeline construction movement by cancelling plans for the $2 billion Freedom oil pipeline that was to have transported oil from West Texas to the West Coast. The company instead is tripling the capacity of its Trans Mountain pipeline which carries crude from Alberta to the Pacific coast. However, the company renewed its interest in the Freedom pipeline in early 2015 after hearing that West Coast refiners may sign on after all.
Russia’s gas production continues to be massive, and it is the major supplier of natural gas to Europe. Russia completed a major pipeline know as Nord Stream in recent years as a vital link in this supply. Nord Stream consists of twin 48 inch pipes that run a distance of 1,224 km. As of late 2015, plans for a proposed South Stream pipeline that was originally intended to run under the Black Sea to Bulgaria are unclear. Significant political wrangling may continue over this route, and it is possible that the pipeline will be shifted to a termination in Turkey, another major gas customer.  It may also be cancelled entirely due to political and economic concerns.  Russia also recently completed a very large, long term agreement to sell gas to China. This will require an immense investment over a long term in order to create the pipeline infrastructure needed to deliver the quantities of gas that are envisioned to cross the border. It remains to be seen whether or not this project can obtain funding.

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