MEC&F Expert Engineers : Energy Pipeline: Industry experts worry slowdown will affect much needed midstream infrastructure

Sunday, August 9, 2015

Energy Pipeline: Industry experts worry slowdown will affect much needed midstream infrastructure












SOME OIL AND GAS INDUSTRY EXPERTS across the country warn that declining oil prices will make it difficult to build much-needed pipelines and infrastructure to get oil and gas to consumers. 

But in northern Colorado, the situation might actually be the opposite, as production remains profitable and midstream development continues, with plans for another natural gas processing plant to open in Weld County in a few months. 

“We do feel like Weld is insulated from what is happening in other places,” said Brian Frederick, president of asset operations for DCP Midstream, which processes 12 percent of the nation’s natural gas. “We look at producer economics. Weld County consistently ranks in the top 5 of producers in the country. So as the rate of growth slows down, producers will choose their best place.” 

With 63 natural gas processing plants in 17 states, DCP Midstream opened its O’Connor plant in Weld County in October 2013 and completed an expansion of it last February. Another plant in Weld, called Lucerne 2, is scheduled to be open in the second quarter of this year. The company also has 3,000 miles of gathering pipelines across Weld County. 

Once Lucerne 2 opens, DCP Midstream will have nine processing plants in Weld. Total capacity among them will be to process 800 million cubic feet of natural gas per day, producing 79,000 barrels per day of natural gas liquids. 

There’s no question the infrastructure in Weld is stressed and challenging, but those numbers are amazing considering the history of the Wattenberg Field, said Craig Rasmuson, COO of Platteville-based Synergy Resources. 

Companies like DCP Midstream have had their work cut out for them trying to keep up with the volume of natural gas being drilled in the last decade, Rasmuson said. 

“This basin was built in the ‘70s and ‘80s for vertical wells with one stage of fracturing,” he said. “It took 20 to 30 years for the smaller processing plants to be able to handle 250 million cubic feet per day. And by 2016 or 2017, the plants will be processing a billion cubic feet per day. 

“The technology has totally changed the game for the midstream companies, and they have done a yeoman’s job keeping up,” Rasmuson said. 


INVESTING IN INFRASTRUCTURE
The ability to drill wells horizontally has been around for a long time, but rising commodity prices in the last decade made it viable for producers to try the technology. The result has been an oil and gas boom that has turned the United States into the biggest oil producer in the world. 

But the midstream and downstream side including pipelines, processing plants, refineries, roads and railways - have found it challenging to keep up. It’s one reason the American Petroleum Institute announced in January the creation of a midstream department to advocate for the need for energy infrastructure. 

“One of the few areas most often mentioned where both political parties largely agree is on the need to invest in our nation’s aging energy infrastructure,” said Jack Gerard, president and CEO of the American Petroleum Institute. “Investment in infrastructure upgrades would generate massive economic gains.” 

Gerard points to an analysis from the IHS consulting group that found essential infrastructure improvements in just the oil and natural gas area could, over the next decade, encourage as much as $1.15 trillion in new private capital investment, support more than 1 million new jobs, and add $120 billion on average per year to the nation’s GDP. 

In January, the U.S. Senate passed a bill to authorize the construction of the Keystone XL pipeline, which would carry oil primarily from Canada’s tar sands to Nebraska, where it would connect with existing pipeline to Gulf Coast refineries. President Obama has said he would veto the bill. 

Supporters say the $8 billion project, which would be built by TransCanada Corp., would create hundreds of thousands of jobs and cheap energy for American consumers. Opponents don’t like the project for environmental reasons, saying it would only contribute to global warming, and they argue it won’t benefit Americans anyway because the end result product would be sold on the global market. 

Opponents also say it will be harder to justify the need for the Keystone XL pipeline if gas prices remain low. 

Plunging oil prices may blunt the need for infrastructure in some areas. If oil prices remain low or continue falling, production will likely decrease in places like North Dakota,
where companies rely mostly on rail lines to move crude to a more expensive option than pipelines. 

PLAYING CATCH-UP 

But it’s a different story in Weld County, where natural gas pipelines and processing plants are already in place. Companies also are starting to build oil pipelines that would lead to the SunCor oil refinery in Commerce City. 

“Because we already have some of the infrastructure in place, our cost per barrel is less expensive than in places like North Dakota,” Rasmuson said. “Production will slow in Weld County, but it will be consistent. We’ll also be one of the quickest to recover when the commodity prices increase.” 

Already, Rasmuson said his company has decreased its cost to complete a well to about $3 million, down from $4 million about a year ago. With gas at $50-$55 a barrel, that $3 million completion cost makes sense, Rasmuson said.
Before oil prices started falling, Synergy had also decided to wait to complete several dozen of its wells until DCP Midstream’s Lucerne 2 processing plant opens in the spring, Rasmuson said. 

“We have all been victims of what we’ve created here, and we all have to figure out ways to deal with it,” he said. 

With engineering and getting necessary permits, the lead time for DCP Midstream to create needed infrastructure is about 18 months, much longer than it takes to drill and complete a well. 

“We have to work with all of our producers to figure out the best places to put our infrastructure,” said Frederick. “It takes a lot of planning.” 

The slowdown in production may actually give companies like DCP Midstream time to catch up with the need for what
they provide. 

“We anticipate there will be a need in Weld County for continued expansion of infrastructure,” Frederick said. “Weld is a very important basin for us. It’s not a short-term thing. We are a company that will build the infrastructure, operate it and in a hundred years when production stops, we’ll be the ones to take
it out.”