Pipeline obstacles constrain capacity amid energy boom

  • Democratic presidential candidate and Washington Gov. Jay Inslee is seen speaking in Houston, where he said he opposes a plan to build an oil pipeline tunnel beneath the channel that links Great Lakes Huron and Michigan. In his home state, an Oklahoma-based company has been fighting for four years to replace six miles of 8-inch pipeline to meet increasing demand. (Photo/David J. Phillip/AP)

Oil and gas pipeline developers around the country are frustrated at the delays and legal challenges they have to plow through when they would prefer to be burrowing underground to install new pipe.

Tulsa, Okla.-based Williams Cos. has been trying for more than four years to obtain permission to replace about six miles of an older 8-inch-diameter gas line it owns in Seattle’s northern suburbs with a 20-inch line to serve new development in the area.

Alan Armstrong, Williams’ CEO, told The Wall Street Journal this month that permitting delays have driven the project cost to $50 million from an estimated $6 million. The company hopes to start work this summer.

“That is such a simple piece of work,” Armstrong told the Journal. “It’s hard for me to even talk about it because it’s repulsive how much money has been spent there.”

The North Seattle Lateral, as it’s called, just north of Bothell and Woodinville, was built in 1956 and delivers gas from Canadian and Rocky Mountain producers.

“(It) is operating beyond its intended peak capacity on cold winter mornings and days,” the company says on its website.

Challengers during the permitting process include the Sierra Club and Mothers Out Front. Environmental groups have pushed regulators for greater scrutiny of the project, which would cross 15 streams. Challengers also have raised concerns of a leak or explosion in the suburban and rural area of Snohomish County.

In Michigan, Enbridge has taken the state to court over a $500 million pipeline project. The company wants to dig a tunnel for new liquids pipelines to replace a 66-year-old line on the lakebed under the Straits of Mackinac, which connects Lake Michigan and Lake Huron.

The legal fight escalated between the Calgary-based company and the State of Michigan after Gov. Gretchen Whitmer won election last fall. She wants the line shut down. The company wants to the state to honor an agreement with the previous governor that would allow Enbridge to install new pipe in the protective tunnel.

The company’s Line 5, as it’s called, can move 540,000 barrels per day of crude oil and natural gas liquids from Canada to Michigan and Ontario refineries and other customers.

Enbridge is asking the Michigan Court of Claims “to establish the constitutional validity and enforceability of previous agreements.” The governor wants the pipe out of the water to protect the Great Lakes from the risk of spills.

In Canada, the most recent legal fight is not a company versus government but two governments battling each other.

British Columbia wants to restrict the flow of oil sands production from Alberta through the coastal province. The intent is to block expansion of the Trans Mountain pipeline to move 890,000 barrels per day of oil sands bitumen to an export terminal near Vancouver.

The B.C. Court of Appeals ruled May 24 that the federal government has sole jurisdiction over interprovincial projects such as an oil line, shutting down British Columbia’s maneuver. The B.C. government appealed and Alberta responded by joining the case as an intervenor to protect its interests.

“The B.C. Court of Appeals’ unanimous decision was clear. B.C. does not have constitutional authority to block cross-provincial projects,” Alberta Premier Jason Kenney said July 12.

“The actions of the British Columbia government not only target Alberta’s economy by landlocking our energy resources,” but also undermine free trade within Canada, Kenney said.

The project that started the debate over oil sands pipelines 10 years ago — the Keystone XL line — continues to have its multiple days in court. Opponents asked a federal judge on July 1 to cancel permits and other approvals issued by the U.S. Army Corps of Engineers for the line from Canada, opening another legal fight over the long-delayed project.

Attorneys for the Northern Plains Resource Council, Sierra Club and other groups filed the lawsuit in Montana. They claim the Army Corps did not examine the potential for oil spills and other environmental damages when it approved plans from pipeline developer TC Energy (formerly known as TransCanada). The 1,184-mile pipeline from Canada would connect to existing pipe in Nebraska to deliver oil to U.S. Gulf Coast refineries and export terminals.

First proposed in 2008, Keystone XL was rejected by President Barack Obama but revived under President Donald Trump. Besides the filing in Montana, legal challenges continue in Nebraska.

Though oil lines may attract the most media attention, insufficient U.S. gas pipeline capacity creates a lot more price volatility for consumers.

Earlier this year, two utilities that serve the New York City area stopped accepting new customers in two boroughs and several suburbs, citing a lack of gas pipeline capacity. They said they couldn’t guarantee delivery to additional furnaces, The Wall Street Journal reported July 7, never mind that the country’s most prolific gas field, the Marcellus Shale, is only a three-hour drive away.

Environmental and political opposition is making it difficult to build new pipelines in New England and the Mid-Atlantic states.

At the other end of pipelines, producers in the Permian Basin in West Texas and Bakken in North Dakota have so much gas with no way to get it to market that they are burning it — a combined 1.2 billion cubic feet per day at its worst earlier this year.

There just aren’t pipelines to move all the gas. U.S. production rose to a record of more than 37 trillion cubic feet last year, up 44 percent from a decade earlier.

Prices have been negative at times this year at a trading hub near Midland, Texas, where producers had to pay companies to take gas off their hands. At the other end of the distribution system, prices hit records when heavy demand coincided with supply disruptions.

A cold snap along the East Coast led to gas prices as high as $140.85 per million Btu in New York and $128.39 in the Mid-Atlantic on Jan. 4.

“I don’t recall a situation when we’ve had the highs and lows happen in such extremes,” the Journal on July 7 quoted Rusty Braziel, a former gas trader who now advises energy producers, industrial gas buyers and pipeline investors.

Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide. He is the incoming Atwood Chair of Journalism at the University of Alaska Anchorage School of Journalism and Public Communication.

Updated: 
07/17/2019 - 9:27am

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