Rationalizing the US pipeline infrastructure

June 20, 2013

Terrific article from Forbes on how a convergence of factors is about to create a period of low cost for steel, earthmoving equipment and construction workers.  This, in turn, will provide a window of opportunity for the US to engage in an intense period of gas and oil pipeline construction.  Rationalizing the US pipeline system would have benefits not just for the various industries involved, but for manufacturers, consumers and diplomatic and military leaders, as it could unleash a wave of energy production that would drastically alter the picture of global energy geopolitics.

Read the entire article, but here is the conclusion:

To start to put it all together. The Canada oil could be piped to Houston if it could be diluted by natural gasoline. Eagle Ford natural gasoline would then be very valuable if it could be piped to Canada and then the mix piped to Houston. This would increase the profitability to fracking new supplies in Eagle Ford and continuing to ramp up Canadian production. That encourages evermore North American production, which would displace imports and push down the world price of petroleum and gasoline.

In a similar vein, piping the ethane rich natural gas out of Pennsylvania to the Natural Gas processing complex in Mount Belvieu (MB) would do several things. First, it would increase the profitability to fracking in the Marcelus Shale, which would increase North American production – of nat gas I know but hang with me.  This produces even more ethane that will be relatively cheap in MB. This means first that it will be unprofitable to crack propane or butane for petrochemical purposes. That means more butane can go to Houston as an input to refined motor gasoline and more propane can go abroad where it is used as a gasoline substitute.  Second, cheap ethane in MB means that BASF will be induced to move petrochemical production out of Europe and to Texas.

In Europe, however, the feedstock for petrochemicals is Naptha – which is essentially refiner produced natural gasoline. We could call it unnatural gasoline and indeed Naptha is raw gasoline before it has the appropriate mix off additives thrown in. Less petrochemical production in Europe means less demand for Naptha which means more supply of gasoline.

Finally, more pipeline capacity from the Permian simply adds baseline supply.

What this means is that an intensively beefed up pipeline infrastructure in North America would allow new resources to be refined more efficiently. That means greater prices for producers, which will induce them to increase production. That increase in production means less demand for foreign oil, which means lower global prices for oil and importantly gasoline.

Increased US energy production has already given a kick in the shin to OPEC.  Rationalizing the pipeline system and unleashing the full potential of our unconventional stocks would be a full fledged kick in the groin.

Oil and Gas pipelines in the Continental United States

Oil and Gas pipelines in the Continental United States


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