By Jamison Cocklin
With hundreds of thousands of acres leased and more than 200 wells drilled across Ohio, Utica Shale activity has been pushed toward a stage of development that will soon necessitate the kind of infrastructure required to make use of the rich oil and gas in the ground.
The latter half of 2012 was a collective nod toward the state’s energy industry and its potential going forward, as a suit of companies stepped up to announce significant investments in both pipeline systems and processing facilities.
Thus far, roughly $5 billion in pipeline projects and about $10 billion in processing and fractionation facilities have been announced.
The state is already home to 56,824 miles of natural-gas distribution lines, which deliver product to consumers and about 10,000 miles of transmission lines that carry oil and gas to processing facilities and off to marketplaces. But much of it will be too small or too outdated to deal with the high volume and intensity of liquids expected to be extracted from the state’s shale boom in the coming years.
In all, about 4,525 miles of interstate gas pipelines have come online since 1996, according to data from the U.S. Energy Department and, though an already compounding supply glut may continue to grow from bringing more online, development in the Marcellus and Utica shale formations will require it.
Additional pipelines coming into service are expected to boost deliveries from the Marcellus shale deposit by 30 percent, according to one analysis from Bloomberg news.
Yet, without the infrastructure required to collect gas from drilling sites and deliver it to the processing facilities for refining and delivery to markets across North America, wells will sit idle or go uncompleted altogether.
“They’re critical to production efforts, so if you expect to advance this product from the Utica shale in Ohio, you need those processing and fractionation facilities,” said Thomas Stewart, executive vice president of the Ohio Oil and Gas Association.
“If you’re in the midstream business and want to provide those services, you have to make sure production is going to be there before you construct a facility,” he added. “These companies have a long range view, and they believe development will happen rapidly here. This is why they’re moving ahead with capacity infrastructure, and you’re going to see more gas come on stream.”
Indeed, those companies came calling throughout 2012, at times teaming up with regional companies or partnering with other industry powerhouses to meet the needs of Ohio’s natural-gas producers with what’s called midstream services as acreage is increasingly developed.
The midstream process begins with pipelines that deliver product to gas-processing facilities that essentially separate the natural-gas liquids into industrial quality propane, butane, ethane and other refined energy products that can be burned efficiently.
However, it remains to be seen just how the state will accommodate this burgeoning aspect of an industry that only a few years ago began to truly make a mark on the state. The type of infrastructure announced is, in many cases, far larger than anything the state currently has in operation, and the rules, regulations and safety issues that will inevitably crop up will pose new challenges.
A small sampling of the companies that announced midstream projects for Ohio in 2012 include Caiman Energy II LLC, NiSource, Hilcorp and two major pipeline companies with Enbridge and Spectra Energy.
Projects range from a 250-mile interstate transmission pipeline stretching from Northeast Ohio through portions of the Midwest and up into Canada, to Mahoning Valley processing facilities and wet-gas gathering lines with the capacity to transport billions of cubic feet of natural gas per day.
There have been several examples over the past few years that show the importance of safety measures in pipeline development.
In a July report released by the National Transportation Safety Board, Enbridge was cited for “pervasive organizational failures” that led to a 2010 pipeline rupture and oil spill on a system it operated near the Kalamazoo River in Marshall, Mich. Meanwhile, in December, NiSource experienced a large explosion on a stretch of pipeline it operates in West Virginia.
But transporting the gas via pipelines is considered the safest way to do so, despite varying incidents and a forthcoming report from the federal government that finds failure in certain monitoring procedures and regulations.
“Pipelines are definitely one of the safest ways to transport energy products in this country,” said Damon Hill, a spokesman for the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration, which will regulate interstate pipelines in Ohio.
Those at the Ohio Public Utility Commission, which will regulate pipelines only within the state’s boundaries, pointed to Senate Bill 315, the general assembly’s sweeping law that overhauled Ohio’s rules and regulations for the energy industry, as proof that the state is prepared for both construction and operation of grand-scale infrastructure projects.
That law sets forth damage prevention and public education programs, along with guidelines on pressurization, material requirements, operational and monitoring procedures.
For now, said PUCO spokesman Jason Gilham, the state will largely rely on SB 315 and the additional staff it has hired to guide construction regulations and operational oversight until experience delegates otherwise.