Investments in oil and gas transportation and storage should move ahead because they are essential in continuing the US economic recovery and North American energy renaissance, witnesses told a US House Transportation and Infrastructure subcommittee.
“There is a growing awareness that this is a unique American moment,” American Petroleum Institute Pres. Jack N. Gerard said during the Pipelines, Railroads and Hazardous Materials Subcommittee’s Feb. 3 hearing. “It is a moment that marks the transition from endemic energy dependence to energy security and global energy leadership—both of which have been public policy goals of every president and every Congress since the 1970s.
Gerard’s testimony continued, “But to be clear, to secure this unique American moment will depend heavily on our ability to build the necessary infrastructure to achieve our nation’s full energy potential.”
The unexpected collapse of crude oil prices has altered the outlook for energy-related investments, according to Carlyle Group Research Director Jason M. Thomas. “While most observers believe the equilibrium price of oil is well above the current spot price of $45/bbl, there is considerable uncertainty regarding the timing of the upward price adjustment and its ultimate magnitude,” Thomas said.
While lower crude prices are expected to benefit the general economy by increasing real incomes and reducing input costs for transportation, they also are certain to result in sharply reduced exploration and production capital expenditures, Thomas said in his testimony. “In the absence of frictions, one would anticipate that fixed investment activity would move from resource development to energy transportation infrastructure and manufacturing,” he said.
Congress should focus on enhanced transportation and storage infrastructure to ensure the US energy revolution is sustained during this low oil price period by working to streamline the process for obtaining permits, Thomas noted. He said a recent Government Accountability Office investigation found the regulatory review for the average interstate natural gas pipeline averages 558 days from prefiling to certification.
“The process is so time consuming because of the number of federal, state, and local agencies involved; the differences in practices across states; and the absence of a single ‘lead’ agency charged with coordinating the process,” Thomas said. “For a firm that raises ‘ex ante’ callable capital to invest in midstream opportunities, such delays can make otherwise attractive projects uneconomic.”
Although the US needs more pipelines than ever before, this may be the most difficult time to expand capacity, noted Association of Oil Pipelines Pres. Andrew J. Black. “At a time when pipelines are competing heavily with other pipelines and other modes of transportation, pipeline operators often have difficulty attracting customers willing to make long-term financial commitments necessary to support a project,” he said in his testimony.
Black said pipeline operators also need prompt decisions from government agencies for environmental permits and approvals for routes and border crossings.
“While the multiyear delays imposed on the Keystone XL project are well known, some states are slowing down their consideration of pipeline route issues,” Black told the subcommittee. “This is important because, unlike natural gas pipelines, oil and petroleum product pipelines do not have the opportunity for federal eminent domain. The states control oil pipeline siting.”
Railroads’ role grows
Demand for US Class I railroads to transport crude jumped from 9,500 carloads in 2008 to more than 407,000 carloads in 2013 and could reach 500,000 carloads when final 2014 figures are released, Association of American Railroads Pres. Edward J. Hamberger said.
“Rail offers market participants the flexibility to transport product quickly to different places in response to market needs, and facilities can almost always be built or expanded much more quickly than pipelines and refineries,” Hamberger said.
Railroads share the public and the oil and gas industry’s safety concerns when it comes to crude oil transportation, and work cooperatively with government agencies, customers, employees, and the public to apply what they’ve learned the last few years to ensure that the US is able to safely and reliably utilize its vast crude oil assets, Hamberger said.
But while railroads safely and efficiently transport crude overall, increasing volumes being moved through communities have raised significant safety and environmental concerns, observed Greg Saxton, senior vice-president and chief engineer at Greenbrier Cos., an integrated rail car services provider.
“The industry’s continued reliance on legacy DOT-111 tank cars to handle the transport of crude is placing communities through which these cars travel at risk,” he said. “Despite this risk of oil being transported in tank cars lacking the latest safety technology, the federal government has been slow to develop standards to require stronger, safer tank cars.”
Prompt implementation of proposed new tank car design and retrofit standards will ensure safer communities and provide Greenbrier and other rail car manufacturers the necessary regulatory certainty to continue investments already under way to deliver more robust tank cars, Saxton told the subcommittee.
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