11 Nov Modernizing Our Pipelines For North America’s Energy Independence
Modernizing Our Pipelines For North America’s Energy Independence
Pipeline & Gas Journal | November 2014 Issue
Discoveries of large domestic reserves of oil and gas are leading to our energy independence in North America. In order to attain this independence, the need for an efficient, modern, safe and expanded pipeline system becomes ever more evident. But the pace at which the infrastructure technically matures depends upon two key complications being resolved. The first is a matter of funding for the investment, which is an industry-wide challenge, and the second is having a plan or roadmap – that is an enterprise-by-enterprise activity.
Let’s start with the infrastructure. There are, according to the Pipeline and Hazardous Material Safety Association (PHMSA), over 2.6 million miles of pipeline in the United States, delivering trillions of cubic feet of natural gas and hundreds of billions of tons of liquid petroleum products each year.
Much, if not most, of the pipeline network was installed before technological innovations made “smart” pipelines possible. A significant part of the existing system is antiquated and, as part of the overall energy transmission system, received a “D-plus” grade from the American Society of Civil Engineers (ASCE) in its 2013 Infrastructure Report Card.
To transport the vast new supply of domestic oil and gas volumes that are displacing imports, North American companies are hard at work upgrading existing infrastructure and building out new extensions, expecting to spend more than $30 billion each year until 2035, according to a report by ICF International and the Interstate Natural Gas Association of America (INGAA) Foundation.
That spending, however, may not include the technological advancements to support new regulatory standards for safety and reliability, and the issue is one of uncertain financial returns. No pipeline company will take on the risk and responsibility of a major capital investment without a clear path to returns on that investment.
Major utilities have faced this same issue in recent years with smart grids. First and foremost, it was the federal government – in the form of the American Recovery and Reinvestment Act (ARRA) of 2009, also known as the stimulus bill – that provided significant funding for renewable energy, energy efficiency, energy storage and other projects related to a green economy. ARRA contained over $31 billion for such projects. Of that amount, $4.5 billion went directly to the Department of Energy’s Office (DOE) of Electricity Delivery and Energy Reliability for electricity grid projects.
While funding for smart grid projects was available, it was supplemented by the utility companies’ own investments. In fact, each applicant was responsible for matching the DOE grant it received. Every project had a detailed business case that identified the required rate of return on investment, which in most cases had at least a 20-year payback.
Accenture research now reveals 69% of utilities expect to exceed their business cases, due to the application of data toward analytics, which drives significant untapped value by identifying business insights. For the oil and gas pipeline industry, now is the moment for companies to move forward with modernizing pipeline networks for several reasons.
First, the technology is here. New devices range from photonics and smart pigs that navigate more obstacles and make inspections of the pipe interior more accurate than ever to aboveground drones and surveillance, capable of collecting and transmitting vast amounts of data. Through fiber optics and acoustic sensors, pipeline breaks or punctures can be recognized in real time and pinpointed more quickly than the current method of airplane surveillance flights. Additionally, automatic and remote control valves for new or retrofitted pipe enable faster response times to major changes in pipeline activity.
Second, the need is real. More than 119,000 barrels of oil were lost to pipeline leaks and spills in 2013 alone. There are high costs for remediation and an immense risk to the reputation of pipeline companies. Even more important is safety. Technologies that provide more real-time, predictive and proactive operational management will become the fundamental default. Just as most of us can’t remember what we did before MapQuest, pipeline operators will one day be unable to comprehend what it was like to run the pipelines without nearly real-time data. And, of course, as the capabilities become trusted through trials and testing, regulators will adapt their expectations accordingly.
Third, pipeline companies’ investments in smart technologies and enhanced systems will also help balance the power generation needs as the market shifts to meet growing demand for energy generated from natural gas. Electric reliability is key to our national and continental security, and it is increasingly dependent on the successful transportation of the product to market. Well-known manufacturers such as GE and Methanex are returning to domestic manufacturing sites for lower energy costs and the reliability of long-term supply. Sustaining this economic advantage will require pipeline infrastructure investment to support the growth in our gross domestic product.
Finally, it isn’t all altruistic. Pipeline companies will see benefits for themselves, their employees and shareholders through these investments. Smart, enhanced pipelines can handle higher volumes of oil and gas, and lower transmission costs by reducing disruptions, downtime and leakage. And, the data from smart pipelines can, if properly organized and analyzed, yield insights for better operational management and maintenance.
Getting Ready for 2040
The United States is looking at what some have termed a “natural gas future.” In the winter of 2014, the nation reached an historical high in natural gas consumption. MIT research suggests that it will fuel 40% of U.S. total power generation by 2040. That is more than double the amount of natural gas currently fueling power generation in just 25 years. So, what should companies be doing to get ready for this hypergrowth?
We think all types of pipeline companies, including those that transport and store natural gas, crude oil and petroleum products, should be moving toward four directions:
• Standardize the approach: Clear and well-defined concepts for how government and industry can work together on improving the pipeline system are needed, as noted by a Congressional Research Service report’s conclusion that there is “significant room for improvement” by “stakeholders across the board.” Together, we need to get more specific about what changes really progress and protect our country, and how much investment this entails. Having an energy transmission network that is safe, reliable and adequate for the country’s needs is a worthy national objective, but it is going to take more than the actions of a few companies to achieve it.
• Take a strong leadership position: Individual pipeline companies can be proactive. The rewards for modernizing pipelines include stronger reputations, better public understanding of safety concerns and enhanced relationships with key customers, all of which translates into confidence in those companies.
• Build a technology plan: Think broadly and act practically, but devise a roadmap that covers every aspect of the company’s technical capabilities. Set goals for digitizing the infrastructure and prepare for transitioning operations to the next generation of capability and regulatory expectations. Examine the status of current capabilities and begin to assess the gap with the probable needs of the end state. Planning for the future will prepare companies for the change and lower risk, which directly translates to higher performance in the long run.
• Reflect on historical market disruption: When preparing the plan, consider examples of hypergrowth or major market disruption. In addition to the electric smart grid era, there are other examples, such as telecom and the history of the national highway network. Noting how companies were affected and learned from the outcomes of those monumental shifts will provide great insights. With each of these, a major theme emerged around technology and regulatory collaboration.
We have an opportunity, if not an obligation, to move ahead on a national and continental level and create a more modern infrastructure that is resilient and plentiful for generations to come. The outlook is bright and full of potential, and if we work together to make the industry successful, we will truly deliver our energy independence.
See complete Pipeline & Gas Journal article by Sandra Jones here: http://www.pgjonline.com/modernizing-our-pipelines-north-america%E2%80%99s-energy-independence?page=show