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The natural gas infrastructure is designed to deliver gas with maximum safety, reliability, flexibility and efficiency. The natural gas production and delivery system includes production wells, processing
plants to remove impurities, long-distance underground pipelines and smaller local distribution lines, compressor stations to move gas through the system, various kinds of gas storage facilities and peaking facilities to supplement gas supply on the coldest days. The system is safe: the safest way to transport energy, according to the U.S. Department of Transportation. It is highly efficient: 90 percent of the energy produced reaches the ultimate consumer in a usable form in contrast to electricity, which loses more than 70 percent of its useful energy from the point of production to the point of consumption. It is highly reliable, largely underground and therefore not subject to weather-induced interruptions. It is a system largely taken for granted.
Safety and reliability will not be compromised in an unbundled environment. The natural gas industry has moved demonstrably toward an open, competitive market during the past two decades. First gas pipelines and now utilities have opened their systems to competition, not unlike the phone system.
Gas purchasers, both local gas utilities and ultimate consumers, may now buy gas from a variety of sources. In fact, more than three-fourths of the gas consumed today can be purchased from someone other than the local gas utility. In addition, many of the services traditionally performed by local utilities in a monopoly environment are becoming subject to competition — meter reading, billing, etc.
Clearly, the movement toward customer choice and other forms of unbundling will continue. However, it is also clear that as new players enter the market, performing functions once restricted to pipelines or utilities, the public will expect a continuation (or enhancement) of the level of service they have historically received. For example, distribution systems have been constructed and operated to ensure that all customers will receive safe, reliable and economic gas even on the coldest day of the past 100 years. As the nation moves toward significantly higher demand levels under much evolved market conditions, consumers will mandate that this level of service not be compromised.
The natural gas industry is extensive and capital intensive. The in-place assets of the natural gas industry total more than $250 billion, including a 1.3 million-mile transmission and distribution system valued at nearly $150 billion. Of the 1.3 million-mile total, nearly 1 million miles is accounted for by distribution main. The system also includes more than 400 storage facilities, located primarily in proximity to ultimate markets. Gas is injected into these facilities in off-peak periods and withdrawn in periods of peak demand. The natural gas industry operates in all 50 states, with more than 150,000 gas utility employees in addition to exploration and production employees.
Obtaining the necessary investment to fund gas industry growth presents a challenge but not an insurmountable hurdle. To accommodate the demand of the accelerated projection, significant industry investment will be required. For example, transmission and distribution line mileage must increase by about 30 percent at a cost of more than $150 billion. The distribution segment additions will cost nearly twice as much as those of the pipeline additions. Although these investment levels are certainly significant, they are not dramatically different from the levels experienced in the 1990s — a modest increase for distribution and a modest decrease for transmission.
The investment required for the necessary
exploration and production activity assumed in the accelerated scenario will certainly be greater than the requirement for transmission and distribution system expansion. More wells will need to be drilled, and more drilling rigs will be required. Although the number of oil and gas wells drilled per year may have to double-to nearly 50,000 per year-this is well below the peak levels of the early 1980s, which ranged from 70,000 to 90,000 wells per year.
Because the drilling fleet has aged, a significant investment also will be required for upgrades. Capital expenditures in the $40 billion per year ($1998) range may be necessary, and acquiring this level of capital will be difficult when competing for dollars with alternative "high-tech" investment options. Again, however, when compared with the investment levels of the mid-1980s, future investment requirements appear less extreme. A critical difference between the production segment and the transmission and distribution segments is that drilling activity slowed significantly in the 1990s and thus the expanded activity required under the accelerated projection is more dramatic when viewed against today's activity level.
Despite technological advances, regulatory hurdles could still impede expansion of the natural gas infrastructure. Perhaps more critical than the dollars required to construct the infrastructure necessary in the accelerated projection is the timely siting and permitting of gas industry facilities. The siting and permitting of gas pipelines, distribution main and storage facilities is often unnecessarily contentious and time consuming. Recognition of technological advances, such as ultra-quiet new pipeline compressors or plastic pipe that can operate at higher pressure, thereby potentially reducing the need for new pipe, can help speed up or lessen the need for infrastructure expansion.
Similarly, large portions of the gas resource base are not open to development due to environmental regulations that are decades old. This includes gas on federal lands in the Rockies, offshore areas in the eastern Gulf of Mexico, and much of the East and West coasts. Obviously, drilling technologies and practices have advanced since the implementation of these restrictions.
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