Are More Pipelines Needed During the Energy Transition?

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Recent outages on key fossil fuel arteries in North America -- the Keystone and Colonial pipelines -- may provide ammo to opponents worried about the climate, but even during the so-called energy transition, pipelines will remain a necessary component of the energy sector of the future.

TC Energy Corporation (NYSE:TRP) (Calgary, Alberta) was testing a pressure increase on its Keystone pipeline from Canada in early December when a leak occurred near the border between Kansas and Nebraska.

At an estimated 14,000 barrels, the spill was among the worst in a decade. Keystone has a peak design capacity of 622,000 barrels per day (BBL/d) and serves partially as an export artery meant to bring North American crude oil to the foreign market. The pipeline has since returned to service.

Meanwhile, normal operations on a segment of the Colonial fuels pipeline, a near-essential East Coast line that carries distillates and gasoline, returned during the weekend, industry sources told IIR. It too suffered a spill, though it was largely contained on site.

Both pipelines have a legacy of outages. Keystone has suffered several leaks since operations began in 2010. The network operated at reduced capacity for much of 2017 due to a leak in South Dakota, which was among the worst in the state at the time.

Colonial, meanwhile, was the target of a ransomware attack in early 2021, an attack that idled a pipeline that supplies almost half of the fuel for the East Coast market. The operator eventually paid some $5 million to the hackers to get flows moving again, but not before it created a sense of panic across much of the region. The outage on the 3 million-BBL/d, 5,500-mile-long pipeline not only left consumers with a burden, but forced a handful of PADD 3 refiners to curb operations.

For much of the general public, pipelines are a bad thing. In the upper Great Lakes region, for example, it's not uncommon to see the opposition to Canadian pipeline company Enbridge Incorporated (NYSE:ENB) (Calgary, Alberta) expressed via yard signs.

In the offices of political leaders, from the mayors of Washington state and provincial leaders in British Columbia, opposition has thwarted everything from expansions to the Keystone and TransMountain networks, to new export facilities for liquefied natural gas.

That opposition, meanwhile, comes as the North American energy sector is going through a transformation triggered by the war in Ukraine. With 12 million BBL/d of oil production and new export facilities for liquefied natural gas expected, the United States is taking a greater share in the foreign markets looking to replace Russian fuels.

More midstream projects are coming, with most designed to carry natural gas from inland shale basins. That's supportive globally given the role U.S. gas is playing on the global stage.

Data from the Texas Independent Producers & Royalty Owners Association (TIPRO) show Texas already has around 17,000 miles of natural gas pipelines, though more is needed to keep up with demand.

Nothing from TIPRO, meanwhile, referred to crude oil networks, which may in part reflect the global pivot away from fossil fuels. Pipelines nevertheless remain the safest way to deliver fossil fuels -- an accident involving rail cars carrying bitumen through Quebec in 2013 caused 47 deaths.

Before the pandemic, analysis from IHS Markit found that Texas might need another 10,000 miles of pipe to keep pace with the state's oil and gas potential. After the pandemic, given the ascendant role of the United States, even more may be necessary.

Denton Cinquegrana, the chief oil analyst at the Oil Price Information Service, told IIR that it's unlikely, however, that Colonial will expand to accommodate an expansionary U.S. energy sector. And while the Gulf Coast has multiple outlets to reach foreign markets, U.S. midstream in general might be at a standstill.

"I don't think there is an appetite to expand product pipeline capacity on a large scale," he said. "Maybe small spur lines, but not multi-state expansions."

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).