Big Ticket Oil & Gas Pipeline Projects Clustered in 2016

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Researched by Industrial Info Resources (Sugar Land, Texas)--According to Industrial Info's data, 2015 is going to be a record-setting year for the Oil & Gas Pipeline Industry, in both the number of project kick-offs and investment values. Despite oil prices being the lowest in years, 2015 is set to see more than 280 projects, representing nearly $17 billion in construction kickoffs. Compared to 2014, that is a 25% increase in both project numbers and investment value.

However, 2016 is slated to almost double the number of projects and more than triple the investment value for 2015. While some of this shift can be attributed to project delays as a result of lower oil prices, the drivers for spending in 2016 are the big-ticket mega-projects that have been clustered around mid- to late 2016. While some have been pushed into 2016 due to permitting difficulties, the reality is that many projects were planned to begin work in 2016.

With the oil price dropping, it is counterintuitive that pipeline project spending should increase; however, it is because the price has dropped that pipeline projects become more attractive to shippers. Shipping crude oil by pipeline is half or less of the cost of other transportation methods, like barge or rail-shipping. This means that there is increased demand among producers, who are trying to cut costs where possible and get their crude to market. Indeed, crude oil from the Alberta oil sands has had a consistently lower price due to insufficient access to refining and export markets--so increasing market access for the area is in high demand, no matter what the oil price right now.

Of the 2016 mega-projects, the biggest is the Line 3 Replacement project by Enbridge Incorporated (NYSE:ENB) (Calgary, Alberta). The project is slated to kick off in the fourth quarter of 2016, meaning it could be pushed into the beginning of 2017 in the event of permitting issues; however, it would provide more than 800,000 barrels per day (BBL/d) of takeaway capacity for the Alberta oil sands producers.

The mega-projects slated for kick-off in 2016, by and large, have been in permitting and planning since before the oil price dropped, meaning they were not simply delayed from 2015 into 2016. This build-out also could be explained by the "highway and shopping center" metaphor. Whenever a new highway is built, shopping centers are built along its length to take advantage of the new traffic. Likewise, whenever a trunkline is built, laterals, pump additions, storage terminals, and other auxiliary infrastructure are built along its length to take advantage of the influx of new product. As such, when new trunklines are built, it is not uncommon to see "shopping center" projects increase in the following years during and near completion of construction of the trunkline.

The last "highway" year was late 2012 to early 2013, which saw the kick-off of two major Cushing-to-Houston trunklines, as well as the reversal of an existing line to bring Permian Basin crude to the Gulf Coast. According to Industrial Info's data, 2016 is shaping up to be the next highway year, after two consecutive years of shopping center development.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.