Last week saw the introduction of a bill by U.S. Rep. Mike Pompeo (R-Kan.) that is sure to be greeted with enthusiasm by oil and gas developers around the nation.
HR 1900 seeks to amend Section 7 of the Natural Gas Act by mandating the Federal Energy Regulatory Commission to approve a new gas pipeline within a year of its public notification.
This should be a valuable step forward, since the FERC tends to do a good job generally reviewing applications for permission to build and develop new pipelines, but it cannot enforce any deadlines for state or federal agencies.
The Oil and Gas Journal quotes Pompeo, commenting on the bipartisan bill:
“This bipartisan piece of legislation makes common sense reforms to the natural gas pipeline permitting process.”
The bill would not only require the FERC to make a decision one way or another concerning an application within twelve months; it would also have all relevant agencies involved submit their decisions within 90 days of the FERC’s completed review.
Further, the permit would go ahead anyway even if an agency does not rule within the 90 day period (an extension is possible for the review period – up to 30 days).
This is welcome news for the oil and gas sector. Right now, there is so much gas being produced that a lot of it is burned off, or flared, continuously. That’s because the U.S. simply lacks the pipeline infrastructure necessary to adequately transfer all the gas being produced.
The pace of shale gas production continues to increase, but pipeline development just hasn’t kept up. That’s created a massive bottleneck that developers – and the whole oil and gas sector, really – are urgently seeking to resolve. This is especially acute given recent indications that President Obama is looking to move ahead with decisions regarding natural gas export terminals.
Companies Slowing Down
Ohio.com reports that Chesapeake Energy Corp. (NYSE: CHK) remains focused on the Utica Shale in Ohio. That shale is seen as a highly promising area, but the bottleneck described earlier is seriously stalling production from scaling up.
Through the end of March this year, Chesapeake had drilled 249 wells throughout the Utica. Of that, some 66 are operational, while 86 remain in limbo, as pipelines are yet to be built. Another 97 are still in development. Overall, Chesapeake has 14 operational drilling rigs situated throughout the Utica.
Chesapeake remains assured in its projections that by the end of this year, it’ll be producing 330 million cubic feet of gas per day in Ohio. Should that happen, it’ll be more than enough to keep Ohio fueled constantly.
The state consumes some 820 billion cubic feet of natural gas at present. Compared to that, Chesapeake produced around 60 million cubic feet daily through the first three months of 2013. However, the company is facing difficulties in really ramping up production due to the lack of adequate pipelines.
Aside from pipelines, there are processing plants and new wells that need to be built, but given the absence of pipelines, it makes no sense to build those now. If more pipelines can be developed, and the general infrastructure expanded, then Chesapeake could increase production more than four-fold.
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Pipelines Appearing
Meanwhile, flare stacks continue to burn off natural gas because there’s just nothing else that can be done with it. Over in the Bakken, similar problems with pipeline infrastructure abounds, although some pipeline development has commenced.
ONEOK Partners (NYSE: OKS) is developing a 525-mile natural gas liquids pipeline that is expected to be turned on sometime this year; the pipeline will route through to Colorado.
Another pipeline, owned by Alliance Pipeline, will also come online in 2013 and will be capable of shipping around 106,500 million cubic feet per day to Chicago.
It’s a similar tale in Texas, where the Eagle Ford shale continues to return rich bounties. Just last spring, gas was flared off in quantities sufficient to keep 400,000 households fueled.
But North Dakota is moving toward a new legislation that could make it more profitable for companies to collect more quantities of gas on-site. Presently, gas companies can escape royalties and taxes on flared gas for the first year of production. This could be extended to three years, provided that the company collects at least 75 percent of all the gas produced on-site.
Already, several major companies—Apache Corp. (NYSE: APA), Halliburton Co. (NYSE: HAL), Schlumberger Ltd. (NYSE: SLB), and Caterpillar Inc. (NYSE: CAT) are developing technologies that can improve on-site collecting efficiencies. As time passes and industrial and legal frameworks develop, we should see a more comprehensive pipeline network flourish throughout the nation.
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