This month’s Pipeline Technology Podcast episode sponsored by Pipeline & Gas Journal features Jeff Awalt discussing his article about the pipeline construction outlook for 2023.

In this month’s episode, you will learn about how the industry is back to growing as it was before the COVID-19 shut down and what that means for growth in the future, as well as what is happening internationally and why the demand for natural gas is high.

2023 Pipeline Construction Outlook Show Notes, Links, and Insider Terms:

• Jeff Awalt is the Executive Editor of Pipeline & Gas Journal (PGJ). Connect with Jeff on LinkedIn.
• Read Jeff’s Global Pipeline Construction Outlook 2023 article.

• Pipeline & Gas Journal is the essential resource for technology, industry information, and analytical trends in the midstream oil and gas industry.  For more information on how to become a subscriber, visit pgjonline.com/subscribe.
• Liquefied Natural Gas (LNG) is natural gas that has been cooled to a liquid state (liquefied), at about -260° Fahrenheit, for shipping and storage. The volume of natural gas in its liquid state is about 600 times smaller than its volume in its gaseous state in a natural gas pipeline.
• The Permian Basin is a large sedimentary basin in the southwestern part of the United States. This sedimentary basin is located in western Texas and southeastern New Mexico and covers more than 86,000 square miles. The Permian Basin lends its name to a large oil and natural gas producing area, part of the Mid-Continent Oil Producing Area.

2023 Pipeline Construction Outlook Full Episode Transcript:

Announcer:  The Pipeline Technology Podcast, brought to you by “Pipeline & Gas Journal,” the decision making resource for pipeline and industry professionals.

Now, your host, Russel Treat.

Russel Treat:  Welcome to the Pipeline Technology Podcast, episode 30. On this episode, our guest is Jeff Awalt, executive editor with Pipeline & Gas Journal. We’re going to talk to Jeff about his 2023 Construction Outlook, published in the January edition of Pipeline & Gas Journal.

Jeff, welcome back to the Pipeline Technology Podcast.

Jeff Awalt:  Hey Russel, good to be here.

Russel:  If you would, let’s remind the listeners who you are and what you do.

Jeff:  I’m executive editor of Pipeline & Gas Journal, and every year, we do a couple of key international reports. In January, we do a report where we have put together the mileage statistics worldwide on pipeline construction activity, if they’re planned, in the engineering phase, or in the development phase at some point, then also under construction.

We separate those, according to those categories, and then we put together a report that publishes in our January issue of Pipeline & Gas Journal. This is something that’s kind of a bellwether report for the industry, and this is something that I’ve been primarily responsible for at PGJ for the past five years.

Russel:  We had you on last year, and you did the same thing for us, so this is kind of an update. Looking to the future is always a challenge, so I always appreciate folks who are willing to say, “Hey, this is what we see coming.” Maybe we should just dive right in.

I’ll just ask you, what is unique, or different, or new about construction activity in the pipeline world for 2023?

Jeff:  Of course, the biggest change from January of last year to January of this year is Russia’s invasion of Ukraine, and that has put trade patterns out of whack, to a certain degree. We’ve seen Europe rushing to try and develop more sources of energy that reduces their reliance on Russia.

As a result of that, we’re seeing some increased activity related to pipeline construction in Europe, and in the areas outside of Russia that can supply Europe, as well as LNG development for natural gas into Europe, as well as Asia, which has been the predominant market, particularly for the US LNG over the past few years.

Russel:  That certainly tracks with what I’m seeing, and certainly no expert in all of this. Certainly, there seems to be a lot of activity in the LNG space, both in North America, where people are trying to get to gas plants, and likewise in Europe, where they’re trying to get gas off of ships, the users. How big is that impact looking like it’s going to be?

Jeff:  LNG in and of itself is not going to have a huge impact on, say, big multistate, multinational lines so much as you might think, but that’s primarily because of the limited number of countries that are in the major LNG export business right now. Those, for the most part, have pretty good pipeline systems in place to supply those LNG facilities.

In the United States, particularly, we’re still seeing some expansion, where it’s difficult to expand anything with pipelines in the United States right now, but we’re seeing more activity. We’re still seeing some increased activity going on around the Permian basin, and the Haynesville. I think that for a couple of reasons.

One, it’s become very difficult to get any kind of production increases coming out of the Marcellus/Utica area up in the Appalachian basin, and into the Northeast because of opposition to pipelines, which tends to become a greater issue when we’re dealing with state-by-state approvals, and a lot of activist governments and organizations working against these things.

Within the Haynesville and the Permian, since the LNG facilities that are being built and expanded along the Gulf Coast are concentrated on the Texas Gulf Coast and the Louisiana Gulf Coast, that enables producers and pipeline operators to look at lines that are intrastate from these large gas producing basins, Haynesville and Permian, to put in projects that only require getting state approval. Not that that’s an easy thing to do anymore, but it is easier than getting interstate lines in, as we’ve seen with some of the bigger pipelines that have fallen by the wayside over the past two years.

Russel: Certainly, it’s easier to get a pipeline project approved in Texas or Louisiana than in some other states or for any pipeline that actually crosses state borders. I think that’s interesting, and certainly it’s accurate from what I’m seeing. What else is going on internationally around projects?

Jeff:  I might start just by giving a little bit of an overview in terms of the numbers, and how things are looking on a regional basis. I’ll just walk through, I guess. First of all, we see a 10, almost 11 percent increase in total mileage of pipelines either planned or under construction compared with a year ago on our survey.

That breaks a three-year downturn since 2019. It’s the first time we’ve seen an uptick since the pandemic, so that’s a positive sign, I think, certainly for the industry. That tends to be concentrated in certain regions.

I can tell you that there are a couple of regions, at least two, that really stand out in terms of growth, and that is Asia Pacific, which has about 32,000 miles of pipe under construction or planned. That’s a 50 percent increase, year over year.

Western Europe where a lot of natural gas systems are under development or a lot more are being planned and promoted right now, because of the need to wean off of Russian supplies. That region, Western Europe, is up nearly 58 percent.

Those are the places where we’ve seen the biggest growth. The Middle East, we also see nearly a 40 percent gain, about 39 percent, but in the other areas, we see less, and in some cases a decline.

For instance, in North America, we see nearly a 14 percent decline in pipeline construction mileage. In the South/Central American region and the Caribbean, that’s about an 18 percent decline. Africa’s down about 10 percent. It’s a mix.

The trends generally represent the response, in large part, to the Russian invasion, and Europe’s efforts to stop relying on Russian gas.

Russel:  Jeff, that makes me wonder if the decrease in North America is not at least partially due to the significant increases in other places. That’s pretty significant increases in Asia and in Western Europe.

I wonder, to what degree does that consume the resources that are available, or if those markets are completely independent? Do you have an opinion about that or thoughts on that?

Jeff:  I think that first of all, a lot of the European proposed pipelines, and some that are under construction, are intended to develop out their domestic infrastructure in order to distribute the gas, or transport and distribute the gas that’s coming in by way of LNG.

That LNG is coming primarily out of the United States, Australia, and Qatar, or ‘Gutter’ as they say here in Texas where I am. We’re still seeing an over-capacity in pipeline and oil egress from, for instance, the Permian basin.

That natural gas situation has been alleviated by some expansion projects that were not so much construction as they were compressor expansions on lines coming out of West Texas.

Russel:  You were talking, Jeff, about the activity around gas, and the activity around particularly the Permian, where we had a bit of an over-build prior to the pandemic, but that the gas capacity and that over-build is beginning to get consumed.

Not so much because of more drilling, because of compressor projects grabbing more gas off of the drilling that’s already been done. That’s interesting to me.

Jeff:  The final thought there, Russel, that I wanted to make was simply that a couple of years ago, it was anticipated that there would not be a need for any more natural gas pipeline takeaway capacity from the Permian until probably the end of this year, 2023.

In fact, we reached that stage before the end of 2022. That brought up a race to add capacity, and it affected the way people were looking at projects, because there were some projects that looked like they were moving forward pretty soon.

Instead, some other projects leapfrogged those by coming up with faster ways to expand, that being more compression, expansion of existing lines for an interim increase, and then a little more construction on top of that.

Russel:  That’s interesting. Basically, what I hear you saying is that the focus has been more on debottlenecking these new pipelines than it has to create additional pipeline capacity.

Jeff:  Yeah, that’s right.

Russel:  That makes sense to me, given what I know about the realities of, as you get from the gathering systems into the transmission systems, what has to happen there. That’s interesting.

One of the questions I wanted to ask you, Jeff, is my experience is these projects take a couple, three years to get spooled up and executed. Would you say that the short-term decrease in pipeline activity in North America is going to create pent-up demand?

Jeff:  We do expect that there’s going to be additional natural gas pipeline expansion going on, but that’s going to be timed to some degree, I think, with the development of additional LNG liquefaction and export capacity, because that seems to be a major driver now in terms of, what is the market for this gas and where is it going.

That is creating additional demand, and I do expect that we’ll start seeing some increases, maybe in some regional areas of the US, North America, Canada and Mexico, but not of the sorts of gains that we were seeing in the past decade.

Russel:  That makes sense. Absolutely, it makes sense. I’ve talked a fair amount about gas. What about the liquid side? What’s going on liquid pipeline wise?

Jeff:  The biggest oil exporter nowadays is the United States, and the biggest producing region in the United States is again the Permian. I hate to focus so much on the Permian, but it remains central to so much of what’s going on in terms of supply gains.

Russel:  I find that so fascinating, because I remember 20 years ago, 30 years ago, when people were talking about the Permian was going to play out.

Jeff:  Oh yeah, it died so many times.

Russel:  That prediction was grossly inaccurate.

Jeff:  Well, they figured out something about shale along the way, and that helped a little bit.

Russel:  A game changer for sure.

Jeff:  The technology is, we always talk about the fears of running out of this source of energy, and now there is somehow another, our industry and its engineers, and its big brains that work behind all of these projects, they just keep figuring things out and staying ahead. I think that’s a hopeful sign.

Russel:  What about internationally in the liquid space? What’s going on there?

Jeff:  There’s very little focus on liquids, and that’s not…I mean, in terms of the overall percentages. We’re not breaking out the oil and gas percentages on a regional basis, but if you look overall internationally without looking it up, it’s somewhere around 85 or a little better percent of pipeline projects planned or under construction are natural gas or some other gas.

That just leaves less than 15 percent, roughly for oil pipeline construction. Then again, it’s also important to note that there are always significantly more planned projects than there are ever construction projects. People are proposing things.

We weed out the ones we consider to be too weak to count, too speculative to count, but the focus is on natural gas, largely because of the demand from, now Europe increasingly, but especially the developmental areas of the world, the countries such as in the Asia Pacific region, which have been weaning themselves off of coal and oil as they try to bring down their emissions.

It’s a more cost-effective way to bring, in some areas, power generation. We’re seeing that in Africa and we’re seeing it in South America, Mexico, and especially, though, in Asia Pacific, in those developing countries.

Russel:  That actually answers a question that I was going to ask is how much of this gas pipeline development is related to power generation? If I were going to guess, I would say a fairly significant portion of it.

Jeff:  It is. I’m sorry I can’t give you numbers on it, but it is a big portion and it’s a varying portion according to region. That’s probably less the case in an area like North America, which is a little more export focused right now, but that’s certainly true.

Russel:  Jeff, wrapping this up. I’m thinking about talking about how overall mileage in North America is down. I think what I’m remembering is 14 percent, but it’s very significantly up in Asia and in Europe. Are you bullish on pipelining for the next couple, three years, or are we kind of at a peak? What’s your take on that?

Jeff:  Speaking individually, not necessarily on behalf of the gang, I’m bullish on demand perking up this year, despite a lot of concerns about obviously recession hanging out there, but there are a number of factors that I think will be contributing toward more natural gas demand in particular.

As I said, that’s the dominant category of pipeline construction, and we’re going to see that continue. I guess if I were looking at some of the key factors, first of all, Europe’s energy crisis seems a little less of a crisis right now because prices have softened from their insane highs of last year in Europe.

They benefited from some short-term trends with weather and other things that were factors in where they’ve made it, or they’re making it through this winter OK. Because of the weather, they were able to get their storage up to probably record levels, and so the hit hasn’t been as bad from the loss of the Russian energy as it might have been.

The point being that the focus on energy transition remains, but an immediate focus on energy security has risen higher on the priority list and that is creating a lot of movement around natural gas and natural gas pipelines, and LNG infrastructure and pipeline infrastructure to support the LNG infrastructure.

There’s a number of trends that are going to be supportive of the pipeline industry over the next few years. As I said, it’s going to be regional in nature, but natural gas has clearly cemented its role as the essential base energy resource in the world.

The European Union is looking for a 30 percent reduction in Russian imports within a year, and Europe and North America will remain the focal points for pipeline and LNG infrastructure additions during the next few years. We’ll have some more LNG capacity coming online, not as fast as Europe needs it.

They’ve still probably got a tougher year for 2023 than they had for 2022. These are all just contributing factors. Back to your point, I’m pretty bullish on the next few years, but it’s going to be a regional kind of a trend.

Russel:  Yeah, I would share your opinion, Jeff, and I do think that LNG is going to be a big factor. There are a lot of projects that have been in various stages of development for export on the West Coast, on the East Coast, on the Gulf Coast, and they’ve all had permitting challenges.

With what’s going on in Europe and the demand that’s going to be there, I think what you’re going to see is people racing to see who can get their fair share of that demand.

Jeff:  Yeah, I think that’s true.

We’ve talked a lot about the US, but I’ll also mention Canada is bringing on some pretty big projects, and they’re for both oil and gas, actually. As we speak, the Coastal GasLink project, which is a pipeline that’s going to feed a new LNG liquefaction and export facility called LNG Canada, that pipeline is close to coming online as we speak. There is some additional capacity coming now and there will be more.

Russel:  Excellent. Anything you’d like to leave us with before we wrap this up?

Jeff:  I would just wrap up by saying that we’re pleased to see the numbers back up this year with a gain for the first time since the pandemic, in terms of the pipelines that are planned or under construction. As we just talked about, we remain bullish on the industry and on midstream.

We tend to talk about major pipelines, interstate lines, things like that, but there’s a lot of activity going on just around a lot of gathering expansions and things like that. We’d like to see our friends in the industry a little busier in the North American area, but we’re hopeful to see that perk up again as well.

Russel:  My data is only notional, but I will say, just based on what I’m seeing here the first couple of weeks of January as we’re recording this episode, that certainly the activity level tends to indicate things are moving on an up tick. That’s my two cents, and that’s just notional based on conversations I’m having with buddies.

Jeff:  I think you’re getting the right bite.

Russel:  Jeff, thank you so much for coming on. I always appreciate hearing from you and getting your perspective on things, and particularly on the international markets because that’s not stuff that I generally get to stay very close to. Thanks for coming on, and we look forward to bringing you back next year when you’ve got a new report.

Jeff:  All right. Thanks, Russel. It’s great to be here.

Russel:  I hope you enjoyed this month’s episode of the Pipeline Technology Podcast, our conversation with Jeff. If you’d like to support the podcast, the best way to do that is to leave us a review. You can do that on Apple Podcast, Google Play, Stitcher, SoundCloud, wherever you happen to listen.

If there’s a Pipeline & Gas Journal article where you’d like to hear from the author, please let me know, either by reaching out to me on the Contact Us page at PipelinePodcastNetwork.com, or reach out to me on LinkedIn.. Thanks for listening. I’ll talk to you next month.

Transcription by CastingWords