For international and national investors, the prediction at this month’s Bloomberg New Energy Finance Summit that it could take as much as US$170 billion in new infrastructure spending over the next seven years to meet rising shale gas output and address current limitations might be cause for concern.
At a time of rising prices and potential long-awaited profitability to the US shale industry, “bottlenecks on the US natural gas super highway” (as the article puts it) is not something investors want to hear.
Of equal concern is that, when it comes to pipeline constraints, well pads, access roads, compressor stations, export terminals, and other infrastructure, it’s not so much “operating or engineering issues” that are holding things back, as Drillinginfo co-founder Allen Gilmer says in the article, but “social change and cultural conditions.”
So, what are investors to make of this?
Firstly, what the Bloomberg article shows is that it is more important than ever for investors to get a comprehensive overview of the shale gas industry outlook from drilling and production right through to midstream operations and delivery to industry and people’s homes. This is what Drillinginfo provides.
Investors need to better understand how the shale industry is able to maximize current capacity; monitor pipeline constraints; understand breakeven prices and the economic and infrastructure advantages of specific producers and fields; and ensure that infrastructure, resources, and capital are allocated to where they are most needed and where returns are most likely.
At Drillinginfo, we ensure that all potential investors get the full picture when it comes to US shale plays. Not only do we help identify best practices in geologies, completions, and optimal well spacing – in addition to the latest lease and land information – but we also track wider industry issues and midstream infrastructure to determine the best investments.
Secondly, there needs to be increased financing of midstream projects to ensure adequate infrastructure – an investment opportunity in its own right.
This is being achieved already with new financing vehicles for capital-intensive midstream projects evolving to fill the gaps left by the declining popularity of master limited partnerships. One such vehicle is special purpose acquisition companies (SPACs), which are proving to be effective at raising money from institutional and retail investors and are particularly suited to private-equity owners who either want to sell or who need money for expansion.
Thirdly, there is also a need to standardize regulations and requirements associated with shale development. In Appalachia, for example, there remains a lack of standardization over planning regulations, fragmented surface and subsurface ownership, and environmental impact concerns.
There is cause for optimism here as well. On April 19 this year, the Federal Energy Regulatory Commission (FERC) announced its first review since 1999 of the way pipeline projects are approved and how to balance the transport of shale to market with environmental and societal concerns.
There are already positive signs of progress. According to a recent Forbes article, additional pipeline capacity and other long-overdue infrastructure investments have been coming online recently, relieving bottlenecks, allowing domestic inventories to be drawn down, and strengthening US crude prices. Several natural gas pipelines are also being built to transport up to 8 Bcf/d of natural gas from the Permian region.
As the shale industry starts to move from growth to returns, and as commodity prices start to increase, it is only through an examination of the complete shale landscape – drilling, producing, extracting, processing, and transporting – that investments can be fully leveraged. That’s why so many international investors are coming to Drillinginfo.
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