North America is becoming a graveyard of pipeline projects
Continent expected to become inhospitable for new projects
After a remarkable period of pipeline expansion, primarily in the United States over the past decade, North America is expected to become an increasingly inhospitable place for new projects, according to a new report.
While the upturn in crude oil prices, recovering oil demand and a surge in natural gas development for power generation will drive pipeline construction globally in the next few years, development of new pipelines in North America will be relatively subdued, says the report by Westwood Global Energy Group analysts Ben Wilby and Arindam Das.
Globally, pipelines planned and spending on pipeline construction is set to rise US$45 billion in 2021, 10 per cent more than 2020, but still lower than the near-US$60 billion spent in 2019, according to the London, U.K.based consultancy.
“Overall pipeline capex however, is forecast to be lower than the previous fiveyear period, predominantly due to a reduction in North American installation levels,” Wilby and Das said in the report. “Asia, Eastern Europe & FSU (former Soviet Union) and the Middle East are key to the realization of forecast activity levels and associated spend.”
Canada’s pipeline capital expenditures will reach US$6 billion this year, before falling to $4.7 billion in 2022 and $1.5 billion by 2023, Westwood estimates show. In terms of miles, Canada will account for 23 per cent of all North American pipeline installations until 2025.
The findings may not come as a huge surprise as virtually every major North American crude oil pipeline has faced pressure from local activists and environmental groups over the past decade.
The cancellation of TC Energy Corp.’s 1,947-kilometre Keystone XL pipeline by U.S.
President Biden earlier this year has already cast a gloom over energy infrastructure spending across the continent, while Enbridge Inc.’s Alberta-to-Ontario Line 5 also faces regulatory delays. TC Energy has filed a lawsuit against the U.S. government under NAFTA rules, while Enbridge is in mediation with the state of Michigan, which is opposed to the project.
“The pendulum has swung towards a lot more focus on ESG (environmental, social and governance), and a lot more focus on transition and to the extent it is right now a significant consideration in North America,” Das said in an interview.
Several other obstacles also hover on the horizon that suggest there are more downside risks to the forecast, especially in North America.
“Chief among these are geopolitics, focus on climate change and the increasing momentum of the energy transition particularly in the western hemisphere,” Westwood noted in its report. “There exists the potential risk of reduced appetite from financiers and lenders to project finance fossil fuel projects going forward. This has led to increased delays (and subsequently increased costs) on several projects as well as cancellations.”
The decline in North American pipeline capex is also a reflection of prospects of lower production. The U.S. Department of Energy expects U.S. oil output to decline to 11.1 million barrels per day this year, compared to 11.3 million bpd last year, while many analysts believe U.S. shale basins may not be able to repeat their rapid growth of the past decade.
The U.S. Bureau of Transportation Statistics show the U.S. built 51,139 miles of oil pipelines, including 33,000 miles of crude pipelines — equivalent to 28 Keystone XL pipelines since the project was first proposed in 2008.