A boom in need of infrastructure

A boom in need of infrastructure

Sebastiano Fusco | Director for Agenzia Nova
Delays in the completion of permits and a tortuous bureaucracy prevent the United States for increasing its domestic transport capacity, which it desperately needs to reach its energy development potential

According to estimates published by Anadarko, one of the largest energy companies in the U.S., natural gas reserves in the ''Marcellus formation'', a layer of underground shale extending from West Virginia to New York State, contain more than one quadrillion cubic feet of natural gas, extractable by hydraulic fracturing technology. This alone is enough to meet the needs of the United States for a century. This abundance - indeed, overabundance - of energy resources paradoxically poses a problem: the lack (noted by many experts) of the infrastructure needed to manage them, particularly transport infrastructure.''There is increasing awareness that we are living through a unique moment in our history'', said Jack N. Gerard, President of the American Petroleum Institute on February 3, 2016, during a hearing before a U.S. congressional subcommittee. ''It is a moment that marks the transfer from energy dependence to leadership, both globally and in the energy sector, political objectives pursued by every president and every Congress since 1970'', Gerard continued, ''but to be clear, taking advantage of this unique moment will depend to a large extent on our capacity to build the infrastructure required to realize our country’s full energy potential''. According to Jason M. Thomas, Director of Research at the Carlyle Group, an international asset management company, Congress should concentrate on improving transport and storage infrastructure to promote the energy revolution in the U.S. during this time of low oil prices, while working to simplify the procedures that need to be followed to obtain permits. A recent Government Accountability Office investigation found that authorizations required to lay new interstate pipelines for natural gas transport take 558 days on average from application submission to certification. ''The process is so long due to the number of federal, state and local agencies involved, different procedures in different states and the absence of a single agency responsible for coordinating the process'', Thomas said. ''For a company that invests significant capital in the medium term, these delays may cause projects that would otherwise be appealing to become less cost effective''.

A bureaucracy that hinders the development of new projects

Although the United States needs an increasing number of gas and oil pipelines, it needs government cooperation to expand its hydrocarbon transport capacity, Andrew J. Black, President of the Association of Oil Pipelines, told the congressional subcommittee. ''At a time in which oil pipelines are facing serious competition from other oil pipelines and other means of transport, gas pipeline operators often have difficulty attracting customers willing to make the long-term financial commitments required to move forward with projects''. The operators, Black underscored, need rapid decisions from the government agencies responsible for issuing environmental authorizations, and approving routes and border crossings between states. ''While the long-term delays imposed on the Keystone XL project [intended to transport hydrocarbons from Alberta, Canada to refineries in Illinois and Texas, ed.] are well-known, certain states are slowing down their assessments regarding oil pipeline routes'', Black noted. ''This is important because, unlike natural gas pipelines, pipelines for oil and oil products do not have federal status, which would enable them to take advantage of eminent domain rules. Only individual states control the routes''. As a result, difficulties in creating oil pipelines are boosting the importance of hydrocarbon transport by rail, which rose from 9,500 carloads in 2008 to 400,000 in 2014, to more than 500,000 in 2015, according to Association of American Railroads data.

The risk of rail transport and the issue of security

The railway network offers the necessary flexibility to transport the product quickly to different places, in response to market needs, and with services that can almost always be implemented or strengthened much more rapidly than oil pipelines. According to many specialists, the system is nearing its saturation point. The increase in volumes of oil products travelling through inhabited areas has also given rise to safety issues, and accentuated the environmental concerns of the general public, following a series of serious, widely publicized accidents. A range of local communities have objected to the passage through their inhabited areas of veritable ''oil tankers on rail'': convoys of hundreds of cars, each filled with 76 thousand liters of flammable and/or explosive substances. Experts have highlighted that the U.S. continues to depend on DOT-111 tank cars (more than 300,000 are currently in use), which are considered obsolete and not completely safe, despite improvements made in 2015 after a series of derailments between 2012 and 2014 that caused fires, loss of human life and serious environmental consequences. ''The federal government'', expert Greg Saxton, senior vice president and chief engineer at Greenbrier Cos noted, ''was slow in developing more adequate safety standards and deploying new technologies''.