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Executive Viewpoint: Back to production: Where we’re going, we don’t need pipelines

In 2017, the U.S. tipped from net importer of natural gas to net exporter for the first time in 60 yr.1 In 2018, the U.S. exported 3,832,761 ft3 of gas—more than 900,000 ft3 in excess of imports.2 Behind that transformation lie the gas-rich fields of the Appalachian basin, particularly the Marcellus, as well as rising capacity in the Permian. These valuable reserves can play a role in fueling the American economy, supporting its transition to gas from coal and aiding its rise as a major global gas exporter.

Yet, so much potential goes unharnessed, purely because lack of access to a pipeline has meant there is no economic way to take the extracted gas to market. Unknown thousands of orphan wells are strewn across the U.S., abandoned due to unfavorable economics, and many more stranded assets are as-yet undrilled for similar reasons.3 Despite fevered takeaway expansion in the Appalachian basin over recent years, this will remain the case for many asset owners who still find themselves remote from traditional midstream infrastructure.

However, what if pipelines were unnecessary? What if a cost-effective way existed to extract and distribute natural gas, regardless of proximity to pipeline, and bring those assets back to production? What if the industry went in a direction that did not need pipelines? For those looking to monetize unproductive natural gas assets or bring unproductive wells back to production, it would be revolutionary.

The pipeline deficit. Historically, the Appalachian basin has struggled for takeaway capacity, creating bottlenecks. In recent years, fevered pipeline expansion has somewhat alleviated that—the U.S. Energy Information Administration (EIA) estimates that pipeline capacity in the Northeast region grew from 5 Bft3d to 23 Bft3d between 2008 and 2018.4

However, there is no shortage of Appalachian asset owners still waiting on pipeline expansion to unlock their fields. They may be kept on the hook for some time, with fewer large-scale pipeline expansions scheduled for this year in the region. This may discourage drilling activity, and production may be constrained by limited demand growth within basins, downstream limits on pipelines and demand, rising pipeline project costs and availability of capital.

Does it matter? After all, the U.S. has surged to a strong position as a natural gas exporter; the industry is not in dire straits. However, there is plenty of headroom for further growth. The International Energy Agency (IEA) expects global gas demand to grow at roughly 1.6%/yr through 2023, largely due to rising demand in Asia.5 The growth of U.S. export capacity—especially LNG shipments—is expected to be a key driver for meeting that demand, so it is far from clear that now is the time for putting on the brakes. Plenty of opportunity is available for Appalachian producers if they can crack their takeaway conundrums.

However, the true potential of the market—both domestic and export—could be even greater. As the energy transition gathers pace, there is a clear direction of travel toward favoring cleaner-burning natural gas over dirtier fossil fuels, such as coal and diesel. This is true for large-scale power generation, but also in many other areas of economic activity—for example, remote industrial sites or mines that are too far removed for grid connection and reliant on diesel gensets, or hauliers’ truck fleets, or ferries and ships burning marine diesel. Furthermore, a growing number of off-grid homes in the U.S. are looking for a functionally similar alternative to fuel oil for heating. All that is needed to unlock these sectors is a more flexible and reliable method of distributing gas to where its needed.

The problem with pipelines. The obvious solution would be a massive expansion of pipeline infrastructure and gas distribution networks. This would be both expensive and difficult.

Energy Transfer’s Rover Pipeline alone was priced at $4.2 B (CAPEX) in 2017,6 and since then has racked up more than $15 MM in fines, along with the company’s Mariner project.7 These are large infrastructure projects, and more will only be built if developers are confident of long-term favorable market conditions and suitable risk levels. As such, pipelines are ill-suited to respond to more short-term fluctuations in demand.

Pipelines also come with a considerable political price tag. For example, there is fierce opposition at the state level in New York to the planned Constitution pipeline, as well as argument between the state and Federal Energy Regulatory Commission (FERC).8 Battle lines can be drawn over planning permissions, water quality and safety concerns, to name a few contentions. The politicized nature of pipelines introduces unhelpful levels of risk and delay.

Where we’re going, we don’t need pipelines. If only there were an alternative method of takeaway and distribution that offered greater reach and flexibility than pipelines, with comparatively negligible costs and risks. Such a solution would unlock opportunity for operators sitting on orphan wells or stranded assets across the Appalachian basin, while also facilitating new end-use markets for natural gas as an alternative to diesel.

What might such a solution look like? One answer to this is the virtual pipeline concept. This entails sending one or more unique, cryogenic liquefaction units to the site, which are capable of quick and simple conversion of natural gas to LNG at the wellhead. Crucially, the unit is the size of a truck trailer, so it can be delivered wherever there is road access, far beyond the reach of the pipeline network. The produced LNG can then either be used onsite, transported via existing takeaway options or distributed to market by truck. This virtual pipeline is limited only by the road network, enabling reliable delivery directly to end users, however remote the site.

Small-scale LNG is the ideal option for non-pipeline distribution. It is safe, easily transportable and suitable for a variety of uses, with or without regasification. For asset owners, the unit integrates quickly, safely and efficiently to extraction equipment without causing damage, opening up a previously closed revenue stream. For LNG buyers, it creates a new source of high-quality, low-cost LNG to power a variety of end-use applications—all without the need for additional fixed infrastructure.

A combination of new technologies and business models means that, for those wondering what to do with orphan wells or stranded assets, there is a way back to production—and where we’re going, we don’t need pipelines. GP

Literature cited

  1. Malik. N. S., “U.S. becomes a net gas exporter for the first time in 60 years,” Bloomberg, January 10, 2018.
  2. U.S. Energy Information Administration, “U.S. natural gas imports and exports by state,” online:
  3. Comstock, O., “The number of drilled but uncompleted wells in the United States continues to climb,” The Fairfield Sun Times, May 11, 2019.
  4. U.S. Energy Information Administration, “Increases in natural gas production from Appalachia affect natural gas flows,” March 12, 2019.
  5. International Energy Agency, “Gas 2018: Analysis and forecasts to 2023,” 2018, online:
  6. Turcan, C., “Energy Transfer’s Rover Pipeline,” Seeking Alpha, September 18, 2017.
  7. DiSavino, S. and S. Kelly, “Two U.S. pipelines rack up violations, threaten industry growth,” Reuters, November 28, 2018.
  8. Cocklin, J., “Despite recent victories, New York natural gas pipes still facing fierce opposition,” Natural Gas Intelligence, March 27, 2019.


Author Pic Casaday

Mark Casaday is a veteran of the American natural gas industry with more than 30 yr of experience at gas gathering, processing and distribution companies. In the course of his career, Mr. Casaday has held leadership positions at some of North America’s foremost gas companies, including Niska Gas Storage Partners, Penn Octane Corp. and Mainline Energy Partners.

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