US Northeast natgas pipeline project costs rise

Costs to build natural gas pipeline projects in the US northeast are rising on increased regulatory scrutiny and unexpected delays, a trend that could have a chilling effect on major infrastructure development in the region.

A BTU Analytics study of 12 major projects with capacities near or above 1 Bcf/d (28mn m³/d) in the northeast in recent years shows total costs ranging from $683mn to more than $5bn per project, and project costs per mile from $2.9mn to $13mn.

Industry group the Interstate Natural Gas Association of America last year estimated the average cost nationwide at $230,000 for each inch of pipeline diameter per mile, up by 46pc from the 2016 estimate.

"Costs are relatively high in the northeast, where projects have been very difficult and time-consuming to construct due to congested corridors and rough terrain," the group said.

Trying to ship low-cost natural gas from northeast Pennsylvania to premium markets in New England and New York City "is fraught with regulatory risk," BTU Analytics said, which can easily drive costs higher.

Regulatory scrutiny of pipeline routes has been one of the largest setbacks for Williams' pipeline projects, chief executive Alan Armstrong said earlier this year. New requirements to specify exactly where the pipeline route will be often leads to complaints from landowners in those areas, necessitating multiple requests for variances to the route, with costs adding up with each individual filing to the US Federal Energy Regulatory Commission (FERC).

"Companies like Williams have to turn on a dime," to address these challenges, he said.

Many projects in the northeast have been held up by state permits which can be used by governors to drive forward clean energy agendas in their states. The New York Department of Environmental Conservation in recent years has regularly denied key permits to energy projects in the state as governor Andrew Cuomo's (D) administration takes steps to reduce greenhouse gas emissions and protect the environment. The state banned hydraulic fracturing in 2015, has set rigorous efficiency standards for buildings in the state, and has denied state water permits in order to halt construction of the 628mn cf/d Constitution and 500mn cf/d Northern Access pipelines.

Cuomo won the democratic primary earlier this month and is projected to win the state's gubernatorial election this November, meaning the "wall of Cuomo" — as BTU Analytics has dubbed Cuomo's project-blocking actions — is likely to remain in place.

Dominion Energy's 1.4 Bcf/d Atlantic Coast pipeline came in at the most expensive project in the firm's analysis at $5bn, or $8.5mn/mile. FERC in August issued a stop-work order for that project after an appeals court tossed a right-of-way permit for the line, but has since allowed construction to resume.

The project with the largest cost per mile was Transco's 1.7 Bcf/d Atlantic Sunrise project, at $13mn/mile and a total cost of $2.6bn. That project did not have as many regulatory headwinds as Atlantic Coast, but it is being built in difficult, hilly terrain through Appalachia.