Those opposed to a prominent role for fossil fuels in America's energy portfolio are concentrating their focus on stopping pipeline projects as a primary way to strangle production and "keep it in the ground". 

Pipelines are essential to both production and consumption of natural gas and petroleum. They are the safest and most cost-effective method of transport. Without adequate pipeline capacity, neither natural gas nor petroleum liquids can be produced and delivered economically. This is because either (1) the higher cost of delivery by other means makes them currently uncompetitive, or (2) the lack of takeaway capacity drives the oversupplied local market price beneath the cost of production. In either case, new wells are not developed.

For crude oil, this can be seen in the stark difference between the numbers of rigs operating in two major producing regions. Contrast the Permian Basin of West Texas, well-served by pipeline capacity; with the Bakken Formation of western North Dakota with inadequate takeaway capacity. With crude oil hovering between $40 and $50, since May 1 the count of rigs operating in the Permian Basin hasgrown roughly 50%, from 132 to 201 rigs. By contrast, the count in the Bakken has grown by just 2 rigs, from 26 to 28.

Why? From new wells, the average per-barrel cost of Permian crude is generally lower than Bakken crude. But the difference between whether or not a play is economic can also be the cost of transportation of its products to market, which determines net revenue per barrel received by the producer (or netback). According to the Association of Oil Pipelines (AOPL), "The cost to ship crude oil by rail is generally $10 to $15 per barrel versus under $5 per barrel by pipeline." In a $45 price environment, that spread can make the difference between drilling profitably or not.

The story is the same for natural gas. In the Appalachian Basin (PA, OH and WV), where over half of America's natural gas from shale is produced, inadequate pipeline takeaway capacity is making drilling new wells uneconomic in most cases. While prices on the major trading exchanges (e.g., Henry Hub and NYMEX) recently rose to about $3.00 per million BTU, average spot prices at some Marcellus delivery points dropped to $1.20, well below what BTU Analytics pegs as the average breakeven cost for new Marcellus wells of about $2.50. Little wonder the combined number of Marcellus and Utica natural gas operating rigs (45) remains at half the level of 18 months ago.

Here's the latest comparative operating rig count summary from Baker-Hughes for key oil and gas basins. Note that 73% of the operating horizontal rig count growth since late May is accounted for by oil rigs in the Permian Basin of West Texas. 

Two things are clear for suppliers of construction, equipment, materials and services to energy operations. First, without new pipeline capacity, business driven by production from new wells in the Appalachian Basin and the Bakken will be limited under current price levels. Second, opposition presents major risk to otherwise tremendous supply opportunities for construction and operation of proposed new pipeline projects themselves.

To provide metrics to the scale of proposed pipeline projects now at some point in the approval process, we compiled a chart of major natural gas and liquids transmission pipelines planned for construction between now and 2018. We defined "major" as any project with estimated capital investment over $400 million. We also note that our compilation does not include many smaller projects, nor the very large number of gathering, distribution and lateral line projects that would be facilitated by completion of these transmission projects.

Serving the Appalachian Basin, there are 13 proposed natural gas pipeline projects with combined capital investment of $27.5 billion, consisting of 2,774 miles of pipe, carrying (thus enabling production of) 19 billion cubic feet per day (bcf/d) of Marcellus and Utica gas.

Serving the Southeast and Southwest, there are 5 proposed gas pipeline projects totaling investment of $6.4 billion, consisting of 862 miles of pipe and carrying 5.9 bcf/d.

There are three more liquids pipelines proposed, serving both the Bakken's crude oil and the Appalachian Basin's natural gas liquids. These projects have combined investment value of $9.3 billion and 1,859 miles of pipe.

That's a total project value of $43 billion of construction, equipment, materials and services, with 5,500 miles of large diameter pipe. Click here to download our spreadsheet detailing all 21 projects.

In the current environment of growing opposition to new oil and gas infrastructure,completion of any of these projects cannot be taken for granted. One need only reflect that construction of the Dakota Access Pipeline, carrying Bakken crude to market, was well under way after being fully permitted by all relevant federal and state authorities and surviving a court challenge to construction. Yet on September 9, construction was stopped mid-project by the Administration, announcing its intent to undertake a review to "determine whether it will need to reconsider any of its previous decisions" approving construction (see joint statement of September 9 from Departments of Justice, Interior and Army here).

Worse, the construction "pause" was ordered immediately after the U.S. District Court denied an injunction requested by the objecting Native American tribe to stop construction, ruling that the tribe had been adequately consulted during approval proceedings.

Bottom line: the opposition is growing, gaining ground and scoring points. The biggest projects are likely the most vulnerable. Yours may be next.Needed: local Main Street business voices telling the positive stories about the safety, jobs, affordable energy, lower greenhouse gas emissions and economic growth that pipelines enable. This means the supply chain getting involved. We are now one of the primary keys to turning this around. Staying under the radar is no longer an option.

© 2016 Shale Supply Intel Editors.