Oil & gas pipeline construction showing positive growth in non-building construction segment

Oil & gas land pipeline construction is a bright spot for the non-building construction segment in North America, despite the political battles surrounding TransCanada’s Keystone XL oil pipeline. Oil & Gas Journal’s annual spending outlook confirms what “pipeliners” (contractors for transcontinental or mainline pipeline construction) have acknowledged for several months: that available construction capacity to build land pipelines will be stretched thin starting in late 2012.

In the United States, firm budgets are in place to complete 834 miles of transmission pipeline, a nearly 2x increase over the 483 miles built in 2011. The odds now favor commencement on the Cushing, Oklahoma-Texas Gulf Coast leg of TransCanada’s Keystone XL before the end of summer, which could easily double the miles of pipeline presently in the 2012 forecast.

Other factors related to the ongoing development of shale oil and gas resources have resulted in a base level of work for pipeliner companies. Gathering system construction in the Marcellus and Eagle Ford shale plays receives little press outside of intermittent local news coverage. The number of gathering and short-haul transmission projects has surged as the shale play well population grows.

Maintenance-driven work is also beginning to impact the workload of US and Canadian pipeline construction firms. Over half of the pipelines comprising the US oil & gas transmission network are fifty years old or older. Recent spills or leaks have generally occurred with pipelines operating for approximately fifty years, including the recent San Bruno, California explosion and the Enbridge spill in Michigan. Owners of these pipeline systems have drawn the obvious conclusion, and several maintenance projects reaching 80 to 100 miles in length are in advanced bid stages, with at least one project set to begin work in late 2012.

Canadian pipeline construction for oil, natural gas, and other products will exceed 348 miles based on the OGJ report. Natural gas pipelines will add another 144 miles to this year’s total, primarily in Alberta and British Columbia. In all, Canadian pipeline construction will consume a budget of at least $1.4 billion (CAD).

The stage is set for considerable industry developments in 2013 and 2014. As oil sands production escalates, it will precipitate demand for further capacity in the US and Canada in order to bring heavy crude from oil sands to the specialized refineries on the Texas Gulf Coast. The shale gas boom in US and Canadian plays, as well as the imminent need for combined cycle natural gas power plants to replace much of the obsolete US coal plant fleet, is driving natural gas transporters to strategize about a continental gas transmission system. Based on these and other factors, we expect a sustained period of business growth in the pipeline construction segment.