Increases in oil and gas production in the U.S. have led to a boost in revenues for pipeline operators over the last two years, and as profits continue to surge, more operators are pouring money back into the system to build new pipelines and expand existing ones. Coming off a 3-year period of declining pipeline mileage, this trend arrives at a good time for the industry.
Pipeline Operators See Changing Tides
As U.S.-based oil and gas leasing continues to increase, domestic pipeline operators are seeing steep increases in revenues, particularly since 2011. As of September 2013, the total net income was $6.4 billion, a record high for operators, and as a result, proposed new pipeline mileage has seen growth as well, increasing more than 5.5 times its 2011 numbers. Pipeline operations also expanded in compression horsepower in 2013 with 450,147 additions, a more than 240 percent increase from 2011.
Between June 30, 2012 and June 30, 2013, more than 820 miles of new land-pipeline were proposed, compared to only 23 miles of offshore. 26 separate construction projects were proposed for the period, all but six of which measured less than 50 miles, which may indicate that the majority of these proposed projects involved expansions of already existing pipelines or systems.
Cost of Construction Increases
The increase in expansion projects has led to a spike in nearly all costs associated with pipeline construction, with the estimated total dollar amount per mile increasing by more than $1 million, or 32 percent, since two years ago. In terms of component costs of construction, labor prices per mile have continued to be the most expensive element at approximately $1.6 million. Material costs have nearly doubled, jumping from $495,000 per mile in 2012 to nearly $1 million per mile the following year, and miscellaneous costs have gone up from $1 million to nearly $1.5 million. Damages were the only costs on the decline, going from $141,000 per mile to $105,000.
To learn more about oil and gas production, pipeline development, or other industry-related items, contact MAH Energy Law today.