Energy infrastructure spending to rise through 2035
As advances in horizontal drilling and hydraulic fracturing have boosted U.S. crude oil and natural gas production to multidecade highs, midstream companies have struggled to keep up with the surge in output. In remote resources plays like North Dakota's Bakken shale, where pipeline capacity is limited, many companies are shipping the majority of their production by rail.
Midstream companies recognize these challenges and are investing heavily in the necessary infrastructure to transport, store, and process the oil, gas, and natural gas liquids being pumped out of U.S. shale plays. But to keep up with the expected growth in domestic hydrocarbon production, they will have to spend a whole lot more over the next several years. Let's take a closer look at exactly how much, as well as one stock to play the trend.
Energy companies will need to invest a whopping $641 billion on U.S. and Canadian midstream oil, gas, and natural gas liquids infrastructure over the next two decades, according to a recent study by consultancy ICF International on behalf of the Interstate Natural Gas Association of America. That equates to annual spending of roughly $29.1 billion through 2035, almost triple the $10 billion companies have shelled out each year over the past decade.
So, where exactly will that money go? According to the study, roughly half, or about $14.2 billion per year, will need to be spent on midstream infrastructure to accommodate the continued growth in U.S. natural gas production. Companies will need to build some 35,000 miles of new transmission pipelines and 303,000 miles of gas gathering lines, says the report, titled "North American Midstream Infrastructure Through 2035: Capitalizing on Our Energy Abundance."
In addition to heavy spending on gas infrastructure, the study estimates that some $12.4 billion per year will have to be directed toward infrastructure designed to handle crude oil, including pipelines, gathering lines, and storage tanks. Lastly, another $2.5 billion in annual spending will be required for infrastructure associated with natural gas liquids such as ethane, butane, and propane, including NGL pipelines, fractionation, and export facilities.
How might investors profit from this expected growth in U.S. hydrocarbon production and the associated increase in midstream infrastructure spending? One way is by investing in the very midstream companies that build and operate the pipelines and other facilities to handle all of that oil and gas.