PCCA Journal|4
th
Quarter 2012
14
of the utility markets is gas transmission and distribution.
Gas Transmission & Distribution
The explosive growth of U.S. gas and oil production is fueled
by hydraulic fracturing techniques and making wide-ranging
impact. For the first time since World War II, less than 40
percent of U.S. power in 2012 will be generated by coal, with
the bulk being replaced by natural gas. The shift from coal is
primarily driven by increasing regulation of coal plants and
secondarily by the very low prices of natural gas (Exhibit
2) since 2009. The exploration and production of natural
gas and oil as well as its use as a power generation fuel will
demand more pipeline construction in the future.
Spending growth in gas T&D is driven today by a combina-
tion of transmission pipeline integrity, distribution pipeline
safety, asset replacement, and exploration and production
activity (Exhibit 3). The majority of the 2013 growth depicted
in Exhibit 3 is related to un-
derground pipeline as opposed
to overhead line construction.
Low natural gas prices and
rising demand are revealing
U.S. bottlenecks in transmis-
sion and distribution assets.
An Interstate Natural Gas
Association of America 2011
study forecasts $205 billion
in spending over the next 25
years to address these bottle-
necks. Our experience shows
that when utilities replace
pipeline infrastructure, a 3- to
5-times increase in spend-
ing occurs (Case Study 1).
Approximately 75 gas utilities
and pipeline companies of
what we consider substantial
size are operating in the U.S.
We are personally aware of
three firms that are already
exhibiting the type of growth
rates described in Case Study
1 and are also aware of more
than ten firms with expecta-
tions of this type of growth
in spending between 2013
and 2016. If one-third of the
approximately 75 large utili-
ties and pipeline companies
2013 Utility Outlook
Continued from page 13
Case Study 1: Large Gas Utility
A U.S. gas distribution and transmission utility an-
nounced a system upgrade addressing aging pipeline
infrastructure, safety, and reliability concerns. Annual
replacement spending in 2010 was less than $100 mil-
lion. The utility’s 2011 spending rose to $200 million,
followed by a further rise in 2012 to nearly $500 million,
and in 2013 an expenditure of $1 billion is likely. This
work is paid for through the rate base, yet customer
bills remain steady as the price of natural gas has fallen
dramatically, offsetting the increasing asset charge.
Exhibit 2
Henry Hub Price Natural Gas 1999-2012 (mcf)
Source: St. Louis Federal Reserve database, compiled by Continuum Advisory Group.
Exhibit 3
Electric/Gas T&D Construction Put in Place Historical Figures and Forecasts
Millions of current dollars
1...,4,5,6,7,8,9,10,11,12,13 15,16,17,18,19,20,21,22,23,24,...68