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economic growth and job creation resulting in a robust and
growing shale gas market. Low gas pricing is driving a shift of
rigs from gas to oil production but it will not be as impactful
as feared according to G. Allen Brooks, “…there has been a significant
shift in the focus of drilling due to strong crude oil and
weak natural gas prices … natural gas was only being targeted
by 45.5 percent of working rigs … for crude oil, the industry
has added 299 rigs … there are still significant volumes
of natural gas produced from fields considered primarily
oily or having high liquids content.” 6
• Gas transmission: Given the low price of gas and economic
conditions, transmission work has slowed and in
some instances, pipelines are converting from gas to oil,
illustrated by Kinder Morgan converting the Pony Express
Pipeline. Long-term, the movement of shale gas to
population centers and the conversion of coal fired power
generation facilities to burn gas will energize this sector.
• Liquids transportation: Natural gas liquids (NGL)
emanating from the shale basins and oil constitute the
majority of the growth in this sector. Oil prices at or
above $80 per barrel demand more of this activity. As an
example of NGL impact, “if U.S. output of ethane also rose 25
percent, it could spur $16 billion in new investment on U.S.
chemical plants and create 17,000 jobs.” 6
Water Supply & Sewage
and Waste Disposal
The themes of convergence and competition pivot upon
access to clean water and management of wastewater and
sewage. Examples include the high volume water usage of
“fracking,” the remote potential for “fracking” to contaminate
water resources, additional requirements for hydro testing of
pipelines and the high volume water usage in many power
generation facilities. In contrast to controlling water usage,
some districts and agencies view the water needs of these
industries as an opportunity to sell water at a higher margin.
Selling water at a higher margin is one solution to capital
constrained municipal water, wastewater and sewage systems
with empty municipal and state coffers, tight bond markets and
low rates and use fees.
Water supply construction demonstrates a dramatic reduction
of capital spending from 2008 with very limited prospects for
improvement until 2013 due to these constraints (Exhibit 3).
Exhibit 3
The lack of recent spending on maintenance and upgrades will
generate some capital spending growth regardless of economic conditions.
A long running conflict between who writes and pays for regulations
continues. Richard Anderson, representing the U.S. Conference
of Mayors commented: “The Federal government [i.e., Congress
and the relevant Federal Agencies] has performed one of the most
sophisticated acts of avoiding responsibility for the policies it has imposed
on the nation’s cities … the Federal government has abdicated
its role as ‘partner’ in this effort … Congress has taken the position that
achieving the goals of the water laws is not a federal responsibility.” 7
Aging infrastructure and environmental regulation are
stronger spending drivers in the sewage and waste disposal
sectors. In areas of limited supply, Denver, Los Angeles
and Phoenix, push to increase the use of recycled water for
irrigation, industry and agriculture. Goals call for a two to three
times increase in recycled water use. Exhibit 4 demonstrates a
Water supply construction
demonstrates a dramatic
reduction of capital spending
from 2008 with very limited
prospects for improvement until
2013 due to these constraints.
14 Utility Contractor | November 2011