If we build it, it will flow

Investments in new and replacement infrastructure supporting the movement of energy resources are vital to keep pace with growing energy demand.

According to the International Energy Agency (IEA), $33 trillion will need to be invested in energy-supply infrastructure between 2011 to 2035 – over twice as much as the US’ 2011 Gross Domestic Product (GDP).

This need is no more apparent than in unconventional resources. 

Infrastructure and the hydrocarbon revolution

Previously uneconomic hydrocarbon basins are being revitalised through new drilling techniques and technology which are driving significant increases in production, particularly in the US. This could make the US the largest hydrocarbon producer in the world by 2017 to 2020, according to EIA Short-Term Energy Outlook and PFC Energy.

However, geographic imbalances exist between supply and demand as new supply sources are physically remote from major demand centres. The growth in production is straining existing transportation and storage infrastructure. Today, production growth is outpacing takeaway and storage capacity.

We believe the solution is significant investment in new midstream infrastructure to process hydrocarbons, alleviate bottlenecks and transport these new sources of supply.

We are not alone in this view. The Interstate Natural Gas Association of America (INGAA) estimates that $250 billion of investment is expected to be needed in North America between 2011 to 2035 to process, store and transport incremental hydrocarbon production.

With an exclusive focus on energy investing for nearly 30 years, we have significant experience in creating value from opportunities such as these. We have invested $2.1 billion in companies focused on unconventional shale plays across 10 different North American unconventional oil and gas basins. We have several active portfolio companies today across the Exploration and Production (E&P) and midstream energy sectors involved in shale plays, including a joint venture with ECA Midstream, one of the earliest operators in the lucrative Marcellus shale region.

First ECA Midstream

In 2011 we formed First ECA Midstream LLC in partnership with Energy Corporation of America (ECA) to accelerate Pennsylvania infrastructure development and provide natural gas transportation capacity for all operators in the region.

ECA began its operations in the Appalachian Basin, the oldest producing basin in the country, and has remained active there for over 48 years. It owns over 1,000,000 acres from New York to Tennessee, and operates over 4,600 wells and over 5,000 miles of pipeline. Given the volume of E&P activity in the Marcellus shale region, we believe that ECA’s systems are ideally positioned to provide E&P operators with access to high quality midstream infrastructure.

John Mork, chief executive of ECA said: “The opportunity for First ECA Midstream in the Appalachian Basin is vast. We see extensive value in our partnership with First Reserve, together identifying ways to develop new and expanded existing gathering systems in the region to accelerate the production of additional hydrocarbons.”

We believe that the benefits of infrastructure investments from this partnership extend beyond the companies involved. Investments could help improve our ability to transport energy more safely. The abundance of supply from US shales is expected to lead to the US having some of the lowest natural gas prices in the world which could provide competitive advantages for US energy-intensive manufacturing industries. This could serve as an engine of economic growth and stimulate job creation. It could also help investors achieve their financial goals, such as state pension funds working to secure the retirements of millions of public employees.

The global demand for energy is not slowing down. The discovery of new and revitalised resource supplies remains strong. But the ability to fully realise its value is largely dependent upon investments made to the infrastructure that carries it.