Natural gas utilities and midstream operators are responding to market forces driving a surge in natural gas demand. As one consequence, the gas pipeline industry is poised to enter a new era of growth in capacity after years of deflation and uncertainty.
This trend could constrain the availability of engineering and construction services during 2026 and beyond. Success for utilities and midstream operators may depend on how well they leverage external engineering and construction services.
Projects Are Expanding
There are three main market forces driving the increase in natural gas demand and subsequent need to expand the natural gas pipeline system:
- Increase in electricity demand. Cloud computing, digital storage and artificial intelligence are creating enormous new electric loads. Also contributing to the demand is increased electrification of vehicles and other types of equipment, along with increased industrial and manufacturing loads.
- Coal capacity conversions. The rate of coal plant retirements may fluctuate with environmental priorities, but the shift is expected to continue. Natural gas is increasingly a growing option for replacement of that capacity.
- Liquefied natural gas (LNG). Increasing energy demand is a worldwide phenomenon, with natural gas an important component of the solution. Exports of LNG to overseas markets are a recent but rapidly increasing factor that translates to heightened demand in the natural gas market.
These diverse market drivers share one thing in common: They require pipeline infrastructure that can deliver natural gas in greater volumes safely and efficiently. Engineering and construction firms are poised to meet these requirements with projects to add capacity and rehabilitate existing pipeline infrastructure that has been largely neglected in recent years.
The gas utilities and midstream operators that are best prepared to respond to these natural gas market shifts are those that can effectively execute pipeline expansion projects. These execution strategies will require flexibility to engage service providers in ways that help them address their organization and project challenges.
Limited Execution Resources
The lack of pipeline expansion activity in recent years has left many pipeline operators with a deficit of resources to execute expansion projects including engineers, permitting staff, and construction managers.
Though a staff augmentation approach for each of these disciplines might help, it often places stress upon the limited individuals within an organization who must manage those additional resources.
One solution is to provide entire scopes to a service provider, thereby alleviating demand on already stretched internal resources. Service providers can perform as an engineer-procure-construct (EPC) contractor or as a program manager (EpCM), managing and executing projects from design and permitting through construction.
Schedule Constraints
Large and small pipeline projects can have a positive impact on pipeline capacity. Regardless of the project size, there is an urgent need to address market drivers and complete them quickly/ This often results in schedule constraints on design and construction activities.
One approach to address an aggressive schedule is to provide overlap of certain major efforts. Engaging a supplier with a progressive EPC delivery capability can effectively overlap detailed design with procurement and construction activities, potentially resulting in a reduction in overall schedule.
Cost Certainty
Some projects require cost certainty even before construction commences. This can be for a variety of reasons, including cost reimbursement purposes or to suffice a financial investment process.
The earlier it is in a project, the more expensive it is to achieve cost certainty, as the party that signs up for it will incorporate the cost associated with the project unknowns based on the project definition at that time, or lack thereof. While an EPC approach can provide cost certainty, traditional EPC often requires a lump sum number before project definition occurs in the form of engineering and construction planning.
A progressive EPC delivery provides cost certainty only after a predetermined level of project definition is achieved through engineering design and planning. This is often referred to as an open book phase where design, planning and procurement services are executed with the intention of developing a lump sum number for all subsequent material, equipment and construction. It is this lump sum figure that provides cost certainty, but only after the project definition has advanced, thereby reducing the price paid for unknowns.
Strategic Choices
Every project has unique challenges, but not every project is the right fit for EPC or program management delivery. Where progressive EPC can help address resource limitations, schedule constraints and cost certainty, there is a cost associated with transferring risk to the EPC provider. And while program management can greatly increase project execution capacity while reducing impact on internal resources, it does not transfer this risk to the provider.
The flexibility to utilize suppliers with these delivery methods can greatly improve the success of project execution for a gas utility or midstream operator as they address the demand being placed on their pipeline systems.
