When Americans clamor for energy independence, the focus of said clamoring typically falls on increasing oil and gas production. But what most advocates and proponents don't realize is that energy independence is impossible right now -- not because of natural resources, but because we lack the midstream infrastructure to process and transport our domestic energy supply.

Midstream assets, specifically pipelines and processing centers, are more crucial than we think and will play a key role in America's energy future.

Our pipeline infrastructure
The image below is a snapshot of our natural gas pipeline infrastructure. There are plenty more pipelines that carry oil. The point is obvious, though: We have a lot of pipelines. And yet, our current infrastructure cannot meet the demand of our booming domestic energy production.

anImage

America's pipelines are regulated by the Federal Energy Regulatory Commission. FERC sets the rates of transmission and keeps an eye on a host of other details, like the quality of gas traveling through the pipeline. Gas has to be processed to meet pipeline requirements, which typically means that natural gas liquids, crude oil, and dry gas need their own infrastructure.

Right now, you can see the implications of this system in the Bakken shale. Companies such as Kodiak Oil & Gas are producing great quantities of oil, but great quantities of gas are produced as well. Because there is no infrastructure in the region to bring this gas to market, it is burned off at the site in a process called flaring.

And while we're on the subject of the Bakken, not only does the area lack infrastructure to bring gas to market, but its oil pipelines have reached capacity as well. In 2005, the Bakken was pumping out 100,000 barrels a day, but today that number has increased dramatically to nearly 600,000 barrels a day. Awesome! Or it would be, except that pipeline capacity coming out of the region taps out at 425,000 barrels a day.

Capacity expansions won't come online until mid-2012. In the meantime, producers will ship excess oil via rail, and we will continue to watch oversupply drive down the price of oil at hubs like Clearbrook, Minn., and Cushing, Okla.

The price of oil
Pipelines play a crucial role in the supply-and-demand game that controls the price of oil. If producers flood oil hubs with more oil than can be pushed out to refineries via existing infrastructure, the price of oil drops.

Cheap oil is only good when the discount gets passed along to consumers. Unfortunately, that can't happen in the case of the Bakken because much of the price difference evaporates when producers utilize other modes of transportation to get the oil to refineries. It is much more expensive to transfer oil by train than pipeline.

Not only that, but because of the technology used to extract oil from shale, if the price of oil from the Bakken drops too far, it becomes cost-prohibitive to produce. That's bad news for small oil and gas outfits and America.

Pipeline projects in the, err, pipeline
Midstream companies will be busy increasing infrastructure capacity in the near future, if we let them. Here are a few to keep an eye on:

Kinder Morgan (NYSE: KMI ) and Kinder Morgan Energy Partners (NYSE: KMP )
Richard Kinder's companies are waiting on regulatory approval for their big acquisition of El Paso, but the company is incredibly busy outside of that deal. Keep an eye on Kinder Morgan's Trans Mountain expansion project. Trans Mountain is currently the only pipeline connecting Canada's oil sands to the Pacific Coast. Once it secures commitments from Canadian drillers, KMI plans to expand the pipeline's capacity from 300,000 to 600,000 barrels a day.

Enterprise Products Partners (NYSE: EPD )
Enterprise plans to expand its natural gas and natural gas liquids operations in the Eagle Ford shale. The company anticipates adding pipelines, increasing cryogenic and compression capacity at its Yoakum facility in South Texas, scheduled to come on line in 2013.

The company also has sufficient commitments to develop its Appalachia-to-Texas ethane pipeline. The 1,230-mile pipeline will bring gas from the Marcellus and Utica shales to the Gulf Coast.

TransCanada (NYSE: TRP )
Sometimes I wish that "Keystone XL" was just slang for a 22-ounce can of Keystone Light, but alas, it is not. We have extensive coverage of TransCanada's infamous pipeline project, but I encourage Fools to keep an eye on the company's other pipeline projects. Specifically, the Alaska Pipeline Project, which is currently, wait for it, stalled!

TransCanada and partner ExxonMobil have been unable to secure shipping contracts, and Alaska Gov. Scott Parnell has publicly suggested the state consider alternatives for handling its North Slope energy. TransCanada is moving ahead with the required FERC applications, but if it can't line up customers, there is nothing doing here.

Enbridge (NYSE: ENB )
The company is desperately hoping its Northern Gateway pipeline gets approval soon. The project would connect Alberta's oil sands to British Columbia, and though it has the support of the Canadian government, it faces opposition from environmentalists and aboriginal people that would make Keystone XL haters blush. Enbridge remains confident the pipeline will eventually be built.

Foolish takeaway
The energy industry will spend an estimated $130 billion to $210 billion expanding natural gas infrastructure over the next 20 years. In the near term, 78% of the 8,887 miles of pipeline that are planned for completion in 2012 are for natural gas. Looking further into the future, this trend shifts, as crude and NGL projects increase and gas pipeline projects decrease. One thing remains clear: For American energy independence to become more than just a pipe dream, we must support midstream development.

As midstream advances bring more gas to market, tangential plays will become more and more popular. Get a head start on the market with a small company Fool analysts recommend for interested investors.


Increase your money and finance knowledge from home

Portfolio Basics

What are stocks? Learn how to start investing.

View Course »

Introduction to Economic Indicators

Measure the performance of the economy.

View Course »

Add a Comment

*0 / 3000 Character Maximum

3 Comments

Filter by:
InfraInput

This article shows both the marvel and vulnerability of the U.S. natural gas pipe infrastructure. Coordinated with interstate transport, supply and delivery companies towards the end-use utility customer at efficient uptime, the system is an envy to the world. However, capacity is a stark reality and another item not mentioned in the article: aging infrastructure. A noticeable length of pipeline especially in older cities have been placed nearly a century ago and random stories of explosions bursts, leaks, smells, are dotted across our map. As much as the discussion of expansion and new construction, we must consider maintenance and rehabilitation.

June 10 2012 at 1:03 PM Report abuse rate up rate down Reply
Paul Felix Schott

Energy has driven the world for over a thousand years Wind, Hydro and Solar are the oldest
forms of energy giving power to all smart enough to use it.

In the last 200 years Coal, Oil and Nuclear has given energy to many worldwide and great power
and wealth to only a few. At the cost of many lives in coal Mines, Oil Spills, Radiation, Cancer
and Polluting the Air and Water on all of the Earth.

Unfortunately for the wicked there is not an unlimited amount of oil on earth. Just the same as
the Forest Trees that clean the air and make Oxygen we breath and all living on earth need to
Live. As some in denial are not able to recognize or ever see or live with blinders on.

Doctors and Drug ceo's have been making millions prescribing drugs to many that live near or by
High polluted areas that hurt breathing our lungs and harm our children and all. That we all pay for.
When all they need is Clean Air and Water, and Clean Cities.

Now common sense would be for all to look for a clean fuel Wind, Hydro, Geothermal and Solar.
Renewable Energy is eliminating the need for Dirty Energy Worldwide at a record pace.
With Solar Energy Clearly the front runner.

To the fear of some of the richest people on Earth. They to surprisingly are doing
something extraordinary investing in Solar Energy. After years of many of them trying to under
mine it.

Fuel that makes energy to ship goods, or make electric for homes and manufacturing. Can
transform whole nations into prosperity and wealth or poverty and economic hardships for most all.
Just as taxes on taxpayers has done. For over two thousand years. Making slaves of many to the
wicked and unjust few. History Lesson Roman Empire, Persian Empire now OIL Empire oh sorry OPEC.


Taxes and Fuel cost are two of the main things to drive up or down economic growth worldwide.
When all on earth can see this. Why would anyone with a good mind and heart want, Teachers or
Leaders in any country or Nation to not teach and use Solar and Renewable Energy.


For any teacher or Leader to think more Taxes on anything is going to help others. They must be
on drugs or working for the devil. Thinking only of their future and their pockets. Taking from others
weather poor or rich is not going to help the economic realities or the many worldwide struggling
just to stay alive. All can see factories and businesses move to the next town, state or even a crossed
the ocean. From where they once were to a place the taxes are less.

All taxpayers would do much better with less taxes on their land as well as their paycheck.
Let us all stand United that this is our home land as heaven will be our home some day. Let us stop the
wicked from taxing us out of our own homes and our land. As they can not take away our Bible tell every
Leaded we want "In GOD We Trust" on the front of Every Government Building in this Nation.

Would you drive from Alaska to Florida or go 3,000 miles to buy your oranges or food? When you
can go next door to California. Then why on earth would you go over 5,000 miles to get oil? Canada has
been our friend for over 100 years. Has the Middle East? How much of your money has our government given
and spent in the Middle East? 100s of Billions and the dollar count keeps going up every day. The number
of our American sons and daughters blood shed there unspeakable!. Canada is our friend and has stood by
American side many times and is right next door.

I for one like many Patriotic American's would love to see America stop using OIL. Yet know the
day will come when the high demand and large volume use of oil well end. Till that day i am not in
favor of giving my money or blood shed of anymore of our men and woman that serve in the
greatest Military on earth to the Middle East.

When there is oil next door in Canada, where anyone is free to carry a Bible and read it.
Without someone trying to kill you for doing so. Canada's Government was the first to use
Solar Energy (PV) on Earth to save money. On its Navigation Lights on its many water ways. The world
could have learned a thing or two about Solar Energy From Canada if its Leaders and Teachers did
not be so narrow minded with blinders on.

Canada Knows that there is not a endless supply of Forest Trees or Oil.

Why on Earth would you go over 5,000 miles when you can go next door is ARE Government Leaders on Drugs.
Do we want to build up or help the wicked or our Christen Friends next door?

United We Stand In GOD We Trust
The Lord's Little Helper
Paul Felix Schott

February 15 2012 at 5:39 PM Report abuse rate up rate down Reply
Horatio Paws

FYI.. if you want to break out of the globalization....Four years ago- the energy companies deregulated and there are other providers available , of the same product, but at cheaper prices.
There is one company that offers 12%-14% off both of your gas and electric bills that can do this totally free....... always free
This company is approved by the Better Business Bureau and scam free.. no fine print— If you are in one of these six states : NY, NJ, PA,MD, MA, TX, Il, you can reap the benefits of savings. There is no box to buy, no increases, and the only minimum usage is one light bulbs worth of energy. Check it out for yourself, you will be amazed and thankful that you were lucky enough to save.
http://www.energymaster.JoinAmbit.com

February 14 2012 at 4:59 AM Report abuse rate up rate down Reply