The development of unconventional oil and gas reserves is changing the North American energy industry, driving the need for new midstream assets and creating significant growth opportunities for the midstream sector. Fueled by growth in shale plays, domestic oil production has now reversed a 20-year trend of declining production. Shale gas alone is expected to grow to more than 50% of the nation’s energy supply portfolio by 2030. Analysis of the emerging natural gas plays in North America points to an aggregate discovered resource base of some 2,000 trillion cubic feet (tcf) and a total, including what is expected to be found in the future, of more than 3,000 tcf.
Driven by an acute demand for gathering, processing, fractionation, storage and take-away infrastructure in these emerging shale plays, opportunities in the midstream sector are expanding at a robust rate as the nation reaches for recovery and moves away from its dependence on foreign sources of energy supply. More than $300 billion has been spent in the midstream sector over the past five years in the United States for organic growth projects and acquisitions/dropdowns. This strong growth trend is expected to continue.
For every $1.00 spent by oil and gas producers on the upstream side, we believe that an expenditure of at least $0.15 to $0.35 will be necessary to provide the midstream infrastructure required to deliver product from the wellhead to market. Barclays Research estimates annual North American upstream capital spending at approximately $200 billion, equating to $30 to $70 billion per year of required midstream development. The scale of the upstream spending opportunity and the recurring nature of the annual upstream capital requirement represents a compelling opportunity set for midstream investment.