Economic Impact of Investment in Pipeline Infrastructure

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Economic Impact of Investment in Pipeline Infrastructure

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U.S. Movement Toward Natural Gas

It’s no surprise, we talk about it frequently on this blog, energy demands are increasing and energy producers are scrambling to fulfill that need. Although traditionally, coal has been the main source for electricity generation, natural gas is fast emerging as the lead contender in the energy market with annual consumption at 25 trillion cubic feet in 2012.

About half of this gas is produced in the U.S. while the rest is imported requiring a network of pipeline, storage facilities, and supply points. The domestic gas transmission and distribution network comprises around 305,000 miles of pipelines – the most wide-ranging and highly integrated infrastructure in the world. The transportation infrastructure is made up of three main components: Gathering, transmission, and distribution pipelines.

Infrastructure is a Constraint

The lack of infrastructure becomes a constraint with increased demand from household, commercial, and industrial use. As well, the power generation sector is relying more heavily on natural gas, a topic we’ll be addressing in the near future. As you can imagine, extensive pipeline installations from collecting, processing and storage facilities to end user point are pivotal for steady market.

Increased investment benefits more than the end user and the energy industry. It’s a boon to the economy. Employment opportunities, input to GDP, labor income, and government revenue are all significant positive outcomes of investment in pipeline infrastructure, thus stabilizing and supporting a flourishing economy.

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Forecasted Pipeline Investment

According to an IHS study conducted in December 2013, the investment in U.S. pipeline infrastructure is forecasted to reach up to $73.8 billion by 2025. This major share of wealth will have progressive footprints. It will create approximately 893,000 jobs, $93.9 billion in GDP share and government revenue will peak up to $21.4 billion annually over the whole projection period (2014-2025).

And then there are the indirect economic effects. Capital investment in transportation and storage setup leads to a direct return on the economy. It also prompts operations in supply chain industries like steel and machinery, thus enhancing their revenue. This in turn generates more demand for finished goods like pumps, compressors and for raw materials like steel and fabricated metal to name a few, thus leading to plentiful indirect after-effects within the supply chain.

Economic Stimulus Result

This increased demand will create a better job market as suppliers will need to build up their work force. Increased income then results in additional demand of consumer goods and services, thus persuading a complete round of economic stimulus.

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