Growing Presence

NiSource expands its footprint in the US gas market

In the wake of increasing regulatory oversight of gas pipelines and the growing focus on pipeline safety standards in the US, several gas transportation companies have been taking measures to modernise and upgrade their pipelines and associated infrastructure. Indiana-based natural gas transmission, storage and distribution operator NiSource has announced several measures in the last one year to upgrade and expand its gas transportation network.

A snapshot of NiSource and its subsidiaries, as well as of their natural gas operations and ongoing projects…

Overview

NiSource is operational in the natural gas midstream and downstream segments. In the natural gas distribution segment, NiSource operates in six states – Ohio, Pennsylvania, Virginia, Kentucky, Maryland and Massachusetts – through its Columbia Gas subsidiaries, and in Indiana under the name of Northern Indiana Public Service Company (NIPSCO) Gas. Of these subsidiaries, NIPSCO Gas and Columbia Gas of Massachusetts (formerly known as Bay State Gas) have been direct subsidiaries of NiSource since their incorporation, while the other five subsidiaries were added to NiSource’s portfolio when it acquired the Virginia-based Columbia Energy Group in 2000. NiSource paid $6 billion in cash and securities and sourced about $2.5 billion through debt to buy out the Columbia Energy Group. The deal added nearly 2 million gas distribution customers to NiSource’s portfolio. In 2010, NiSource changed the name of its subsidiary Bay State Gas to Columbia Gas of Massachusetts.

The seven gas distribution subsidiaries of NiSource (each operating in one state) together have a network of about 60,000 miles (96,000 km) of pipeline and related facilities, and serve a combined base of over 3.3 million residential, commercial and industrial customers. Columbia Gas of Ohio and NIPSCO Gas are the largest natural gas providers in Ohio and Indiana respectively, while Columbia Gas of Pennsylvania and Columbia Gas of Virginia are the third largest natural gas providers in their respective states.

Of the seven gas distribution subsidiaries, Columbia Gas of Ohio and NIPSCO Gas are the two largest companies, together accounting for nearly 60 per cent of NiSource’s distribution pipeline network and almost two-thirds of its total customer base. Columbia Gas of Maryland, with a customer base of only 33,000 and a pipeline network of just over 750 miles (1,200 km), is NiSource’s smallest subsidiary in terms of scale of operations.

In the gas transmission and storage segment, NiSource operates through its Texas-based subsidiary NiSource Gas Transmission and Storage (NGT&S), which provides transmission and storage services to local utilities, industries and other customers across 16 states and the District of Columbia. NGT&S operates through six subsidiaries – Columbia Gas Transmission, Columbia Gulf Transmission, Crossroads Pipeline, Hardy Storage, Millennium Pipeline (joint venture of Detroit-based DTE Energy and British multinational utility company National Grid) and NiSource Midstream Services. NGT&S’s subsidiaries together operate a network covering about 15,000 miles (24,000 km) of interstate natural gas pipelines, with annual deliveries of about 40 billion cubic metres (bcm) of gas. The transmission network supplies gas from several production basins in the country. Columbia Gas Transmission is NGT&S’s largest subsidiary, with a pipeline network of about 12,000 miles (19,200 km) spread across 10 states.

NGT&S operates 37 gas storage fields with a combined storage capacity of 18.28 bcm and a working gas capacity of 7.56 bcm. The company also runs nearly 110 compressor stations with a combined capacity of 1,100,000 horsepower.

Ongoing pipeline upgradation projects

In the last one year, NiSource has proposed several projects to modernise and upgrade its gas distribution and transmission infrastructure. Some of the key pipeline upgradation projects are:

  • Columbia Gas Project: In end-January 2013, Columbia Gas Transmission received approval from the Federal Energy Regulatory Commission for a customer settlement that facilitates the recovery of funds from customers for financing the company’s long-term infrastructure investment plan. The settlement, which was filed in September 2013, covers the initial five years of Columbia’s investment plan and has provisions for potential extension thereafter. As per the settlement, Columbia Gas Transmission will spend $1.8 billion till 2017 on various pipeline system improvement initiatives. These include the replacement of ageing infrastructure (in particular that made of bare steel), replacement and modernisation of more than 50 critical compressor units located along the length of the pipeline system, and uprating of pressures and looping systems to increase pipeline system reliability. The project is expected to entail an investment of about $4 billion over a period of 10-15 years.
  • Ohio Pipeline Upgradation Project: In 2012, NiSource announced that it would spend nearly $2 billion over the next 25 years under a programme to modernise its 19,000 mile (30,400 km) pipeline system. Under this programme, a total of 1,000 miles (1,600 km) of pipelines will be replaced. The programme is currently under implementation.
  • West Side Expansion Project: Under this project, upgrades and modifications will be made to the facilities of both Columbia Gas Transmission and Columbia Gulf Transmission. The $200 million project will reverse the flow of gas on some pipeline segments operated by these two companies to transport about 500 million cubic feet of gas per day from the Marcellus shale formation to the Gulf Coast markets. The project is scheduled to be completed in late 2014.

Ongoing capacity expansion projects

Besides upgrading and renovating its existing pipeline network, NiSource currently has several capacity expansion projects at various stages of execution.

  • Cameron Access Project: On December 26, 2012, NGT&S initiated a non-binding open season to solicit the interest of potential shippers for its Cameron Access Project, which will supply gas to a liquefied natural gas (LNG) terminal from several basins including Marcellus, Utica, Haynesville, Fayetteville, Gulf Coast, East Texas, Granite Wash and Barnet. The LNG terminal is currently under execution by Cameron LNG, a subsidiary of California-based energy company Sempra Energy, in Cameron Parish, Louisiana. The project has an estimated in-service date of July 1, 2017. Its initial capacity and investment requirements will be determined based on the results of the open season. However, the company has indicated that the terminal’s initial capacity will be in the range of 12.86 million cubic metres per day (mmscmd) to 34.28 mmscmd.
  • Big Pine Gathering Project: NGT&S is currently at the final stages of executing its 70 mile (112 km) Big Pine natural gas gathering system in western Pennsylvania. The gathering system, which has a capacity of 12.14 mmscmd, will carry gas supplies from the Marcellus shale formation and pass through Allegheny, Butler, Armstrong, Indiana and Westmoreland counties. It will be connected to NGT&S’s Columbia Gas Transmission system, Texas-based Spectra Energy Corporation’s Texas Eastern Transmission system and a transmission pipeline owned by Virginia-based Dominion Transmission. The gathering system, which entails an investment of about $160 million, was initially scheduled to be operational in April 2013, but has now been postponed to end-2014. Texas-based ExxonMobil’s subsidiary XTO Energy has signed a long-term agreement with NGT&S to become an anchor shipper for the project.
  • East Side Expansion Project: This $210 million project was announced in late October 2012. Under this project, Columbia Gas Transmission’s transportation capacity will be expanded by 8.86 mmscmd by adding compression capacity and enhancing the interconnections with the Millennium Pipeline system at New York and the Tennessee gas pipeline at Connecticut. The additional gas will be carried from the Marcellus shale region to the north-eastern and mid-Atlantic markets. Currently, the surveying work for the project is being carried out at various locations while construction work is expected to commence in early 2015. The project will be operational by the third quarter of 2015.
  • Development of midstream infrastructure in the Utica shale region: In July 2012, NiSource formed a JV with Texas-based exploration and production company Hilcorp Energy to develop midstream infrastructure in the Utica shale region, primarily in north-eastern Ohio and western Pennsylvania. The JV, Pennant Midstream, will set up 50 miles (80 km) of gas gathering pipelines with a combined capacity of 11.43 mmscmd and a gas processing plant with a capacity of 5.72 mmscmd. Hilcorp Energy will be the project operator and will manage the development of the midstream infrastructure while NiSource will hold a minority interest in the JV.

Recent technology initiatives

In order to ensure efficient service delivery to its customers, NiSource lays strong focus on system security and business application performance. For system security, NiSource has installed Immix as its primary security monitoring and management platform. The software consolidates a wide range of the company’s security products into one simple operator interface. It has also ensured that all of NiSource’s entities comply with the strict industry regulations. The company has installed Immix across its three business units – natural gas distribution, NIPSCO and the Columbia Pipeline Group. Some of the results that have been achieved are mentioned in the accompanying table.

Smart metering has emerged as a vital tool for more accurate meter reading and significant cost savings for suppliers and consumers globally. Realising this, NiSource Gas Distribution companies have been replacing manual meters with automated meter reading (AMR) devices. In 2012, NiSource announced that NIPSCO would undertake a pilot project worth $90 million, which entails the installation of AMR devices on its 900,000 gas and electric meters by 2016. The technology would allow a meter reader to collect about 6,300 readings in four hours.

Further, in early 2013, NIPSCO selected Itron for mobile collection of meter data over the next few years. The contract includes the installation of 400,000 Itron gas communication modules and 450,000 Itron electric meters, including Itron’s new Bridge Meter, which offers increased operational efficiencies and future investment protection. In addition, Itron would provide more than 20,000 gas meters, its mobile collection system, Field Deployment Manager software, overall project management and professional services.

To further strengthen its technology base, NiSource signed a $600 million seven-year IT services deal with IBM. Pursuant to the agreement, IBM will help NiSource implement a hybrid IT model using SoftLayer application as well as a private secure cloud powered by traditional infrastructure. The implementation of the cloud will not only facilitate the integration of hybrid IT systems but also enable NiSource to improve services.

Future outlook

NiSource is one of the biggest operators in the gas transmission, distribution and storage space in the US. It operates across the energy-intensive corridor, extending from the production centres in the Gulf Coast to the consumption centres in the Midwest, mid-Atlantic, New England and north-eastern regions. This corridor currently caters to nearly half the country’s natural gas consumers.

Moreover, the expansion activities undertaken by NiSource in the past few years have driven the company’s revenue generation. During 2009-13, its operating income registered a compound annual growth rate (CAGR) of 9.23 per cent, increasing from $800 million to $1,042.7 million, of which $397.8 million came from its gas transmission, distribution and storage operations.

Going forward, NiSource’s business strategy will be to focus on and generate most of its operating income from its core rate-regulated businesses. To this end, it has been taking measures to divest its stakes in its non-core operations. In January 2014, it transferred certain assets of its non-core retail services business to Georgia-based energy services company AGL Resources in a $120 million deal. NiSource’s move to sell off these assets is a part of its strategy to focus on core regulated utility and pipeline operations. The proceeds from the asset sale will be utilised to support the company’s ongoing infrastructure investments.

Further, NiSource has announced several projects aimed at expanding its presence in the emerging shale gas market in the US. While many of its ongoing projects will procure gas from the Utica and Marcellus shale formations, the company is also focusing on expanding its presence in the Haynesville, Fayetteville and Barnett shale regions, where several upstream and midstream projects have been announced.

The company is also attempting to accelerate the supply of gas to new markets by expanding and upgrading existing facilities rather than constructing new pipelines, a task that is likely to be more time consuming. Its East Side and West Side expansion projects are reflective of this strategy. This approach will help NiSource leverage the opportunities offered by the country’s evolving shale gas market.

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