The funding to start building more than $250 billion worth of needed infrastructure is virtually there for the spending, but U.S. gas pipeline capacity will continue to be constrained until regulatory reform catches up with reality.

That was the assessment from the North America team of Akin Gump Strauss Hauer & Feld LLP during its “2014 Mid-Year Energy Briefing” webinar, conducted online and at the law firm’s offices worldwide.

“The good news is: Not only is there available capital to build those projects, but there is abundant capital to build those projects," said John Goodgame, Houston-based partner working in capital markets, mergers and other strategic transactions in the energy industry.

“And that’s good,” he continued, “because there are a lot of natural gas pipeline infrastructure needs. Whether we’re talking about gathering pipelines and processing facilities inside the new and growing shale plays—Marcellus and Utica specifically for the Northeast and Midwest markets—or transmission and storage infrastructure into those markets and down into the Gulf Coast, or the NGL transport infrastructure that’s needed to deal with the liquids-rich production that’s favored by all the producers trying to pull oil and gas out of the ground right now, there’s a lot of stuff that needs to be built or converted.”

That “lot of stuff” has a price tag: Nearly $270 billion (2012 dollars) between now and 2035, according to estimates from the Interstate Natural Gas Association of America. Those estimates are only for domestic infrastructure; LNG export facilities are expected to cost an additional $44 billion.

And yet, the recent brutal winter exposed insufficient gas transportation capacity. The price of gas is tied to the price of electricity because so much of electric generation in the U.S. is gas-fired (53% of capacity in New England alone). The wicked weather earlier this year resulted in huge price spikes for electricity and the costs were borne by consumers.

“Why aren’t these projects being built?” asked Julia Sullivan, Washington-based partner and co-chair of Akin Gump’s energy regulation, markets and enforcement practice. “Short answer is: there are some regulatory constraints.”

The system as it operates now strips away an essential market ingredient: incentive. Natural gas capacity is built when shippers are willing to commit to long-term firm contracts. That’s not happening enough in this environment, Sullivan explained.

“First of all, they generally operate in short-term markets so they’re not going to sign up for 15 years of capacity,” she said. “Secondly, the way the market rules work, they won’t necessarily get reimbursed for costs that they incurred from fuel supply.”

Sullivan identified some of the reforms under consideration:

  • Enact fundamental regulatory changes to the electricity market that give generators incentives to sign long-term, firm fuel contracts;
  • Optimize existing infrastructure by improving scheduling practices; and
  • Support development of new pipeline infrastructure and develop a way to have independent system operators or regional transmission organizations buy it and release it for use by generators.

Getting past regulatory hurdles does not solve the financing problem, but there an answer is already in place in the form of MLPs.

“I’m an MLP guy,” said Goodgame, “so I’ll forgive you if you look at this and say, ‘Well, this is a case of a guy with a hammer who thinks that all problems are a nail.’ But capital market trends over the last five or more years have caused capital to be drawn to MLPs, which are publicly traded entities with tax advantages that generally distribute high yields, or at least high relative to what is available in other contexts—government securities, savings accounts, that sort of thing.”

At the midpoint of 2014, midstream MLPs are yielding a total return of almost 12%. Four of the biggest MLPs are midstream companies—Enterprise Products Partners LP; Kinder Morgan Energy Partners, LP; Enbridge Energy Partners LP; and Energy Transfer Partners LP— that boast a combined market capitalization of over $130 billion.

“So far in 2014, there have been four MLP IPOs raising about $1 billion, and 22 follow-on offerings raising about $7 billion,” Goodgame said. “In addition, in 2013, there were 29 MLP bond offerings raising about $20 billion in gross proceeds, and so far in 2014, there have been 19 MLP bond deals raising about $16 billion. So, you’re talking $49 billion in gross MLP debt and equity capital raised in 2013, $24 billion in gross debt and equity capital raised so far in 2014.”

That would appear to be enough to accomplish whatever needs to be accomplished.

“I don’t want to become an advocate for any specific projects,” said Sullivan, “but there are project proponents out there who have made pretty persuasive cases that if you had adequate gas infrastructure that allowed you to avoid these extreme price spikes, then the benefit of avoiding the price spike would pay for the gas infrastructure and more.

“There are net economic benefits to be had by improving our gas infrastructure and our gas delivery system.”