North America has a rising tide of crude oil and natural gas production as domestic supply continues to swell. This presents some special challenges to the continent’s pipeline network. Each operator must respond to those challenges uniquely.

For its part, Crestwood Midstream Partners LP—one of the younger players in the pipeline business—has become a leader in build-out efforts, along with Magellan Midstream Partners LP, Kinder Morgan Energy Partners LP, Enbridge Energy Partners LP and other pipeline operators. Today, Crestwood has a significant footprint in some of the nation’s most active gas-producing regions, with plans for future expansion.

With a little more than three years under its belt, the company has developed a diversification strategy to focus on liquids-rich regions where producers have ticked up their efforts. Due to a decline in gas prices, the shift to liquids was a natural progression in an industry that has gone through immense change in the past decade, Joel Moxley, Crestwood senior vice president and chief operating officer, tells Midstream Business.

“Midstream is a service business, so you have to go where the action is,” he says. “As producers chase rich gas, the need for infrastructure throughout the entire natural gas value chain increases.”

Dreams of gas riches

Moxley is responsible for Crestwood's operations in the gas gathering, gas processing and downstream natural gas liquids (NGLs) segments and has been extensively involved in Crestwood Marcellus Midstream LLC (CMM). A joint venture between Crestwood and Crestwood Holdings, CMM acquired gathering assets from Antero Resources in Harrison and Doddridge counties, West Virginia, in 2012. It was a chance, Moxley says, for Crestwood to break into the nation’s most prolific shale play.

“The Marcellus is a world-scale, world-class resource,” Moxley says. “We saw the opportunity to get into the biggest shale play, and we felt that it was a chance we could not miss out on. It was just natural for us.”

This past May, Crestwood reported its unaudited financial results for the first quarter of 2013. Adjusted EBITDA was $38.8 million, 8% higher than the fourth quarter of 2012, and 37% higher than the first quarter of 2012. The increase is directly attributed to the company’s presence in the Marcellus region.

“The Marcellus region continues to drive our growth forecast for 2013 with approximately 80% of our 2013 capital budget dedicated to new pipeline and compression projects servicing the rich gas production of Antero Resources Appalachian Corp.,” Robert G. Phillips, Crestwood’s chairman, president and chief executive, said in a company announcement.

Crestwood’s foothold in the West Virginia region of the Marcellus is solidified by the partnership with independent exploration and production company Antero Resources. CMM provides compression services to Antero after a $95- million acquisition of Enerven Compression in December 2012. CMM also has a 20-year gathering and compression agreement with the company. CMM plans to construct two additional compressor stations later this year to service Antero, which will expand compression capacity to approximately 500 million cubic feet (MMcf). Moxley touts the efforts of Antero proving that a dedicated relationship between producer and midstreamer.

“They are so focused and have a drilling inventory of 20 years. Their volumes continue to grow and have given us long-term plans,” he says. “It is a dream come true from a midstream aspect to have a focused producer with a concentrated acreage position.”

Too much, too soon?

Antero has a strong drilling and development plan for the area, which will need further midstream development, according to Moxley. Takeaway capacity is being built all over the U.S., even if the production is not there to support it. But, as gas prices remain stagnant and rig counts drop, is it possible the industry could experience an overbuild?

“Sometimes companies have to overbuild because it is important to anticipate where a producer is going to be in a year, two years or more,” Moxley says. “It is easier to put it in once; having to go back and redo something is certainly more expensive.”

It all comes down to timing and determination, he says. Midstream companies are dependent on the analysis they receive from the producers. Producers will give a company the best information they have, but, according to Moxley, that could all change tomorrow. In the end it is a business, and no midstreamer is going to purposefully build more than he thinks is needed, he says.

Pricing plays a part. Producers can move fast, Moxley says, and demand doesn’t always keep up.

“The production side is ahead of the consumption side, especially on ethane, and it will likely be that way for another two to three years. You have to look at decision to reality on various aspects of the business,” he says. “Upstream has been the leading indicator and the consumption end comes with time. We should see that come into place in 2016 or 2017. We are building infrastructure today that we are expecting is going to be more fully used during that time.”

Finding a purpose

The Marcellus has made supply to the East Coast easier. The pipeline grid that was created to move gas from the Gulf Coast to the east is under used now, so what do you do with the unused pipe segments? Moxley adds that there are many projects in the works to repurpose those existing pipelines to flow south. He notes one example, The Williams Cos. and Boardwalk Pipeline Partners have proposed the Bluegrass Pipeline project to take looped segments of the Texas Gas Transmission system and convert the lines to move NGL out of the Marcellus and Utica.

Moxley notes this is not a new thing.

“It is cyclical. It goes with the market. Where markets and supplies change over time, when you have big changes in the market,” he says. “It’s not something that happens with a flip of a switch, but it happens when you have fundamental changes.

“Ten years ago, we did not know we were going to have this thing called the Marcellus shale. But with the shale revolution, it has changed how the natural gas grid is working. It creates opportunities. It is an opportunity to repurpose an asset for better use.”

On track

Just as there are plenty of pipeline projects in the works, there is plenty of product that fast-acting producers are generating, and it needs to move now. Fortunately, rail can move quickly and efficiently.

“Rail offers an opportunity to create access to market quicker than pipelines and sometimes at a lower cost,” Moxley says. “Rail allows the producer or the consumer, depending on who is contracting for it, to make a lot less time commitment. They might pay more per barrel delivered but they can choose from five to six different sources. Rail gives the business market optionality in a quicker time period.”

Rail has yet to touch Crestwood’s business, but the company is on the verge of catching a ride on the big story. Last June, Crestwood Holdings acquired Inergy LP in an effort, the company says, to create a “fully integrated midstream partnership with a total enterprise value of $7 billion.” Inergy Midstream, among many of its other attributes, is in the rail business. Last November, Inergy Midstream announced the acquisition of the COLT crude oil logistics hub from Rangeland Energy for $425 million. The hub is located at the heart of the Bakken shale in Epping, North Dakota. COLT contains 720,000 barrels (bbl.) of crude oil storage and two 8,700-foot rail loops. It can accommodate 120-car unit trains and is capable of moving more than 120,000 bbl. per day by rail.

“There is a lot of product coming out of the Bakken and much of it is moving by rail. Some of it is even moving out of the COLT terminal,” Moxley says. “Crestwood is definitely looking forward to getting into the rail business.”

Magellan’s strategy

Magellan Midstream Partners LP is another of the industry’s most prolific players and has its own strategy. With the country’s longest petroleum products pipeline system and the ability to store more than 80 million barrels (bbl.) of petroleum products, the company has its finger on the pulse of the midstream community.

Over the past three years, Magellan’s business has steadily grown in all areas but it has rapidly developed its crude oil segment, due in part to the company’s large presence in the Permian basin.

In 2012, 75% of Magellan’s revenue was generated from its refined products business segment, according to Bruce Heine, director of government and media affairs. Twelve percent of the company’s 2012 revenue was generated from its crude oil business segment, he says.

“Our crude oil business has been rapidly growing. We estimate that 75% of our expansion spending in 2013 and 2014 will be related to this sector,” Heine tells Midstream Business. “Growth in our crude oil segment includes 12 million bbl. of storage in Cushing, Oklahoma, the reversal and conversion of our Texas-based Longhorn pipeline system, which is in operation, and our BridgeTex Pipeline joint venture with Occidental Petroleum, which is under construction.” In addition, Magellan and Kinder Morgan are joint venture partners in the Double Eagle Pipeline that provides an option for shippers to deliver petrochemical-quality Eagle Ford condensate for use in Corpus Christi or higher-valued Texas markets via Magellan’s marine capabilities.

With increased activity in the Permian basin, the company is contemplating an increase to the Longhorn system’s capacity, Heine says. Currently, the pipeline system is fully committed with a capacity of 225,000 bbl. per day. Heine says the company feels it could add an additional 50,000 bbl. per day, although the project is still under consideration.

While there may be some concern about a midstream overbuild in other parts of the nation, he believes the Permian is not in any jeopardy of this issue.

“We believe there may be additional opportunities for new infrastructure in the Permian,” he says. “Based on existing production and industry production forecasts and as some refineries in the upper Midwest convert from West Texas Intermediate to Canadian crude, we believe there will be a continued need to move West Texas crude to the Gulf Coast and consequently a need for new pipeline capacity to transport more crude oil via pipeline.”

As it has for others in the industry, rail is playing a role—albeit small—in Magellan’s crude business. The company has recently updated its Galena Park, Texas, terminal to receive crude shipments by rail and fully expects deliveries by rail at some its other terminals, Heine says. But, despite the rise of rail, the company remains fully entrenched in its pipeline business.

“We believe there will be opportunities to receive crude oil via rail at some of our terminal facilities,” he says. “However, pipelines are the safest, most cost efficient and reliable mode of transportation available to transport large volumes of liquid energy from where it is produced to where it is consumed.”

NiSource heads east

The East Coast has become a center of the NGL revolution and pipeline operator, and midstream services company NiSource Inc. is no stranger to the area.

“With the shift toward NGLs, there is an increased need for midstream infrastructure to accommodate the demand,” Mike Banas, communications manager, tells Midstream Business. “We believe that there is an abundant natural gas supply in areas where infrastructure isn’t sufficient to accommodate that supply. Our history in the region has allowed us to develop critical relationships, as well as an understanding of the intricacies of the area.”

At the moment, Banas says, NiSource Midstream Services has a number of projects in the works aimed at enhancing the company’s Marcellus and Utica presence including the continued construction of the Hickory Bend Gathering System and Processing plant located in Northeastern Ohio and western Pennsylvania, a $300-million investment that is part of the company’s Pennant Midstream LLC partnership with Hilcorp Energy Co.

The Hickory Bend project includes 55 miles of wet gas gathering pipeline facilities with a capacity of more than 600 MMcf per day. The project also includes the construction of a cryogenic gas processing facility in Mahoning County, Ohio, which upon startup will have a capacity of 200 MMcf per day, Banas says.

“We are also prepping the land for two additional plants in anticipation of the increasing need for midstream services in the area as the Utica shale play continues to develop,” Banas adds.

The Hickory Bend project is just a continuation of NiSource’s ever-expanding presence in the area. “We went from having one large Marcellus-related project in service—the Majorsville Gathering System—to two midstream projects in service with the Big Pine Gathering System now delivering gas,” Banas says. “We continue to look to the future as we expand our midstream footprint in the Marcellus and Utica shale regions, and we are ready and well-positioned to execute projects in the midstream arena. This is just the beginning of decades of opportunity and development in the Marcellus and Utica regions.”

Looking ahead

Having been in the business for more than 30 years, Crestwood’s Moxley has seen it all, including the devastating downturns of the 1980s and 1990s. Today things are good, he says. Not just for Crestwood but for the midstream industry as a whole. For him there is no crystal ball, and it is difficult to look beyond the next five years or so but things “look very strong right now.”

In late June, President Barack Obama announced a new climate action plan that would reduce the use of coal and encourage natural gas a bridge fuel. This opens the door wide for gas and the subsequent infrastructure that will be needed, Moxley says.

“A lot more infrastructure will need to be built,” he adds. “I think the natural gas and crude oil value chains will be strong for the next several years. The emphasis the president made on power plants and natural gas vehicles will also require infrastructure. We are going to need to get the gas from the wellhead to the markets and all that is midstream.”