The midstream has arguably never been as fast moving, dynamic or as active as it has been the past few years. Production is now coming out of areas that have not traditionally been associated with crude oil and natural gas or have produced other types of hydrocarbons. As a result, the midstream has had to replace or expand current infrastructure or build new infrastructure to transport, gather, process and treat this production.

“There is a race going on among midstream operators to get into these new plays and be in a position to offer the services required for takeaway,” Dale St. Denis, a director at Sapient Global Markets’ commodity trading and risk management practice, tells Midstream Business. He adds that he has been working with operators seeking the best way to unify all of their different processes across their networks.

All of this development has led to increased acquisitions as companies seek to integrate their systems in order to enhance efficiency while the systems themselves are getting more complex.

“Our customers are acquiring assets with certain legacy business processes and systems, and they now have to unify and integrate them with their existing system and processes. The transaction volume is growing and the complexity of where the hydrocarbons are headed is also growing,” he says.

As more transportation is required, operators are required to utilize more pipeline integrity management to ensure the safe shipment of hydrocarbons and avoid incidents like the recent spill in Arkansas from the Pegasus Pipeline.

“The challenge for midstream operators is correlating all of the data they have around their pipelines and managing it in a way that allows them to make good decisions in terms of preventative and corrective measures,” St. Denis says.

“I’ve worked in the industry for a number of years, and I still believe that operators want to do the right thing and operate assets safely and correctly. The challenge they have is the complexity and the amount of data coming out of these systems is hard to correlate,” he adds.

Adding services

Opportunities abound for operators, which is resulting in more companies adding new services in order to add value. As a result, companies that have primarily been pipeline companies now are operating processing, storage and/or fractionation assets in order to provide producers with everything they need from the wellhead to market.

More midstream operators are starting to add blending services due to the heavy bitumen-based hydrocarbons being produced in Canada and being shipped to the Lower 48 states. This production has to be blended in order to be transported, but also to meet U.S. refining standards.

Blending operations also require significant tankage, which is leading midstream operators to add more storage and blending facilities at hubs such as Hardisty, Alberta; Patoka, Illinois; Cushing, Oklahoma; and St. James, Louisiana, where this heavier crude is being shipped.

“The ability to have the storage capacity at major hubs is to ensure the tankage for blending to allow shippers to get their heavier crudes into new markets and take advantage of quality differentials,” St. Denis says.

Besides these traditional midstream facilities, companies are also adding services that haven’t been as widely used in the sector, such as transloading due to the increased usage of rail transportation out of the Bakken and Eagle Ford shale as well as increased barge usage.

Because of the specialized infrastructure required in transloading, railway companies aren’t typically involved in this construction. Instead it has provided another aspect of the value chain for midstream operators to add to their portfolios.

While transloading presents new opportunities, it also presents new challenges since midstream operators haven’t had to take the commercial steps involved in the custody transfer, which are required to keep accurate inventory records and balances. “Typically you’re moving title from a producer to a marketer or from a producer to another handler. That custody transfer has to be properly recorded, settled and priced,” he says.

Educating the public

The increased financial opportunities available in the midstream have undoubtedly been positive for operators, but the increased attention on energy and its infrastructure from the general population have been a mixed bag, to say the least. On the one hand, a public that is educated about energy and the role it has in society can only be good; on the other, misinformation often works in favor of opposition to hydrocarbons.

As unconventional energy sources have become a dominant force in the North American energy story, the industry has increased its public-awareness campaigns to educate the public on such topics as fracing, natural gas, crude production from tar sands and pipelines. The Common Ground Alliance’s 811 “call before you dig” safety number campaign is a great idea in making the public aware that it is necessary to call before digging to ensure that a pipeline isn’t hit. However, there is still room for improvements in many public messages, St. Denis says.

He notes that the industry can do a better job of letting the public know about what it is doing in terms of maintenance activities and other “good steward” actions. “We should be making people aware that we’re working hard to make sure the pipes are operating safely. “Some companies do this better than others, and there are probably some best-practice ideas in this area that could be shared.”