Rising Natural Gas Pipeline Prices and Their Impact on Tariff Rates

Natural gas demand has continued to grow in the U.S. over the last decade, and current forecasts are even more bullish when factoring in new LNG exports and growing power demand driven by data centers. However, accompanying this growing demand is the question of where the corresponding supply will come from and, more importantly, how increasing pipeline costs will affect those attempting to access that supply.

New pipelines are necessary to serve demand, and midstream companies have come out with a flood of new pipeline announcements and open seasons in recent months. However, building new infrastructure is becoming more expensive. As seen in the chart below, the pipelines built before 2024 cost $5.75MM/mile on average. This cost per mile has increased based on new pipeline announcements and projects completed in 2024. Based on the projects listed in the table, excluding MVP, the cost per mile has gone up by almost 90% for projects proposed or completed since 2024.

With the price of pipelines going up, the natural result will be increased costs to move gas on this new infrastructure. Based on in-service pipeline projects from the table above, the scatter plot below shows a strong correlation between the pipelines’ cost and the tariff rate. This implies that as pipelines increase in cost, those that subscribe to the transport will ultimately bear the brunt of these higher costs or, more likely, push the cost burden further downstream to the end user. If this correlation continues for proposed projects, the natural gas market should expect to see wider basis in supply regions and more expensive gas overall.

One supply region in particular, the Northeast, exemplifies how difficult this issue has become. Rover, Nexus, and MVP, some of the region’s newest greenfield pipelines currently in service, all had cost overages, as seen in the graph below. If the average cost from Rover and Nexus were applied to MVP Southgate, a newly proposed project in the region, it would result in the project’s cost exceeding $15MM/mile. The resulting pipeline tariff rate, as seen in the graphic below, could be in excess of $1.50/MMBtu, although that is well above the project’s proposed tariff rate of $0.41/MMBtu.

All in all, the U.S. requires more pipeline infrastructure to meet growing demand. This is especially true if the U.S. wants to access the low-cost supply in the Northeast, which continues to be infrastructure constrained, though BTU Analytics has recently written about the region’s potential shift given recent announcements. Regardless, if pipeline costs continue to rise and the amount of natural gas demand forecasted to hit the U.S. grows as well, this will likely result in strengthening natural gas prices, as higher transportation costs will weigh on producer netbacks and increase costs for end users. Be sure to check back in for more Insights from BTU Analytics as we continue to cover natural gas infrastructure and many more energy topics.

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