Development Polices When considering natural gas, the largest challenge to economic development is caused by policies developed by the transmission and distribution companies and the State. These policies have two main factors.
Existing Challenges » South Dakota relies on a network of interstate
pipelines to bring natural gas into the State. » Existing natural gas infrastructure is fully subscribed, and significant investment is required to expand capacity. » Physical constraints of some existing pipelines make expansion more costly. » Natural gas transmission and distribution companies operate on an economic model that presents an extra barrier to economic development. » Many areas of the State do not have access to natural gas. » Natural gas transmission pipelines are subject to approval processes through the Federal Energy Regulation Commission (FERC). This is lengthy process that adds multiple years to pipeline development projects.
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» The transmission and distribution stakeholders only expand capacity once end users have committed to accepting and paying for the capacity. Typically, an open season is established, which allows users to sign up for capacity. Once the open season closes, users that signed up are committed to paying for the project costs and are allocated the corresponding capacities. This means natural gas companies will not expand their systems in anticipation of future growth, and the systems are always fully subscribed.
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» The cost of capacity increases is not allowed to be dispersed among existing users. Capital costs must be paid for by the utility companies, or passed directly to the users receiving the increased capacity. These policies, which required large investment and commitment from businesses upfront, can be a hurdle for development. Prospective partners may be unwilling to pay significant costs for system upgrades or even unwilling to consider sites in South Dakota that do not have natural gas capacity available prior to development.
Future Challenges » Challenges associated with natural gas
infrastructure are generally similar for existing and current conditions. » Additional maintenance resources and considerations may be required as time progresses due to the degradation of assets over time. » Long-term trends toward net-zero emissions will reduce demand of natural gas. This will likely hit the power generation sector first, and may free system capacity for other uses. » Growth will continue to strain the existing natural gas system, but it may also offer opportunities to combine resources if pipelines expand. » Public input on pipeline expansion may affect future projects.
54 | Natural Gas
South Dakota Governor’s Office of Economic Development
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