Infrastructure constraints limit energy scalability but present opportunity 

The energy sector is gaining renewed focus in the national and global conversation following record U.S. oil and natural gas production, a surge in electricity demand, and a boom in renewable energy growth. These trends are affecting communities and economies across the country, creating both significant promise and serious challenges in scaling the production and distribution of these energy sources. The challenges have ramifications for a range of projects, from drilling wells in West Texas and Pennsylvania to building new data centers in the mid-Atlantic and solar farms in California.

Infrastructure bottlenecks—especially capacity limitations in natural gas pipelines and electric transmission lines—are complicating growth across North America. Addressing these barriers is becoming increasingly important for energy security and for companies looking to satisfy global energy demand. 

Key challenges

Energy infrastructure across North America is aging and struggling to meet growing demand. According to the U.S. Department of Energy, 70% of transmission lines are over 25 years old and approaching the end of their typical 50-to-80-year lifecycle. Electricity demand, nearly flat from 2010 to 2020, with just 0.2% year-over-year average growth, is now growing at 12 times that pace.

At the same time, U.S. natural gas production, demand and exports are all at all-time highs, driven by the increasing use of natural gas for power generation and increasing exports of liquefied natural gas (LNG)—yet natural gas pipeline capacity additions in 2023 were the lowest in 10 years. With the push toward electrification and U.S. LNG export capacity expected to nearly double from 2023 to 2028, the growth trajectory shows no signs of slowing.  

Unfortunately, energy production cannot simply manifest anywhere or at any time. Foundational infrastructure is needed to transport the energy from where it’s produced to where it’s consumed or stored. Three key challenges are affecting the ability of our infrastructure to accommodate future growth:

• Transmission capacity. Whether for electricity or natural gas, power lines and pipelines must carry energy from production sites to consumption or storage sites. Without sufficient transmission infrastructure, new sources cannot be connected and new customers cannot be added, slowing growth on both sides. Current infrastructure is stretched thin and needs investment to handle the growing demand.
• Public opposition (NIMBYism). While the public wants the benefit of easy access to electricity and natural gas, they often oppose the infrastructure (power plants, power lines, pipelines, etc.) being located anywhere near them. This NIMBY (“not in my backyard”) sentiment often slows down or even halts a range of new infrastructure projects.
• Regulatory approvals. The approval process for new infrastructure is long and complex. Some checks are reasonable, to address issues like landowner rights and environmental rules. However, a significant increase in new requests in recent years is creating further delays, as are political challenges, as these projects often cover multiple jurisdictions and involve parties with competing interests. This process must be streamlined for greater efficiency.

Together, these challenges are driving uncertainty and, often, higher costs for consumers and the companies investing in the range of projects supporting energy growth across North America.

A range of potential solutions

Addressing these challenges to meet our energy infrastructure needs will require an “all of the above” approach, not just a single solution. The range of solutions available presents multiple opportunities for businesses.

• Enhancing transmission within existing rights-of-way. One key barrier to building new pipelines and power lines is acquiring land rights, so there are advantages to upgrading existing power lines and pipelines where they are. Reconductoring existing power lines with more advanced line materials capable of higher capacity and upgrading existing pipelines with larger and/or newer ones that don’t leak will be part of the solution.
• Digital solutions. Using digital tools—including advanced grid management solutions, optimized pipeline scheduling and operations, and dynamic power line ratings—enables companies to maximize the use of existing infrastructure, reducing the need to build new pipelines and power lines. While artificial intelligence is driving some of the growing demand, it will also enable some solutions to better manage and even reduce demand.
• Streamlining regulatory approvals. Although the Federal Energy Regulatory Commission has been a source of delay for new energy projects, it is working to improve the approval process, especially for electric infrastructure. Rulings in recent years, including FERC Order Nos. 1920 and 2023, should reduce the timeline for permitting and siting new projects and drive electric utilities to plan for growth up to 20 years in advance. Streamlining regulatory approval of pipeline infrastructure projects will be necessary too.

A recent U.S. Department of Energy report highlights the potential benefits of infrastructure investment, particularly in electricity transmission infrastructure. These include an ultimate decrease in consumer electricity costs and a return on investment of approximately $1.60 to $1.80 for every dollar spent on electric transmission infrastructure upgrades.

The takeaway

Through innovation and agility, middle market companies are well positioned to respond to the challenges and opportunities presented by the current infrastructure constraints on the energy sector. Here are some actionable steps to consider:

• Evaluate alignment between constrained areas and the business. Businesses should work to understand how they are affected by bottlenecks, develop strategies to increase resilience and identify opportunities to bring a solution to the market.
• Embrace emerging technologies. The energy solutions of tomorrow will differ from those of the past. Science and technology are advancing faster than ever, and energy companies (as well as those serving them) that want to get ahead must be willing to take risks and invest in newer technologies that will improve efficiency and reduce costs.
• Identify direct connections to energy sources where necessary. Where infrastructure constraints present near-term issues, energy producers will increasingly connect directly to energy customers and bypass the transmission constraint.
• Build and lean on partnerships. The importance of relationships with trusted third parties will only grow. This is especially the case for relationships with regulatory bodies—not just in project approval processes, but in influencing upcoming regulations and decisions.

As businesses in the U.S. energy sector work to meet growing demand and develop the infrastructure necessary to serve it, they will need to work through many challenges. Companies willing to be adaptable, innovative, forward-looking and collaborative to manage through the challenges will be well positioned to thrive in the years ahead.