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Keystone XL analysis

Pipeline Projects regulations and projects update

This overview is part of our North America Logistics Review Services.

Pipeline Project Updates

Various pipeline developments occurred throughout the month of September. Oryx Southern Delaware Oil announced an open season for its Oryx Trans Permian Oil Pipeline System (OTP), a gathering system with capacity from 160,000 bpd to 220,000 bpd to serve the southern Delaware Basin in Texas.

Sunoco is holding a binding open season for its third Mariner East pipeline, based on interest from shippers that want to transport NGLs from producing areas of eastern Ohio, western Pennsylvania and West Virginia to the Marcus Hook complex near Philadelphia. This project reflects the need of Marcellus Shale shippers to reach major East Coast markets.

Kinder Morgan announced the extension of its binding open season for its proposed 430,000 bpd Utica Marcellus Texas Pipeline (UMTP). The line will transport natural gas liquids and condensate produced from the Utica and Marcellus basins to delivery points along the Texas Gulf Coast, including connectivity to a Kinder Morgan dock located along the Houston Ship Channel.

Navigator Energy Services’ Big Spring Gateway Pipeline System is now transporting 40,000 bpd in the Permian Basin region. Deliveries into Sunoco’s West Texas Gulf Pipeline and the Permian Express 2 oil pipeline are set to expand to 160,000 bpd by December of this year.

Enterprise Products Partners announced that its 480,000 bpd Rancho II pipeline, running from Sealy, TX to the ECHO Terminal is now operational. The line will carry crude oil, condensates and processed condensate, predominantly from the Permian Basin and the Eagle Ford Shale. The company also announced the completion of its Aegis pipeline segment running from Beaumont, Texas to Lake Charles, Louisiana. This segment is now ready to deliver additional ethane to Gulf Coast petrochemical facilities.

In contrast to the aforementioned projects that are moving ahead, Shell has abandoned its Louisiana to Texas Westward Ho pipeline project, which was originally projected to move 900,000 bpd of Gulf of Mexico and imported crudes from the St. James, Louisiana oil hub to Houston. After extending the open season and revising the line capacity several times since the project’s original announcement in 2011, Shell ultimately scrapped this project as several other pipelines came on-stream recently.

In Canada, the National Energy Board (NEB) announced that it has delayed the release of its recommendation report for Kinder Morgan’s Trans Mountain expansion project by five months. Evidence in favor of the pipeline prepared by consultant Steven Kelly, who was recently appointed to the NEB, will be dismissed because it may affect the impartiality of the review process.

Pipeline Regulation

TransCanada announced that it will reapply to the State of Nebraska for approval of its Keystone XL pipeline. The application will feature the same route that was approved by Governor Dave Heineman in 2013 and later was overruled. With this decision, TransCanada will stop pursuing eminent domain rights in this state for the project.

Enbridge has also been experiencing regulatory setbacks with regard to its Sandpiper pipeline. The Minnesota Court of Appeals ruled that a full environmental review must be completed before plans for the pipeline proceed in the state. This decision invalidates the certificate of need that Enbridge received for the project back in June. This setback will likely result in delays beyond the originally forecast in-service date of 2017.

The White House issued guidance to federal agencies in an effort to improve the quality of environmental reviews of infrastructure projects, including energy projects, and to shorten review times. Under the new guidance, 11 federal departments will begin to identify new infrastructure projects for which standardized milestones and coordinated schedules will be posted within 90 days. Among the main milestones are the dates of application receipt, permit approval, release of the draft and final environmental impact statements, as well as issuance of final decisions. The White House’s objective is to increase interagency cooperation, expedite the often drawn-out approval process, and promote transparency with respect to progression in the approval process.

U.S. Crude Production and Data Collection Methodology

EIA reported that U.S. crude production fell to 9.3 mbpd in June, a 100,000 bpd month-over-month decline. U.S. crude production remains at 9.4 mbpd for the year to date.

The EIA also announced an important change in its methodology for collecting production data: it is now surveying companies that drill in 15 states including Texas and Gulf of Mexico rather than relying on state agencies to provide data. The EIA has historically based its production estimates on information provided from state agencies and tax data but “given the timetable for EIA’s data products, much of that information is lagged and incomplete at the time of publication.” The process of surveying oil producers is already used by the Canadian Association of Petroleum Producers (CAPP).

Crude Prices and Investment

EIA published an analysis about the effects of low prices on upstream investment. Upstream investment is highly correlated with oil prices, thus, as one would expect, a sharp decrease in oil price tends to result in a sharp pullback of upstream investment. Assuming oil prices remain low, it is possible for investment levels to remain comparatively low over the next 10 years the EIA concludes.

This conclusion is generally supported by a recent Wood Mackenzie report stating that $220 billion of investment has already been cut as a result of project cancellations and deferments. Furthermore, $1.5 trillion in potential future investments will not occur if prices remain at $50 per barrel.


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