North America Logistics Review Report – January 2016 Overview Section
This Overview is part of our North America Logistics Review subscription service.
During the month of January, EIA published its Short-Term Energy Outlook (STEO), including price projections for the next two years: WTI and Brent are expected to average respectively $38 and $40 per barrel in 2016 and $47 and $50 in 2017.
In 2015, OPEC produced 31.6 million bpd. Production from the cartel is expected to rise by 500,000 bpd in 2016 and by 600,000 bpd in 2017. EIA indicates that Saudi Arabia and Iraq led production growth in 2015 but, moving forward, production growth will mostly come from Iran. For non-OPEC countries, a decline in total liquids production of 600,000 bpd is expected during 2016, which would be the first non-OPEC decline since 2008. US crude oil production of 9.4 mbpd in 2015 and is expected to drop to 8.7 mbpd in 2016 and 8.5 mbpd in 2017.
In Canada, the National Energy Board published its Canada’s Energy Future 2016: Energy Supply and Demand projections to 2040 (EF 2016). The study includes projections for all types of energy across all Canadian regions. The report presents a base case scenario, scenarios for low and high crude price as well as one with restricted pipeline access (no major pipelines are built over the period). For the reference case to 2040, Canadian energy production will grow faster than Canadian energy use. Oil production is projected to reach 6.1 mbpd, with most growth coming from the oil sands projects. For the 2016-2020 period, some growth is expected to occur regardless of the price scenario (low vs. high) because the growth is largely being driven by projects that are already in construction and are likely to be finished. For the low price case scenario, production reaches 4.8 mbpd by 2040. For the high price scenario, production is expected to reach 6.9 mbpd by 2040. For the restricted access to pipelines scenario, production reaches 5.6 mbpd by 2040 and rail use to transport Canadian crude is estimated to reach 1.2 mbpd. (Note current western Canadian nameplate crude-by-rail loading capacity is 1.3 mbpd.)
Enbridge’s Southern Access Expansion Pipeline Project (SAX) started operations in January 2016. The line has 300,000 bpd of capacity and moves crude from Enbridge’s Flanagan Terminal (where crude from the company’s Lakehead System is received) to Patoka, Illinois.
The Grand Mesa pipeline – that will deliver crude from the DJ Basin into Cushing, Oklahoma – is holding a second open season starting in 2Q-2016. This project has an initial capacity of 150,000 bpd and will enter service 4Q-2016.
Magellan Midstream and TransCanada have confirmed a joint venture—the HoustonLink Pipeline— to build and operate a crude pipeline that will link TransCanada’s Houston tank terminal and Houston Lateral pipeline with Magellan’s East Houston Terminal. This asset will provide TransCanada’s Keystone and Marketlink customers with the ability to access Magellan’s Houston and Texas City systems.
Pipelines and regulations
TransCanada has filed a claim under the North American Free Trade Agreement (NAFTA) to recover $15 billion in cost and damages due to the Administration’s rejection of the Keystone XL project. The company asserts that the treatment of the application did not comply with international rules and that the process was highly politicized. Separately, TransCanada has also filed a lawsuit in Federal court in an effort to invalidate the permit denial and prevent any future president from blocking the project.
The government of Canada announced the implementation of principles to guide the process of major natural resource projects. These changes will affect two major pipeline projects: the Trans Mountain Expansion and Energy East pipeline. Now, both projects must face more thorough examination with Indigenous peoples and undergo an assessment of upstream greenhouse gas emissions related to the projects. Also, the Minister of Natural resources will play a role in each process. For the Trans Mountain expansion project, a ministerial representative will be gathering feedback from all communities affected by the project and report back to the Minister. For Energy East project, the Minister wants to add three temporary members to the NEB panel reviewing the application. In order to implement these changes, the regulatory approval process has been pushed back: for the Trans Mountain Expansion, the Government is slated to decide in December 2016 (instead of August 2016). For the Energy East project, an extension will add up to 9 months to the consultation plus recommendation process. (TransCanada was already stating a 2020 in service date before this latest ruling).
The San Luis Obispo (SLO) Planning Commission staff recommended denial of the Phillips 66 Rail project at the Santa Maria Refinery north of Los Angeles, citing many potential negative environmental implications of allowing the project to move forward. More arguments are to be heard by the Commission at its next meeting in late February and the SLO Commissioners will then decide on the project. If completed, the facility will have capacity to offload 40,000 bpd of crude-by-rail.
Valero is also navigating the regulatory approval process to build an offloading rail terminal at its Benicia, CA refinery. A Final Environmental Impact report has been issued and public hearings will start in March. This project was originally expected to start operations in 2015. Once completed, the project will enable the refinery to receive approximately 70,000 bpd of Bakken crude.
In Canada, USD Group had planned to double the capacity of its Hardisty Rail Terminal (from 140,000 bpd to 280,000 bpd). Because of the size of the project, the federal government announced that a Federal Environmental Assessment would be necessary but media sources indicate that, at present, the federal government has marked the environmental review as “cancelled.” Media reports indicate that the Canadian Environmental Assessment Agency “has been advised by the proponent [i.e. USD Group] that it no longer intends to carry out the project as described.”