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Crude by Rail

Keystone XL – no go – for now and other updates

This overview is part of our North America Logistics Review subscription service.

Keystone XL – no go – for now

After 7 years of review, U.S President Barack Obama rejected TransCanada’s proposed Keystone XL pipeline project citing that the project “would not serve the national interests of the United States.” TransCanada’s request to the State Department a few days earlier for a suspension of its review of the pipeline application may have been a gambit to try to head off the rejection. A US State Department official indicated that TransCanada has the option to submit a new application. In TransCanada’s own statements, the company has indicated that it will review its options including “filling a new application to receive a presidential permit for a cross-border crude oil pipeline.” It remains to be seen what TransCanada decides to do in regards to this project.

The absence of the Keystone XL pipeline has not caused a shortage of Canadian crude imports though; the EIA recently reported that imports of Canadian crude to the U.S. reached 3.4 million bpd in August 2015. This volume represents 45% of total crude imports to the US. In comparison, Canadian crude imports were 25% of US total crude imports in August 2011.

It is ironic that the recent 3.4 million bpd level is well ahead of the projections for 2017/2020 imports of Canadian crude with Keystone XL made by EnSys in 2010 and 2013 for the Departments of Energy and State. In 2011, EnSys was asked to assess ‘no expansion’ scenarios in which no major new cross-border or Canadian exit pipelines were built. In our study (Keystone XL Assessment – No Expansion Update) for the US Departments of Energy and State we stated that market forces, particularly crude-by-rail developments and projects involving existing pipelines and rights of way, would find a way to move Canadian crude out of the Alberta supply basin to market centers even in the absence of Keystone XL. This is clearly what has happened.

Pipelines and Policy

The Minnesota Public Utilities Commission (MPUC) put on hold its decision to grant a certificate of need to Enbridge’s Sandpiper project (from Beaver Lodge, North Dakota, through Clearbrook, Minnesota, and to Superior, Wisconsin). In response, Enbridge has filed its comments with the Commission stating its support of rejoining the Certificate of Need and Routing Permit dockets for the project as well as its agreement in developing an Environmental Impact Statement. These steps will likely delay the project until 2017.

A group of environmentalists has requested that the Army Corps of Engineers’ district office in Rock Island, Illinois change how it is reviewing Dakota Access’ Bakken pipeline project application. The group, Iowa Citizens for Community Improvement, is asking officials not to focus on waterways as individual permit applications but, rather, as one large application for the section that involves Iowa. If the Army Corps of Engineers decides to accommodate this request, it could set a precedent for future interstate pipeline projects.

The US Pipeline and Hazardous Materials Safety Administration (PHMSA) is proposing a new series of safety regulations that will apply to hazardous liquid pipelines. Some of the new regulations focus on overseeing pipelines in rural areas of the country which, according to PHMSA, are not adequately covered in current regulations. The proposal omits the requirement to install more automatic or remote-controlled valves on existing pipelines which can promptly shut down a pipeline when a leak is detected. The proposal does, however, include requirements for leak detection systems on new regulated pipelines. Written comments are currently being accepted to the draft regulations. The final regulations are expected to be released next year.

In Canada, the National Energy Board has approved Enbridge’s Line 9 hydrostatic tests submitted by the company. This was the last prerequisite for the project (that involves the reversal of Line 9A from Sarnia to Westover/Nanticoke and then reversal of Line 9B from Westover to Montreal) to be approved. Enbridge has not yet announced when the line will be in service, since there are multiple technical preparations that the company has to work through.

The future of the Northern Gateway pipeline project is now in the hands of a trio of Federal Appeal Court. The trio will decide whether to uphold or dismiss the government’s prior approval of the project. The decision is expected to be announced in January 2016. A group of First Nations, environmental groups and a labor union launched the appeal, asserting that the panel tasked with reviewing the pipeline proposal did not adequately consult with aboriginal groups nor sufficiently consider the environmental impact of the project.

Rail Safety

The House of Representatives approved the Surface Transportation Extension Act of 2015 (H.R. 3819) which extends the Positive Control Technology (PTC) deadline through 2018 and will prevent a shutdown of the U.S. rail system. Before the announcement of this extension, many rail operators had announced that, barring any extension, they would have had to stop services January 1st, 2016 in order to meet compliance specifications for this mandate.


EIA announced that the US has become a net oil exporter to Mexico for the first time in 20 years. Net products-only exports to Mexico totaled 48,000 bpd in July 2015. This stands in direct contrast to US imports from Mexico a decade ago—totaling 1.3 million net barrels. This is an example of how the US crude renaissance has changed crude logistics at a global level.

The EIA forecasts month-over-month US shale production will fall by 93,000 bpd in November 2015, the largest monthly drop since the Administration started tracking shale production data in 2007. If the projected production drop is accurate, total US shale production will fall to 5.12 million bpd.

In separate reports, the IEA and Citigroup released outlooks for low crude prices, citing continued weak demand growth, a further increase in crude oil inventories, and resilient US shale production that continues to defy sharp decline projections. Citigroup forecasts a WTI crude price of $39 for 4Q 2015 and $48 for 2016.

Over a year after PEMEX presented a crude oil swap proposal to the US Dept. of Commerce, a license has been issued to PEMEX. As part of the swap arrangement lasting one year, the US can officially export up to 75,000 bpd of its light crude oil in exchange for equivalent barrels of Mexican heavy crude oil. The 75,000 bpd ceiling falls short of the 100,000 bpd that PEMEX requested in its original swap submission to the US Dept. of Commerce.

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