North America Logistics Review Report – July 2016 Overview Section
The Rig Count Rises while Inventories Drop (slightly) and Crude Remains at $40-50 per barrel
According to the EIA, during July, U.S. crude inventories fell by 4.1 million barrels to 522.5 million barrels. Additionally, despite falling crude prices, the U.S. oil rig count added 32 rigs in July, resulting in 463 total oil rigs in service.
The EIA also published its July Short Term Energy Outlook (STEO) price projections for the next two years.
|WTI Price ($/bbl)||$44||$52|
The 2016 price represents a small upward revision to that found in June’s STEO, with no change in the 2017 figure. While crude oil inventories in the U.S. declined this past month, they are still up 67.2 million barrels from last year’s level. The EIA “expects global oil inventory builds to average 0.5 million b/d in the second half of 2016, limiting upward price pressures in the coming months.”
Both the EIA and Statistics Canada released figures in the month of July which highlight declining crude-by-rail transportation. EIA data indicates that, for the first five months of 2016, crude-by-rail movements declined 45% from those of the same period last year. Movements from the Midwest (PADD 2) to the East Coast (PADD 1) account for the greatest decline in shipments. Decreased crude-by-rail can be attributed to decreased U.S. production, new pipeline takeaway capacity (it has doubled in the Bakken since 2010) and depressed crude prices. The price differential between domestic WTI crude and foreign Brent North Sea crude also influences the economics of crude-by-rail. The spread has narrowed in recent months which has influenced coastal refiners to turn to foreign crudes instead of receiving, for example, domestic Bakken via crude-by-rail. In Canada, even before the wildfires occurred in May and brought nearly a million bpd of crude temporarily offline, crude-by-rail shipments had steadily decreased according to Statistics Canada. The five months before the fires, between December 2015 and April 2016, crude-by-rail in Canada dropped 22%, from 13,427 carloads to 10,406 (a decrease of approximately 67,000 bpd).
In the US, Dakota Access, a subsidiary of Energy Transfer Partners, received permits from the U.S. Army Corps of Engineers allowing the Dakota Access pipeline to cross 60 rivers in Iowa. The $3.8 billion, 1,168-mile Dakota Access pipeline is under construction in Illinois, Iowa North Dakota and South Dakota. The permit is the final approval the pipeline needs to move forward to completion. Additionally, Hess North Dakota Export Logistics proposed a short, 50,000 bpd pipeline that would connect the Hess trucking facility in Tioga, North Dakota to the Energy Transfer Partners’ facility in Williston County, North Dakota. The pipeline will allow the trucking facility to offload crude to the Dakota Access pipeline.
The National Energy Board of Canada suspended its review of Enbridge’s request to extend the time the company has to begin construction on its Northern Gateway pipeline. The clause currently states that the deadline for construction is the end of this year, which appears to be infeasible. The NEB said it made the decision in response to last month’s decision by the Canadian Federal Court of Appeals which invalidated the pipeline’s previous approval. The $7.9 billion, 731-mile pipeline was planned to move 525,000 bpd of oil sands from Alberta to a marine terminal in Kitimat, British Columbia. These latest decisions may well effectively end the Northern Gateway project.
In addition, in Canada, four pipeline unions, along with the Pipe Line Contractors Association of Canada, (PLCAC), have signed a memorandum of understanding with TransCanada which commits the pipeline company to hiring union and PLCAC workers for the construction of the proposed Energy East pipeline. The Energy East project is proposed to move 1.1 million bpd of crude from Alberta and Saskatchewan to the east coast and is estimated to cost $12.1 billion.
Pipeline Open Seasons in July:
- Grand Mesa Pipeline, Colorado-Kansas-Oklahoma – NGL Energy Partners (Oil)
- Pony Express Pipeline, Colorado-Kansas-Oklahoma – Tallgrass Energy (Oil)
- Greater Chickadee Crude Oil Gathering System, Texas – EnLink Midstream Partners (Oil)
- Albion Pipeline, Ontario – Enbridge (Gas)
- Spire STL Pipeline, Illinois-Missouri – Spire Energy (Gas)
Pipelines that received a favorable draft environmental impact statement from FERC in July:
- PennEast Pipeline, Pennsylvania – PennEast Pipeline Company (Gas)
- Rover Pipeline, Ohio-West Virginia-Pennsylvania-Michigan – Energy Transfer Partners (Gas)
- Nexus Gas Transmission Project, Ohio-Michigan-Ontario – Spectra Energy (Gas)
Pipelines that received approval from state/provincial regulators in July:
- Access Northeast Pipeline, Maine – Spectra Energy (Gas)
- Bear Paw Pipeline, Nova Scotia – Bear Paw Pipeline Corporation (Gas)
The Washington Energy Facility Site Evaluation Council (EFSEC) concluded its five-week hearing on the Vancouver Energy terminal, a joint venture between Savage and Tesoro. The hearing included presentations of evidence from supporters and adversaries of the proposed project. The council now must make the decision whether or not to recommend the project to Governor Jay Inslee, who will have the final say. The project involves offloading 120,000 bpd initially (and 360,000 bpd eventually) of crude-by-rail which would then be transferred to marine vessels for transport to West Coast refineries.
The Federal Transport Minister of Canada issued Protective Direction 38, which accelerated to November 1, 2016 the phasing out of DOT-111 tank cars used for crude transport. The accelerated timeline phases out unjacketed cars six months earlier and jacketed DOT-111 16 months earlier than originally planned. The DOT-111 cars will be replaced with DOT-117 (TC-117 in Canada), which have thicker steel and enhanced thermal protection.
Marine & Terminal Update
Citing capital constraints and the need for oil and gas prices to recover, LNG Canada has indefinitely delayed its $50 billion liquefied natural gas port proposal near Kitimat, British Columbia. The project received environmental approval from Canadian officials last year. LNG Canada proposed constructing a gas receiving and processing facility at the marine terminal that would be capable of receiving 350 LNG carriers annually. The project is headed by Shell, with Petrochina Co., Mitsubishi Corp. and Korea Gas Corp. all holding stakes as well.
The U.S. Department of Energy authorized Cameron LNG to export an additional 1.41 bcfd of natural gas from the proposed Hackberry, Louisiana processing facility and marine terminal. The authorization allows for the export of LNG to countries which do not have a free trade agreement with the United States. The total export capacity of the Cameron LNG facility will now be 3.53 bcfd by 2018.
Magellan Midstream Partners announced that it plans to construct a marine terminal on the Houston Ship Channel in Pasadena, Texas. The terminal will be capable of handling refined products and renewable fuels. The terminal is planned to initially have 1 million barrels of storage and will be capable of handling Panamax ships and barges. The project is capable of being expanded to 10 million barrels of storage with up to five docks, if additional demand is presented.
Annova LNG filed for authorization from FERC for its liquefied natural gas marine terminal in Cameron County, TX. The project will include six liquefaction trains and will be able to output 6.95 mtpa. The terminal will be connected to an intrastate pipeline originating in Kingsville, TX. If approvals go as planned, the project will begin construction in Q3-2018, and will be commercially operational by Q4-2021.
Delfin LNG has submitted a draft environmental impact statement to FERC for approval of its deepwater floating LNG terminal. The terminal will be located nearly 50 miles offshore of Cameron Parish, Louisiana. The project will consist of onshore compressor stations that will pump gas through existing, 42-inch diameter pipelines to the floating LNG facility. The floating LNG facility is planned to be able to accommodate four vessels and export up to 13 million metric tonnes per year by 2020.