North America Logistics Review Report – June 2016 Overview Section
Prices Rise as Crude Oil Inventories Drop and Supply Disruptions occur in Canada and Africa
According to the EIA’s Petroleum Status Reports, during June, U.S. oil inventories decreased by 10.5 million barrels to 526.6 million barrels. Total U.S. gasoline inventories also decreased by 1.1 million barrels to 239.0 million. These reductions partially stem from the summer driving season kicking into high gear. The decrease in U.S. inventories influenced a rise in crude prices and impacted the U.S. rig count, which saw its first increase in 41 weeks. 27 oil rigs came online in June, resulting in 431 total oil rigs in service.
The EIA published its June Short Term Energy Outlook (STEO) price projections for the next two years.
| West Texas Intermediate Oil Price ($/bbl) | 2016 | 2017 |
| EIA Short-term Energy Outlook | $42 | $52 |
These prices represent a small upward revision from those found in the May’s STEO.
Supply disruptions which occurred in May and continued in the first half of June, were mostly to blame for the recent rise in crude prices. According to the EIA’s Market Prices and Uncertainty Report, 3.7 million bpd of global unplanned supply outages occurred in May. The outages were due to a massive wildfire in Canada and pipeline attacks in Nigeria. These outages along with seasonally increased demand and decreased U.S. production pushed prices higher in June. U.S. production decreased by 113,000 bpd in the month of June.
While crude oil inventories in the U.S. declined this past month, they are still up 61.2 million barrels from last year’s level and storage capacity utilization is still near a record high of 73%. In fact, total global inventory capacity is anticipated to grow in the second half of 2016.
The Canadian Association of Petroleum Producers (CAPP) published its 2016 Crude Oil Forecast, Markets, and Transportation report in June. Although the growth by 2030 in Canadian crude oil production is around 400,000 bpd less than the figure reported last year, the report reveals that oil pipelines in Canada are still “urgently needed.” CAPP expects oil production in Canada to increase 28% over the next 15 years to 5.9 MMbpd. The report states that “Canada’s oil supply will soon greatly exceed its current pipeline capacity” with “more than 850,000 additional barrels per day of oil sands supply… available by 2021.” The report also cites that “delays in the startup dates for several oil pipeline projects mean railways will continue to complement pipeline transportation.”
Depicted above is EnSys’ balance for projected Western Canadian (WCSB) crude supply from CAPP versus processing and exit capability by pipeline and rail. The CAPP’s projection and concern over WCSB production soon greatly exceeding local processing plus pipeline exit capacity is in line with EnSys’ WCSB balance which likewise shows the limits of current pipeline capacity being reached in 2017, leading to a rising level of reliance on crude-by-rail. The reduced production outlook in the latest CAPP report keeps the supply/disposition balance within bounds but still leads to a projected 0.5 – 0.75 mb/d needing to be moved by rail from 2018 onward with implications for achievable rail loading utilization levels, WCSB crude oil destinations and economics.
Pipeline Update
In the US, construction continued on the $3.8 billion, 1,168-mile Dakota Access crude pipeline through North Dakota, South Dakota, Iowa and Illinois. A recent snag in the construction process occurred when tribal burial grounds were unearthed in Iowa during the surveying process along the planned route. Iowa officials are allowing the pipeline to continue as long as the pipeline is bored 85 feet underneath the site. Additionally, an Iowa judge dismissed the lawsuits which aimed to stop the company from being able to use eminent domain to obtain land along the pipeline.
In Canada, the Federal Court of Appeal overturned the then conservative federal cabinet’s 2014 decision to approve the $7.9 billion Enbridge Northern Gateway Project. The Court cites the decision was made without adequate consultation with First Nations. The ruling says, “We find that Canada offered only a brief, hurried and inadequate opportunity … to exchange and discuss information and to dialogue.” The liberal federal government will soon make a decision on whether the project will go any further.
Additionally, in Canada, the National Energy Board (NEB) started its 21-month review of TransCanada’s Energy East pipeline. The review will be conducted by a three-person panel which will determine if the pipeline is in the public’s interest. There will also be public hearings to allow Canadians to voice their opinions. The review has a budget of $10 million which is the largest amount of money any project review has received from the NEB.
Kinder Morgan’s Trans Mountain pipeline expansion project has seen increased opposition since Canada’s National Energy Board published its recommendation in May to approve the project. The City of Vancouver, First Nations, and the Ecojustice lawyers have all separately filed legal applications asking the Federal Court of Appeal to stop the NEB from allowing the expansion to move forward.
Pipeline Projects Which Received Approvals in June:
- Robinson Lake Facility Project, North Dakota – Plains All American Pipeline (Oil)
- Coastal Bend Header Project, Texas – Gulf South Pipeline Co. – FERC (Gas)
- Mackenzie Gas Project, Canada – Imperial/APG/ConocoPhillips/Shell/ExxonMobil – NEB (Gas)
Pipeline Projects Announced in June:
- Greater Chickadee Crude Oil Gathering System, Texas – EnLink Midstream Partners (Oil)
- Valley Expansion Project, Minnesota/North Dakota – WBI Energy (Gas)
Pipeline Open Seasons:
On the natural gas front, Mexican state-owned power company, Comision Federal de Electricidad awarded two interconnected contracts. One contract was awarded to Spectra Energy to construct and operate a 168-mile pipeline that will start in Nueces, Texas and connect with the other awarded pipeline in Brownsville, Texas. Spectra Energy will also build a header system with the capacity of 5 bscf/d in Nueces County, Texas that will be connected to the 2.6 bscf/d Valley Crossing pipeline. The other contract was awarded to TransCanada and Sempra Energy to construct and operate a natural gas pipeline from Texas to Mexico. The 497-mile Sur de Texas-Tuxpan natural gas pipeline will begin offshore from Brownsville, Texas (located adjacent to Mexico) and continue along the coast to Tuxpan, Veracruz, Mexico. The 42-inch diameter pipeline will add 2.6 bscf/d of gas to the total current cross border export volume of 3.4 bscf/d. Mexico began steadily importing approximately 0.8 bscf/d of gas from the U.S. around 2002 and continued to do so until 2010. Since then cross border capacity and volumes have grown rapidly with projects being announced regularly.
Rail update
On June 3rd, 16 cars of a Union Pacific train that was carrying Bakken crude to Washington derailed while traveling through the Columbia River Gorge in Mosier, Oregon. The incident ignited a fire and forced about 100 residents to evacuate the area. The Federal Railroad Association (FRA) has determined that the derailment was caused by broken lag bolts causing the track to become too wide for the train. (It was noted in EnSys’ previous Monthly Report that Union Pacific inspected the track more than six times in recent months and that the train had undergone an inspection before loading up with crude.) The Oregon derailment has heightened concerns of similar disasters occurring in the Pacific Northwest and in other locations with heavy crude-by-rail traffic.
The Canadian government published regulations proposing to limit locomotive emissions. The regulations will increase emission standards and reduce idling. Feedback to the proposed regulation will be accepted until September 15 and then Transport Canada will work to finalize and publish the regulations.
Marine & Terminal Update
On June 26th, the Panama Canal expansion opened, allowing larger ships to navigate through the isthmus. The $5.4 billion expansion took nine years to complete and more than doubled the cargo capacity of the canal. The expansion added a third set of locks to the canal to accommodate ships carrying around 14,000 containers compared to the old locks which could handle ships with only 5,000 containers. The prior Panamax tankers, which were the largest crude oil ships that could navigate the pre-expanded locks, could carry 300,000-500,000 barrels. The Neopanamax vessels, which are the largest crude ships allowed in the expanded locks, can transport 100,000 additional barrels for a total storage of 400,000-600,000 barrels. The expansion cuts eleven days off the travel time from the U.S. to Asia, which makes it much more competitive with the Suez Canal in Egypt.
Kinder Morgan received FERC approval for its Elba Liquefaction Project at its existing Elba Island LNG terminal near the port of Savannah, Georgia. The project is proposed to liquefy natural gas and export 2.5 million tonnes per year. The $2 billion project is supported by a 20-year contract with Shell. FERC also approved Kinder Morgan’s EEC Modification Project and SNG Zoe 3 Expansion Project. The combined projects will supply additional compression and pipeline capacity to the Elba Inland terminal.
This month FERC approved the prefilling review process for Driftwood LNG’s liquefaction facility in Calcasieu Parish, Louisiana. The project will have the capacity to produce and export 26 million tons of LNG per year and will include two compressor stations, 12 meter station and three pipeline segments.
The joint venture between Magellan Midstream Partners and LBC Tank Terminals has announced its project that will add 700,000 barrels of storage next to LBC’s existing terminal in Seabrook, Texas. The project will also include an 18-inch diameter pipeline from the storage tanks to a network of pipes which feed Gulf Coast refineries.
Prism Midstream’s Bedrock Liquids Handling Facility in Crockett County, Texas became fully operational. In addition to the facility’s ability to handle 4,500 bpd of on-spec NGL’s, it can also handle 3,000 bpd of off-spec NGLs and 3,000 bpd of off-spec condensate. The handling facility has six truck loading and unloading ports.