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North American Logistics Review

North American Logistics Review – Energy East Canceled

TransCanada has canceled its plans for the Energy East Pipeline. The proposed 2,765-mile pipeline system would have transported up to 1.1 million bpd of crude oil from western Canada to eastern markets for exportation. The National Energy Board (NEB) had previously announced that environmental review of the pipeline would examine the effects of both upstream and downstream greenhouse gas emissions – in addition to those related directly to the pipeline itself. The expansion of scope caused TransCanada to ask for a 30-day suspension to reevaluate. This is the second cancellation of a large-scale project focused on increasing the take-away capacity from western Canada. Last November, the Canadian federal government rejected the necessary permits for Northern Gateway. Without Energy East and Northern Gateway, there only remains four proposed pipeline projects to service western Canada: Trans Mountain Expansion, Keystone XL, Line 3 replacement and Line 67 (Alberta Clipper) expansion.

Figure 1. WSCB Production vs Effective Takeaway Capacity (Source: EnSys Energy, North American Logistics Database)

As of the date of this Review, Trans Mountain expansion has received full Canadian Federal approval but is the subject of a lawsuit, Keystone XL is subject to a go/no go decision promised by TransCanada in December, Line 3 replacement is subject to regulatory hearings in Minnesota and Enbridge has just received a Presidential Permit to nearly double Line 67 to 800,000 bpd.  Should all these projects go ahead, they will add 2 mb/d of crude oil exit capacity from western Canada.  The chart above reflects these developments.  It also illustrates the current tightness that has developed.

The recent absence of pipeline expansion, and western Canada refining expansions, have led to exit pipelines running at capacity and an increase in crude-by-rail exports. (According to NEB data, Canadian crude-by-rail exports were 88,000 bpd in 2016 and 127,000 bpd 2017 through July.  We estimate approximately 150,000 bpd for the full year.)   This more expensive form of transportation will continue to be needed until more pipeline capacity is approved and constructed, potentially disadvantaging some Canadian producers as transport cost of rail is higher than that of pipeline. In 2018, the Redwater upgrader and Line 67 projects will add capacity but there is also a projected surge in WCSB supply, indicating that crude-by-rail will, as the ‘balancing’ mode, rise to over 200,000 bpd.  Thereafter, Line 3 expansion in 2019 followed by Trans Mountain and Keystone XL would redress the situation and lead to surplus takeaway capacity – provided all these projects go ahead and do so without further delays. However, ongoing lawsuits and resistance from environmental groups mean these expansions are not yet assured.

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