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Crude by Rail

Pipelines moving ahead and New Crude by Rail Ruling announced

During the month of April an array of announcements indicate that activity in the North America crude logistics landscape is far from slowing down. For April, EnSys Energy compiled similar numbers of announcements from both industry and government.

Pipelines and open seasons (mainly) move ahead

Enbridge’s Sandpiper (Beaver Lodge ND, to Superior WI via Clearbrook MN) and Line 3 Replacement (Hardisty, Canada to company’s Superior terminal on the Minnesota-Wisconsin border) pipeline projects are moving through their respective approval processes. For the Sandpiper, a judge in Minnesota has recommended the Minnesota Public Utilities Commission (PUC) to grant the company a certificate of need. Another process will evaluate the proposed route for this line. For the Line 3 Replacement project, things are moving along as well. Since this pipeline crosses the US/Canada border, Enbridge is following processes with the NEB for the Canada section and with the PUC for the US segment. The NEB’s board will issue a decision on the application no later than May 4, 2016. For the US section, Enbridge filed the certificate of need and route permit with the PUC on April. The intended startup year for both projects is 2017.

In Canada, TransCanada informed the NEB of a change on its Energy East Pipeline (from Alberta / Saskatchewan to Ontario / Quebec and Saint John, N.B.) application. This involves the deletion of the Cacouna Energy East marine terminal. The reason for this cancellation is that the terminal was planned to be located adjacent to the waters of Gros Cacouna, an area designated as critical habitat for the Beluga whales considered an endangered species. With this cancellation, TransCanada has changed the proposed startup date of the line from 2018 to 2020.

TransCanada also applied for a presidential permit for its Upland Pipeline that will provide crude transportation from North Dakota to the above-mentioned Energy East Pipeline at Moosomin, Sask. The line could transport up to 300,000 bpd. The need for a presidential permit is because the line crosses the US/Canada border.

Announcements to bring increasing volumes of crude production to the Houston market were made by Magellan Midstream Partners in conjunction with TransCanada and by Enterprise Product Partners. Magellan and TransCanada will build a pipeline to connect their Houston terminals. This partnership will give TransCanada’s Keystone and Marketlink shippers access to Magellan’s Houston and Texas City oil distribution systems. The project announced by Enterprise will provide access to shippers to every refinery in Houston through its connection with the company’s ECHO terminal via the Rancho II pipeline. The capacity of this line will be 540,000 bpd and Enterprise announced that the pipeline will be transporting West Texas Sour, West Texas Intermediate, Light West Texas Intermediate and condensate. The line is expected to start service in the second quarter of 2017.

Navigator announced a successful open season for its 140,000 bpd Big Spring Gateway Pipeline System (BSG System) that will provide service to oil producers in the Permian Basin to access Texas Gulf Coast and Mid-Continent markets through its connections with BridgeTex Pipeline, West Texas Gulf Pipeline and Permian Express 2, the line will start in the third quarter of 2015. Buckeye Pipe Line Transportation also announced a successful open season for its refined products line, the Michigan/Ohio Pipeline Expansion Project with a startup date on the second half of 2016.

It is all about rail safety

The final rule for the safe transportation of flammable liquids by rail was released on May 1st, 2015 by US Transportation Secretary Anthony Foxx. The much awaited ruling was developed by the Pipeline and Hazardous materials Safety Administration (PHMSA) and the Federal Railroad Administration (FRA). The ruling focuses on improved breaking systems, a revised and improved “DOT-117” standard (see below) for new and existing tank cars used for the transportation of flammable liquids (including crude), also operation speeds, rail routing and an improved classification for unrefined petroleum products. Although this ruling has been requested and expected by all stakeholders in the industry, the common view is that the new set of rules are tougher than expected.
Among the most controversial sections of this ruling is the installation of electronically controlled pneumatic brakes. Experts indicated that the cost per tank car could be between $8,000 to $10,000 and that over 125,000 tank cars would need to be modified. The announcement also includes an ambitious implementation timeline with the first deadline being May 1, 2017 for the upgrade or phasing out of the highest risk tank cars (non-jacketed DOT-111).

The announcement was coordinated with US Transportation Secretary’s counterpart in Canada; Minister of Transport, Lisa Raitt who unveiled the TC-117 tank car design. The new design will apply first to tank cars carrying crude oil in US and Canada. The new tank car will be jacketed and constructed with thicker steel, thermal protection, a full head shield, top fitting protection and a new bottom outlet valve. The new design is mandated to be applied to all tank cars manufactured on or after October 1, 2015 that transport dangerous liquids goods.

To address the issue of crude volatility during tank car accidents, U.S. Department of Energy Secretary Ernest Moniz announced that his agency will start a two-year study on how crude oil properties affect its combustibility in rail accidents. The Energy Department will partner with the U.S. Department of Transportation (DOT) on the study.

Other measurements related to the safety of crude transportation by rail went into effect during April such is case of the previously announced North Dakota oil conditioning order #25417 that mandates that crude must be treated to remove volatile light-ends before being transported by rail. Also, North Dakota is adding rail inspectors to enhance federal regulations on oil train traffic.

US energy policy – a first ever review

Finally, the first-ever Quadrennial Energy Review (QER) was released. In 2013, President Obama initiated a quadrennial cycle of energy reviews to provide a multiyear roadmap for U.S. energy policy. This first volume focuses on how to modernize the Nation’s energy infrastructure to promote economic competitiveness, energy security, and environmental responsibility to take full advantage of the new sources of domestic energy supply that are transforming the Nation’s energy marketplace. The report focuses on the networks of pipelines, wires, storage, waterways, railroads, and other facilities that are the pillar of the US energy delivery system.

Learn more about our North America Logistics Review Service.

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