Pipelines projects moving ahead in the US but in Canada…not so much – June 2015 Overview
A series of pipeline project announcements and open seasons is continuing to fill out US crude oil, NGL’s and products delivery infrastructure. Among these:
Enbridge’s Sandpiper Pipeline project (Beaver Lodge, ND to Clearbrook MN) has received a certificate of need from the Minnesota Public Utilities Commission but still will have to present a detailed review of its proposed route and alternatives in order to protect lakes and wetlands in northern Minnesota. Also, Enbridge will have to produce a study of cumulative environmental impacts of the Sandpiper project and the Line 3 replacement project.
Also, Plains All American Pipeline and Delek Logistics are holding an open season for their Caddo Pipeline that will move light sweet crude from Longview, TX to refineries in Shreveport, Louisiana and Delek’s El Dorado Arkansas refinery through Delek’s pipeline system. Continuing with Plains All American Pipeline, the company is holding an open season for a new crude oil pipeline from Cushing, OK to Longview TX. We believe this is the previously announced Plains Basin pipeline that was going to start in Duncan, Oklahoma but now will start at Cushing.
NGL Energy Partners and Meritage Midstream announced a joint venture to develop crude oil and water gathering systems in the Wyoming Powder River Basin.
Sunoco Logistics is increasing its footprint in the Marcellus Shale area with the announcement of a proposed twin pipeline that will be built simultaneously with its Mariner East 2 Project. These lines will move products such as propane, butane and ethane from the Appalachian shale-gas fields to the Marcus Hook Industrial Complex located southwest of Philadelphia.
Kinder Morgan announced an open season for its Utica Marcellus Texas Pipeline (UMTP) that will move liquids from the Utica and Marcellus producing basins to the Texas Gulf Coast area including a Kinder Morgan dock. Parallel announcements are also raising terminal capacity, especially on the Gulf Coast, and adding to the Jones Act fleet.
At the same time, though, the National Energy Board has announced it is imposing extra conditions to Enbridge’s Line 9, delaying the start of this project. These include additional integrity testing, increased inspections and a temporary pressure reduction. With these changes, Enbridge will have to announce a new start date. This is a delay that is adding to the frustration that Enbridge’s customers have been voicing to the NEB.
Crude by Rail – Finding the middle ground between regulation and free markets
It is still early to see the effects the new CBR safety regulations will have on the transportation of crude oil in the US. For now, CBR is becoming the transportation of choice for refineries located in the West Coast Region (PADD 5). EIA reported that CBR movements to this region went from 23,000 bpd in 2012 to 157,000 bpd in 2014. For 2015 this trend is continuing with movements averaging 191,000 bpd in the first quarter.
In Canada the situation is different. The NEB reported that crude oil exports by rail decreased in the first quarter of the year. In 2014 crude by rail exports to the US from January to March were 165,254 bpd but, for the same period of this year, only 119,755 bpd. Market analysts attribute this decrease to more pipeline capacity being available.
On the safety front, the Western States Petroleum Association and BNSF Railway have signed a mutual aid agreement with the aim of improving rail emergency response in the event of an accident involving hazardous materials.
Meanwhile US rail shippers are working on their response to the federal CBR safety regulations. US states are introducing new regulations and plans to improve the safety of their communities. Such is the case of the Department of Environmental Conservation (DEC) in New York which announced it will expand and improve its response plans along rail corridors where crude oil is moved. It will also implement an air monitoring plan for the Port of Albany and has raised the surcharge for oil transshipped through the state increased from 1.5 cents per barrel to 13.75 cents per barrel.
In Canada, Transport Canada has announced the Safe and Accountable Rail Act has become law. The goal is to strengthen the liability and compensation regime for federally regulated railways. These changes are based on the “polluter pays” principle and aim to financially protect communities that could potentially be affected by a crude-by-rail spill accident. It is important to note that these modifications are in line with regulatory changes being implemented in Canada for other sectors such as pipelines and tankers.
In June, Canadian company Cenovus Energy made two announcements relating to crude-by-rail. The first one was the acquisition of Canexus/North American Terminal Operations rail terminal in Alberta. The second was the creation of a position within its organization for Vice President of Marine. These announcements could signal that producers in Canada have decided to build their own logistics solutions. Cenovus’ production for the first quarter of this year was 218,000 bpd plus 145,000 bpd which it markets on behalf of ConocoPhillips. Out of this volume the company was able to move only 11,500 bpd through the Trans Mountain pipeline. Cenovus’ VP of markets, products and transportation said that the company is preparing to export crude to Asian markets. While longer term the plan is to use capacity on Trans Mountain pipeline as and when it is expanded, the stated shorter term intent is to utilize CBR facilities on both the U.S. and Canadian west coasts.
Production gains – for now
The BP Statistical Review of World Energy 2015 shows that the U.S. became the first country ever to increase annual average oil liquids production by at least 1 million bpd for three years in a row, reaching 11.6 million bpd in 2014. The US replaced Saudi Arabia as the world’s largest oil producer and also replaced Russia as the world’s largest producer of oil and gas. Recent analyst announcements indicate U.S. light tight oil production as continuing to be maintained or slightly up.
The Canadian Association of Petroleum Producers (CAPP) has released its 2015 Crude Oil Forecast, Markets and Transportation. While significant production growth is projected to be maintained short term, the organization continues to cut its forecast for longer term rate of growth. 2025 Canadian production is now forecast to reach 4.96 million bpd, less than the 5.6 million bpd predicted in 2014 and the 6.0 million bpd forecast in 2013. Greg Stringham, CAPP Vice President, attributes these changes mostly to the decrease in oil prices.
Carbon emissions may prove to be another factor which weighs on the long term. The latest G7 summit produced – admittedly long term – commitments to first low and then (by 2100) no- carbon economies. Closer to home, an Argonne National Laboratory study commissioned by the Department of Energy concluded that the GHG well-to-wheels emissions of Canadian oil sands exceed those for conventional U.S. crude by an average of 20%.
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