US Pipeline Projects are Moving Ahead and other November developments
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US Pipeline Projects are Moving Ahead
The Association of Oil Pipe Lines (AOPL) and the American Petroleum Institute (API) released their 2015 US Liquids Pipeline Usage & Mileage report. US crude pipeline mileage grew by an estimated 12,000 miles from 2010 to 2015. Aggregate US liquid pipeline mileage totaled 199,000 miles in 2014. As stated by AOPL President Andrew Black, “In the time that Keystone XL pipeline was under review, we built the equivalent length of 12 Keystone XL pipelines across the US.” Furthermore, EnSys Energy’s pipeline projects database indicates that approximately 235 pipeline projects have taken place from 2011 to November 2015 in North America.
After a year of debate over the project’s implications, the South Dakota Public Utilities Commission has finally approved the construction of the 320,000 bpd capacity Dakota Access pipeline. The pipeline will transport Bakken crude from North Dakota, through South Dakota, and to Patoka Illinois. This project could tip the balance towards the awaited reversal of the Capline pipeline (1.2 million bpd), which owners BP, Plains All American and Marathon have discussed as an option.
In order to remain competitive and adapt to new market conditions, the Saddlehorn and Grand Mesa pipeline projects are being combined. Both projects will deliver various grades of crude oil from the Colorado section of the DJ Basin to storage facilities in Cushing, Oklahoma. The initial capacity for the combined project will be 340,000 bpd, as opposed to the 600,000 bpd of combined capacity initially anticipated from the construction of both pipelines.
No Keystone XL, no problem
Enbridge has been discussing a plan for building a new pipeline that will cross the length of the state of Wisconsin starting in Superior and following the route of Line 61 to Flanagan Illinois. This project is known as the “twin Line 61”. At a cost of $3 billion dollars, this will enable the company to reach a full expansion of the Mainline system by 800,000 bpd. Enbridge has said that the project is needed in order to avoid possible bottlenecks at Superior created by Western Canadian infrastructure expansions. The company is still evaluating many factors that could potentially affect the project such as a difficult process of regulatory approval, the pace of new oil sands development in Canada and the prospects for future oil prices. The company estimates that, by the end of 2016, it will be able to move 2.2 mbpd of crude through Wisconsin.
The future of the Portland Pipeline remains in question
When Enbridge’s Line 9B reaches its full capacity, Suncor Refinery, Portland Pipeline’s main customer, will be able to fully source its 137,000 bpd refinery in Quebec with North American crude including crude from its own oil sands projects. Analysts speculate that there are three possible options for the future of the Portland to Montreal Pipeline: a) Suncor keeps buying oil from the pipeline, at lower volumes, just to maintain this option in case imported crude becomes a better option for the refinery in the future, b) the pipeline is reversed so Canadian producers can export their crude and thus reach international markets via an ocean port (this option could be more complicated given the current ordinance that prohibits the pipeline from being reversed) or c) change the whole make up of Portland port to transform facilities and tanks into offices and laboratories to find sustainable ways to create energy such as using algae to refine petroleum and using the pipeline as a conduit for underground transmission lines carrying electricity produced by hydropower plants in Canada. Only time will tell which of these options will materialize.
Pipelines in Canada – Big developments
After the proposed Cacouna, Quebec terminal option was scrapped because of environmental objections, TransCanada has announced that it is no longer considering the construction of a terminal in Quebec for its Energy East project. As lately configured, the project will have only one terminal at Saint John, New Brunswick. Quebec premier Philippe Couillard said that Quebec needs to see how the lack of a Quebec terminal will affect his province and the economic benefits that were promised before making a decision on approving or denying the project. In the meantime, TransCanada will be amending the Energy East project application to be presented to the National Energy Board.
New Canadian Prime Minister Justin Trudeau started to act on one of his campaign promises: set the stage for banning oil tanker traffic along the northern coast of British Columbia. Trudeau recently instructed Transport Minister Marc Garneu to “formalize” the proposed ban. Enbridge’s Northern Gateway pipeline is likely to be the most affected by this ban, if implemented. The Northern Gateway pipeline project would carry oil sands crude from near Edmonton, Alberta, to a deepwater port at Kitimat, British Columbia for export to Asian markets. Nevertheless, Enbridge said that it remains committed to the Northern Gateway pipeline project. More information on the proposed ban is expected to come soon as Canadian Parliament opened on December 3rd.
Crude-by-rail boom – again?
After the rejection of the Keystone XL project by President Obama, all eyes are focusing on the ability of rail to pick up the pace. CAPP already said in its annual Energy Overview (June 2015) that without Keystone XL, Canadian crude volumes by rail would double by 2018.
The Canada National Energy Board also reported that, in 1H-2015, monthly crude-by-rail export volumes to the U.S. Gulf Coast averaged 46,500 bpd and then increased by more than 20,000 bpd in Q3 2015, to nearly 67,500 bpd. The increase can be attributed to a few factors such as the wider differential between WCSB and WTI crude and discounted rates that rail companies have been offering to customers lately. In its third-quarter conference call, Cenovus downstream President Bob Pease said that, as rail economics in the current environment improve and until additional pipeline expansions come online, rail will be an essential component of the crude transportation landscape.
Canadian Pacific is still pursuing a takeover of Norfolk Southern. This move would provide CP with access to ports on the Gulf Coast and Atlantic Ocean. Analysts have said that CP may have to adopt a more aggressive tactic for this takeover to move ahead since no advancements in the negotiations have been reported at the time of this issue. Even if the parties were to come to an agreement regarding the potential merger, the deal is expected to face significant regulatory hurdles.
The Sightline Institute released a new report: Tracking Emissions – The climate impact of the proposed crude-by-rail terminals in the Pacific Northwest. The report states that, when they come on line, rail terminals in Oregon and Washington could reach a capacity to handle over a million barrels per day. Because of the lack of pipeline capacity, these terminals could become the sole driver of new growth for the Canadian Oil Sands the report concludes. The Sightline Institute report adds that the availability of rail could lead to more oil drilling in the Bakken formation, as much as 114,000 bpd beyond what would be produced without the terminals. In response to the report, Greg Stringham, vice president of CAPP has said that most of the Canadian crude would not go to Pacific Northwest terminals but to other sites in the U.S. and Canada. Currently, oil brought by rail into the Northwest is largely the light crude produced in the Bakken.
The Washington State Department of Ecology is developing new rules that will require companies that transport oil by rail or pipeline into or through the state to improve planning for accidents. Separately, the Washington State Energy Facility Site Evaluation council has released its draft environmental impact statement (DEIS) for the proposed Tesoro Savage Vancouver terminal. The document describes the direct, indirect and cumulative environmental impacts of the proposed facility. Public comments are expected through January 8.
Canada and the Environment
Alberta’s premier Rachel Notley released the Alberta’s Climate Leadership Plan that is backed by aboriginal groups, oil industry members and government officials. The plan has four pillars: Phasing out coal-generated electricity and developing more renewable energy, implementing a new carbon price on greenhouse gas pollution, a legislated oil sands emission limit and employing a new methane emission reduction plan.
Around the world, prices and production
The International Energy Agency (IEA) released its 2015 World Energy Outlook which, in its central (‘new policies’) scenario, forecasts a crude price of $80 per barrel in 2020 and $120 in 2040 in order to achieve enough supply investments to meet forecast demand. The IEA predicts that US tight oil output will reach a plateau in the early 2020s, just above 5 million bpd, before starting a gradual decline. In total, non OPEC member production will peak in 2020 at just above 55 million bpd. The IEA also forecasts that OPEC production increases will be led by Iraq and Iran, although political and supply risks will continue to threaten these projected increases.