March 2015, Vol. 242, No. 3
Features
Pipeline Moving Canadian Crude to Gulf Coast Refineries Starts
Crude from the Canadian oil sands deposits gained an additional major outlet in the U.S. when the joint venture of Enbridge, Inc. and Enterprise Products Partners L.P. completed construction of its Cushing-to-Texas pipeline and started deliveries in December to Gulf Coast refineries.
The new pipeline’s operations and routes are very similar to TransCanada’s Keystone Pipeline project for bringing oil sands crude to the Gulf Coast.
Both pipelines pick up the syncrude at Hardisty, Alberta and move it to the U.S., first toward the Chicago area and then to Cushing, OK before moving onto the Gulf Coast for refining and marketing. Keystone began deliveries to Gulf Coast refineries in January 2014 after completing its Gulf Coast Line from Cushing to Texas.
In constructing its line, TransCanada ran into considerable opposition. Environmentalists remain opposed to using the oil sands and many landowners were against the pipeline crossing their properties as well as any potential damages should the pipeline break and leak oil.
The dissenters went to court to stop the pipeline from getting the required right-of-way; some chained themselves to construction equipment to stop the work and even camped out in trees that needed to be removed for the right-of-way.
Enbridge and Enterprise faced fewer difficulties because much of the pipe came from using existing pipelines or converting natural gas pipelines to oil use. This resolved many of the right-of-way and land problems and allowed the transformation to occur easier. Enbridge makes its initial pickup of the syncrude in either Edmonton or Hardisty, Alberta into its Canadian mainline oil pipeline.
The crude travels to the U.S. crossing the border and going into the U.S. Mainline West pipeline. Traveling to Superior, WI it can then either go into the Ohio area or travel on the U.S. Mainline East pipeline into the Chicago area where it is routed to Cushing on the new Flanagan South pipeline and then on the Spearhead Region pipeline.
From Cushing, it can get into the Houston area either of two ways: go on the Seaway, which flow was reversed for this purpose, or on the Seaway Loop, which is a new twin pipeline. Seaway is a 50/50 joint venture with Enterprise Products.
While both pipeline systems, Keystone and Enbridge, are now in Texas feeding major refineries. Both plan to construct laterals to allow greater distribution of the crude oil to more refineries in the region including Louisiana. These pipelines should be completed this year or shortly thereafter. The syncrude is somewhat heavier than light crudes and needs some refining specialties for efficient operations.
Again, both pipelines have plans to duplicate the original Canadian to U.S. pipeline capacity by essentially doubling the quantity of crude taken from Canadian oil sands. Since both lines have to cross into the U.S., they require presidential approval. TransCanada’s proposed new line, Keystone XL, has been awaiting U.S. approval for six years. The Enbridge line, which will be known as the Alberta Clipper, is still in the planning stage but has already faced protests against its construction and operation much like Keystone XL.
The protests against further development of the Canadian oil sands mainly comes from environmental groups that are opposed to fossil fuel use because of its potential impact on climate warming. Current theory that carbon dioxide from burning fossil fuels causes harmful climate changes is still being debated but the believers have had a strong impact on the agencies needed to make the decision enabling further development of the sands deposits in Canada, which are the second-largest hydrocarbon reserves in the world.
Current fluid capacity of both systems is similar. Keystone has started out at around 700,000 barrels per day (b/d) and should have the capacity to carry around 850,000 b/d. Enbridge’s lines have similar capacity. Construction of the new lines from Canada will offer pipeline transportation to some of the newer crude oil-producing areas like the Bakken in North Dakota and Montana and those in Canada. The two new lines for Keystone and Enbridge would offer an additional 2 million b/d of Canadian oil into the U.S.
Crude oil imports to the U.S. have dropped significantly in recent years as more domestic production has become available. Of the approximately 16 million b/d of crude supply in the U.S. in 2014, 7.4 million b/d or 46%, came from imports. Five years ago, imports accounted for 62%; 10 years ago imports were 76%. In the last 10-year period, crude oil supply from domestic and imported sources has gone from 15.377 million b/d in 2005 to a low of 14.357 million b/d in 2009 to a high in 2014 of 16.175 million b/d.
There is no question that the extra exports from Canada will affect the level of waterborne imports from other countries, especially if the new lines looping the existing Canada-to-U.S. lines are permitted. This will allow almost 4 million b/d more from Canada as already nearly 2 million b/d are coming in and the two new lines, as noted, would provide 2 million more b/d.
In 2014, imports were received from numerous countries. The largest exporters to the U.S. were:
Country 1,000 b/d
Canada 2,874
Saudi Arabia 1,184
Mexico 784
Venezuela 747
Iraq 371
Kuwait 314
Colombia 290
Ecuador 234
Angola 190
Additional crude from Canada will allow more selectivity in picking foreign suppliers. Poorer quality crudes like those from Venezuela and Mexico could be replaced with the better-quality Canadian syncrude. Those countries that politically have not been friendly to the U.S. could also face limitations.
The Keystone and Enbridge systems have proven economically helpful in addition to transporting Canadian crude. The expansion and opening of more outlets from the crude storage area in Cushing have helped better align Cushing prices with the world market. The new lines have also helped price Canadian crude better now that they have easier access to refineries and markets.
The new lines provide better transportation for the some of the new producing areas that have opened up because of shale development. This is especially true of the Bakken and other western areas that had been so far removed from normal pipeline locations,
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