October 2017, Vol. 244, No. 10

In The News

In the News

BP Moves Forward with IPO for U.S. Pipeline Assets

BP announced on Sept. 11 that BP Midstream Partners LP, a wholly owned, indirect subsidiary, filed a registration statement with the U.S. Securities and Exchange Commission for a proposed initial public offering. The announcement comes after BP said in July it had begun evaluating the formation and IPO of a master limited partnership to enhance shareholder value and to support BP’s strategy to grow its midstream business. BP Midstream Partners expects the offering to occur in the fourth quarter, dependent on market conditions, and will trade on the New York Stock Exchange under the ticker symbol BPMP.

BP Midstream Partners was formed as a vehicle to own, operate, develop and acquire pipelines and other midstream assets. It will be headquartered in Houston with offices in Chicago. Initial assets are expected to consist of ownership interests in one onshore crude oil pipeline system, one onshore refined products pipeline system, and one onshore diluent pipeline system, which carry shipments to or from BP’s Whiting Refinery in Whiting, IN together with interests in four offshore crude oil pipeline systems and one offshore natural gas pipeline system that connect offshore production areas in the Gulf of Mexico with the Gulf Coast refining and distribution hubs.

Robert “Rip” Zinsmeister, currently COO of BP in London, was named CEO of the midstream company. Gerald Maret, who was president of BP Pipelines, is COO and Craig Coburn, former chief financial officer for BP America, is CFO,

U.S. Natural Gas Exports to Mexico Short Due to Harvey

Hurricane Harvey’s crushing blow to the U.S. energy industry reveals just how dependent Mexico has become on natural gas from the U.S. The storm’s wrath forced cross-border gas pipelines in Texas to shut down and prevented liquefied natural gas tankers from loading their cargoes. Mexican consumers, who are burning record amounts of gas from America’s prolific shale basins, had no choice but to cut back as imports dropped 16% in a single day after Harvey hit, according to Bloomberg.

After ending its state-owned energy monopoly four years ago, Mexico has supplemented dwindling domestic gas production with shipments from the U.S. As the two nations’ gas markets become more intertwined, however, supply disruptions in the U.S. — whether from natural disasters or policy changes like President Trump’s threats to withdraw from the North American Free Trade Agreement — can send Mexico scrambling to find alternatives for American supply.

“Mexico has become more dependent on U.S. natural gas as they now rely on the U.S. for more than half of their supply,” up from 25% in 2014, said Jacob Fericy, an analyst at Bloomberg New Energy Finance. Because of storm-related cutbacks, Mexico’s state-owned petroleum company asked consumers to use about 10% less gas for several days last month. Mexico’s appetite for gas is poised to grow even more, with the nation’s demand expected to continue growing, according to the Energy Ministry.

Tank Spills Major Problem During Hurricane 

More than two dozen storage tanks holding crude oil, gasoline and other contaminants ruptured or otherwise failed when Harvey slammed into the Texas coast, spilling at least 145,000 gallons (548,868 liters) of fuel and spewing toxic pollutants into the air, according to an Associated Press analysis of pollution reports submitted to state and federal regulators. The tank failures follow years of warnings that the Houston area’s petrochemical industry was ill-prepared for a major storm, with about one-third of the 4,500 storage tanks along the Houston Ship Channel located in areas susceptible to flooding, according to researchers.

The tanks are prone to float and break during floods, and Harvey’s unprecedented rainfalls revealed a new vulnerability when the roofs of some storage tanks sank under the weight of so much water. Federal and state rules require companies to be prepared for spills, but mandate no specific measures to secure storage tanks at refineries, chemical plants and oil production sites. John Pardue, a Louisiana State University professor who has researched problems with storage tanks during storms, said, “There’s no requirement that says when you’re in a hurricane zone you’ve got to do things differently. If we’re going to continue to put some of these facilities in harm’s way, it would be great to have some specific regulations to safeguard storage tanks.”

Interior Dept. Seeks to Limit Size of EIS 

Citing a need to reduce paperwork, the federal Interior Department has imposed new restrictions on the length of environmental studies. In an Aug. 31 memo, Deputy Secretary David Bernhardt directed that the department’s environmental impact statements “shall not be more than 150 pages, or 300 pages for unusually complex projects.” The memo said it is being issued in the “context of the department’s overall effort to streamline the NEPA process.”

Officials will need high-level approval to exceed the page limit. The memo also imposes a “target” of completing the studies required under the National Environmental Policy Act within one year. “The purpose of NEPA’s requirement is not the generation of paperwork, but the adoption of sound decisions based on an informed understanding of environmental consequences,” Bernhardt wrote, adding that studies “should focus on issues that truly matter rather than amassing unnecessary detail.”

University Suggests Method can Turn Oil Sands Output into Pellets for Transport

Canadian Press reported that a new technology that transforms heavy crude oil into pill-sized pellets could cure the oil sands industry’s transportation headaches, according to University of Calgary professor Ian Gates. The newly patented technique creates self-sealing balls of bitumen of various sizes that can be moved in coal rail cars or trucks with less risk of environmentally harmful spills, thus reducing the need for new oil pipelines, he said.

The technology was discovered accidentally at the university’s engineering school. “We have an intact pellet that’s kind of like a black Advil pill.” Gates said a pilot project able to generate one barrel per day of the pellets will start up in November, to be followed by a commercial demonstration project able to produce about 600 barrels per day. He estimated it would cost about $1 million to build a machine to make 100 barrels a day of pellets, with the per-barrel cost falling dramatically with larger-scale projects.

First Nations’ Protesters Plan to Build Small Houses in Path of Pipeline

News reports said First Nations’ protesters in British Columbia are planning to place tiny homes directly in the path of the Trans Mountain oil sands pipeline expansion, an idea drawn from an influential indigenous movement in the United States. Activists said the houses are symbols of sustainability in the face of what they see as an environmentally damaging project. They are based on structures built at a sprawling protest camp in North Dakota initiated by the Standing Rock Sioux Tribe.

Trans Mountain, a subsidiary of Kinder Morgan, plans to begin construction soon on the $7.4 billion expansion of its Alberta-to-B.C. coast pipeline. Members of the Secwepemc Nation and Greenpeace gathered at a site near Chase, B.C., on Sept. 7 to build the first of 10 homes they say will be moved to Secwepemc territory near Kamloops to block pipeline construction. Fifty-one First Nations have signed benefit agreements with Trans Mountain, including some bands that are part of the broader Secwepemc Nation, but the project still faces strong opposition from some indigenous groups.

Tribes Argue Dakota Access Created Own Problems

Native American tribes maintained in last-minute court filings that the Dakota Access oil pipeline developer has overstated the potential adverse effects of a shutdown. Standing Rock Sioux attorney Jan Hasselman also argued that Energy Transfer Partners brought on its own problems by pushing ahead with construction prior to gaining final federal approval.

ETP “made reckless choices, and it must accept the consequences,” Hasselman wrote in a court filing before U.S. District Judge James Boasberg in Washington, D.C.

The $3.8 billion pipeline began moving North Dakota oil through South Dakota and Iowa to Illinois on June 1 after President Trump pushed for its completion. The Army Corps of Engineers, which permitted the project, had decided to do more environmental study, but dropped that plan after Trump took office.

The judge ruled in June that the Corps didn’t adequately consider how an oil spill under Lake Oahe in the Dakotas might affect the Standing Rock Sioux and ordered the Corps to reconsider certain areas of its environmental analysis. ETP has maintained in court documents that a shutdown would cost it $90 million monthly and significantly disrupt the broader energy industry as well as state and local government tax revenue.

Regulators Give OK to Atlantic Sunrise Pipeline

Williams Natural Gas has been granted key federal and state approvals for construction of the contested $3 billion Atlantic Sunrise Pipeline, which will carry natural gas from northeastern Pennsylvania to southern states.  The Federal Energy Regulatory Commission (FERC) gave final approval in September after the Pennsylvania Department of Environmental Protection on Aug. 31 approved water-crossing permits for the pipeline.  The U.S. Army Corps of Engineers granted a dredging permit Aug. 29.

Climate activists, including a group of nuns, oppose the project and can challenge the permits.

Enbridge Finds Gaps in Underwater Coating

Enbridge said Aug. 30 it found a number of gaps in a protective layer of enamel coating on the twin oil pipelines it operates in the waterway linking Lake Huron and Lake Michigan. The pipelines traverse the bottomlands of the Straits of Mackinac, a nearly 5-mile-wide area between the state’s lower and upper peninsulas.

The pipes are part of Enbridge’s Line 5, which carries about 23 million gallons of crude oil and liquid natural gas daily. It crosses parts of northern Wisconsin and Michigan on its way to refineries in Sarnia, Ontario.  Enbridge said Line 5 is in good shape and is inspected regularly with underwater cameras and interior tools. An electric current runs continuously through the lines to prevent corrosion.

In a recent examination, divers spotted a gap in the coating a few inches long on one pipeline and four smaller gaps close together on the other, spokesman Ryan Duffy told the Associated Press.

Another spot may have bare metal and is being evaluated, he said, adding that the damage probably happened as steel anchors were installed to provide additional support for the lines. “There’s no safety or integrity issue with the steel pipe itself, no corrosion,” Duffy said. “Our safety management program worked as intended.”

American Midstream Finalizes Sale of Propane Company

American Midstream Partners closed sale of the partnership’s propane marketing and services business to SHV Energy N.V. for $170 million in cash. The partnership has divested 100% of its propane business, including Pinnacle Propane’s 40 service locations, Pinnacle Propane Express’ cylinder exchange business and related logistic assets, and the Alliant Gas utility system. The partnership expects remaining proceeds from the sale will be redeployed in its core operating areas.

Traders Expect Much Tighter Oil Markets in Early 2018

Optimism among oil traders seems to be rising based on Brent calendar spreads, according to Reuters market analyst John Kemp. He  said spreads have begun moving from contango to backwardation, with the spreads for November to December 2017 and for January to February 2018 already in backwardation.

What’s more, Kemp said, the Brent inter-month spreads for the rest of 2018 look flat for the time being, suggesting that traders expect a tighter oil market. Supporting this belief, the Brent spread for the first half of that year is in backwardation. That is the first time this has happened since the start of the oil price crash, three years ago.