This is an abridged version of the full article from Gordon Cope, which was published in the February 2013 issue of 奥辞谤濒诲听笔颈辫别濒颈苍别蝉, available for subscribers to
Canada鈥檚 hydrocarbon blessing is enough to turn most other nations green with envy. The oilsands in northern Alberta contain almost 2 trillion bbls of bitumen (over 170聽billion bbls of recoverable) trapped in sand and carbonate rock. The Canadian Association of Petroleum Producers (CAPP) expects daily production to climb from current levels of 1.7聽million聽bpd to 2.2聽million聽bpd by聽2015, and 3聽million聽bpd by聽2020. Shale gas in northeast British Columbia (BC) and northwest Alberta holds several hundred trillion聽ft3 in place; Calgary-based Encana and other producers are busily drilling up reserves, and numerous plans are underway to build export terminals on the BC coast. The Bakken formation, which underlies North Dakota, Saskatchewan and Manitoba, is already producing 600聽000聽bpd in the聽US, and is proving to be prolific in Canada.
All of these new and expanding resources need pipeline capacity.聽 Pembina Pipeline is expanding its system to handle the growth in natural gas liquids, condensate and conventional crude production from northeast BC and northwest Alberta. The Cdn$聽670聽million project will add 55聽000聽bpd of crude and condensate capacity to its Peace system (rising to a total of 167聽000聽bpd), and 53聽000聽bpd to the Northern NGL system (rising to a total of 220聽000聽bpd). The expansion is expected to be completed by late聽2013.
Several major projects are underway to gather and transport bitumen. TransCanada is building the 90 km Northern Courier pipeline system to transport output from Suncor鈥檚 Fort Hills Mine to its Voyageur upgrader. TransCanada is also partnering with Phoenix Energy to build the Cdn$聽3聽billion Grand Rapids system to service the oilsands region. The 500 km pipeline, expected to be in service by聽2017, would carry up to 900聽000聽bpd from Ft. McMurray to Edmonton. Enbridge plans to spend Cdn$聽1.2聽billion to twin its existing Athabasca line with 345聽km of new 36 in. pipe. The expansion, which is expected to be in operation by聽2015, will add 450聽000聽bpd to the current 570聽000聽bpd capacity. It has also announced plans to expand its Mainline system between Edmonton and its major hub at Hardisty, in southern Alberta. The Cdn$聽1.8聽billion project will add a new, 91 cm pipe to the 179 km section, increasing capacity by as much as 800聽000聽bpd. The expansion is expected to enter service in聽2015.
From southern Alberta, several systems carry bitumen and upgraded sweet synthetic crude to market. Thanks to TransCanada and Enbridge鈥檚 extensive network of pipelines heading south, Canada is the world鈥檚 largest source of US聽crude imports, supplying an average of 2.1聽million聽bpd in聽2011. With the recent addition of new capacity, such as TransCanada鈥檚 Keystone and Enbridge鈥檚 Alberta Clipper, that figure has climbed to 2.5聽million聽bpd in聽2012. Kinder Morgan鈥檚 Trans-Mountain system carries crude west to Vancouver, and Enbridge鈥檚 extensive network moves oil east to Chicago and Ontario.
New production will require new outlets, however. TransCanada has proposed the Keystone XL, a 1700 mile pipeline that would transport up to 800聽000聽bpd directly from Alberta to the 8聽million聽bpd refining capacity on the聽US Gulf Coast. Enbridge is in the midst of hearings for its Northern Gateway project, a 1200 km line that would transport 525聽000聽bpd of bitumen from the Edmonton region to a marine terminal in Kitimat, BC, and on to markets in the energy-thirsty Asia Pacific region. Kinder Morgan plans to spend Cdn$聽3.8聽billion to double capacity on the 300聽000聽bpd Trans-Mountain line.
Enbridge is examining the feasibility of reversing its 240聽000聽bpd Line 9, which currently transports Middle East and West Africa crude west, from Quebec to Sarnia. Once western Canadian crude reaches the Montreal region, a new line could deliver crude to Irving聽Oil鈥檚 300聽000聽bpd tidewater refinery in New Brunswick and beyond to Atlantic markets. TransCanada is investigating the possibility of converting its gas mainline from Alberta to eastern Canada to a crude line that could carry up to 900聽000聽bpd.
Problems aplenty
Around the world, oil and gas producers face significant opposition due to the association of petroleum production and consumption with greenhouse gases (GHGs), which have been linked with global warming. Global warming, in turn, could lead to glacial melting, sea rises, species extinction and worsening weather. Canada鈥檚 petroleum industry faces extra odium due to oilsands production, which requires the use of energy to coax the heavy bitumen out of the ground and upgrade it to higher quality crude. This extra processing is considered 鈥榙irty oil鈥�, and various jurisdictions, including California and the EU, have tried to have it banned.
Trying to separate oilsands-based imports from other sources is difficult, however, and opponents have shifted their focus to proxies such as pipelines. After the Keystone XL project was announced, environmental critics and Hollywood stars picketed the White House, and Nebraska state officials worried that the line might contaminate the Ogallala aquifer and damage the ecologically sensitive Sand Hills region. Under pressure from constituents and campaign contributors, President Obama delayed the project, pushing back any decision until after the federal elections in November聽2012 (at time of press, there has just been an announcement declaring that the decision has been delayed until April聽2013).
The Northern Gateway pipeline also faces substantial hostility. Inspired by the successful delay of Keystone XL, over 4300 interveners have registered with the National Energy Board to testify before the project鈥檚 joint review panel (JRP). Environmentalists and First Nation tribes along the ROW are objecting to the potential for calamitous spills in ecologically sensitive land and marine ecosystems. Their cause has been aided by a report from the US聽National Transportation Safety Board that called Enbridge the 鈥淜eystone Kops鈥� for its response to the聽2011 spill in Michigan that saw 3聽million l of oil leak from its Line 6 system into the Kalamazoo River. In addition, BC Premier Christy Clark has declared a series of provincial demands prior to approval of the project, including substantial financial benefits.
The delays in reaching new markets are causing financial pain to the oil and gas sector. Because of a lack of pipe transportation, rising Canadian (and US) production is becoming backed up in hubs such as Cushing, Oklahoma, depressing its price in relation to the Brent benchmark by over US$聽20. As a result, producers are foregoing pipes completely and increasingly relying on rail. Canadian National Railway (CN) is building a 30聽000聽bpd crude oil rail terminal in southern Manitoba to carry Bakken crude from Tundra Energy wells to market. Statoil, which is looking to boost NA production from its current level of 100聽000聽bpd to 500聽000聽bpd in聽2020, has leased more than 1000 railway cars to transport 45聽000聽bpd of Bakken crude to US East Coast and Gulf of Mexico refineries. Southern Pacific Resources is planning to ship 12聽000聽bpd oilsands crude via tanker cars to Mississippi. Enbridge and partners launched the Eddystone Rail Company to build a dedicated crude train facility to transport Bakken crude to Philadelphia, and then distribute it by pipe to area refineries. When the聽US$聽68聽million project is completed in late聽2013, it will be able to handle 80聽000聽bpd. Although rail transport is seen as more of a short-term response than a long-term strategy, every rail car is foregone tolls to the pipeline sector.
Solutions
The pipeline sector is also working to resolve contentious issues. In September, TransCanada submitted a Supplemental Environmental Report to Nebraska officials outlining significant route modifications to its Keystone XL line in order to avoid sensitive ecological zones and groundwater sources. In addition, the project will adopt 57 special safety conditions suggested by the聽US federal pipeline regulator, Pipeline and Hazardous Materials Safety Administration (PHMSA), including more remotely-controlled shut-off valves, increased pipeline inspections, thicker steel and lower operating pressures. TransCanada also began work on the approved Keystone XL portion running from Cushing to the聽US Gulf Coast. The Cdn$聽2.3聽billion section will relieve bottlenecking in mid聽America, allowing higher returns to producers.
Enbridge recently announced a number of safety improvements to its Northern Gateway project, such as thicker pipe and better monitoring, which will increase the cost by Cdn$聽500聽million, to Cdn$聽6聽billion. The company also said that 60% of Aboriginal groups along the ROW have agreed to accept a portion of a 10% equity stake being offered. In regards to politicians calling for more economic benefits to BC, David Black, a prominent provincial businessman, has proposed a Cdn$聽13聽billion oil refinery at the Kitimat hub to upgrade bitumen to gasoline and diesel fuel. The Kitimat Clean refinery would create ten times more jobs than the pipeline terminal, and greatly reduce any negative impact to the pristine marine environment adjacent to the port (any fuel tanker spills would dissipate much more rapidly than tarry bitumen).
Regardless of the challenges, the future for pipelines in Canada remains very bright for decades to come. A recent study by the Alberta Energy Resources Conservation Board and Alberta Geological Survey reports that Alberta鈥檚 shale formations could contain over 3300 trillion聽ft3 of gas and over 420聽billion bbls of oil. The formations include the Duvernay, Montney and Muskwa. Exxon, Encana, Chevron and Talisman have been building land positions in the liquids-rich portions of the formations, which underlay much of central and northern Alberta. The companies hope to unlock the resource using horizontal drilling and hydraulic fracturing. Although it is too early in the play to gauge how much oil and gas can be produced, a bonanza of such proportions would require a new generation of pipelines to deliver it to market.
This is an abridged version of the full article from Gordon Cope, which was published in the February 2013 issue of 奥辞谤濒诲听笔颈辫别濒颈苍别蝉, available for subscribers to