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Released August 17, 2015 | SUGAR LAND
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Researched by Industrial Info Resources (Sugar Land, Texas)--Getting the crude oil out of Alberta's oil sands has been a constant logistics problem for producers in the land-locked province. Pipelines are one of the safest and cheapest per-barrel methods of transportation; however, they can be held up in permitting for years, making their initial costs prohibitive and their start-up dates later than producers need in the short-term.
Enter crude-by-rail; it's the shipping method that competes directly with pipelines to get crude oil from landlocked plays, such as the Alberta oil sands and the Bakken Shale, to virtually any of the North American refining hubs. Between the pipelines and crude-by-rail, gross takeaway capacity exceeds current and projected production levels. However, crude oil is a complex market; the chemical composition of the crude, its intended market and related industries' concerns mean that there is still a need for more takeaway capacity in the short and long terms.
In gross numbers, western Canada has more than 4.1 million barrels per day (BBL/d) of crude-oil takeaway capacity in its existing pipeline infrastructure. When combined with crude-by-rail, this number exceeds 4.75 million BBL/d. According to the National Energy Board of Canada (NEB), 2014 had an average production rate of 3.75 million BBL/d of crude oil for the entire nation, not just the Alberta oil sands.
The total capacities for pipe and rail indicate that Canada is in good shape to get its bitumen to market with room to spare--even when factoring in the 200,000 BBL/d of new Western Canadian production that is scheduled to be brought online in 2016, according to Industrial Info data, and the gradual increase in throughput at existing bitumen upgraders and production facilities through increased efficiency and operational experience. As such, there should be no demand for more pipelines or crude-by-rail--but this is not the case.
Breaking down the makeup of existing export pipelines reveals that of the 4.1 million BBL/d, only the newly expanded 800,000-BBL/d Line 67 pipeline by Enbridge Incorporated (NYSE:ENB) (Calgary, Alberta) is wholly dedicated to transporting heavy crude oil. The remainder transport batches of light crude, condensate, natural gas liquids (NGLs) and some refined products. Of Line 67's 800,000 BBL/d, roughly 250,000 BBL/d would have to be condensate, due to the necessity of diluting the bitumen before it can be shipped via pipe, meaning less actual takeaway capacity than its nameplate would suggest.
On the crude-by-rail side of the equation, the sum of the nameplate capacities of Canadian loading terminals comes out to more than 900,000 BBL/d. While this number would be closer to the amount of crude actually being moved, the crude-by-rail industry has faced a severe shortage of rail tank cars, due to rail's lack of need for diluents--meaning these facilities are not likely operating at their full capacity.
The NEB broke down the production numbers from 2014 into heavy and light crude/condensate. In Alberta and Saskatchewan, the oil sands produced 1.68 million BBL/d of heavy crude, and 1.75 million BBL/d of light crude/condensate. Getting the heavy crude out of Alberta has been the challenge so far. With production continuing to increase, the demand for more takeaway capacity will keep export pipeline mega-projects for crude oil in demand through the end of the decade, when some are scheduled to be completed.
Looking at the realities, pipeline projects to get crude oil out of Alberta are still in demand, no matter how delayed some of them may be, and rail tank car manufacturers have a six-digit industry backlog of orders. The much-maligned, initially 500,000-BBL/d Keystone XL project by TransCanada Corporation (NYSE:TRP) (Calgary), is still being pushed through permitting, as is TransCanada's other mega-project, the 1.1-million BBL/d Energy East Project. Enbridge has been developing a replacement of its old Line 3 to bring it back up to its original operating level of 760,000 BBL/d, as well as its 525,000-BBL/d Northern Gateway pipeline that is currently embroiled in regulatory permitting processes, much like Keystone XL. The last major mega-project that is still being pursued to bring crude out of Alberta is the TransMountain Expansion project by Kinder Morgan Incorporated (NYSE:KMI) (Houston, Texas), which would add another 590,000 BBL/d of takeaway capacity. Together, they represent more than 3.4 million BBL/d of takeaway capacity to be brought online between late 2017 and 2020. As such, there appears to be a lot of demand for new pipeline capacity.
Thus, the talk of "constraints" in takeaway capacity is not entirely inaccurate. Crude oil volumes out of Canada hover around the total takeaway capacity, which explains some of the high volatility in Western Canadian Sour (WCS) pricing. While both producers and refiners maintain a certain amount of storage capacity, the actual flexibility afforded by these facilities is limited. The current situation can best be equated to a highway during rush hour: The roads are big enough to handle all the cars, but if something happens to disrupt normal flow of traffic, it suddenly becomes woefully inadequate.
Daily fluctuations in production volumes also can have an impact on prices and whether or not takeaway capacity is sufficient, to say nothing of refinery outages, planned or unplanned. So while the physical assets to move the crude oil out of western Canada may be in place, market conditions and volumes for production storage can create bottlenecks more readily in this system than others, due to a lack of wiggle room in the available takeaway capacity. This means that new takeaway capacity is still needed in order to give Western Canadian crude a robust transportation system that can absorb a reasonable amount of shock.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and ten international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
Enter crude-by-rail; it's the shipping method that competes directly with pipelines to get crude oil from landlocked plays, such as the Alberta oil sands and the Bakken Shale, to virtually any of the North American refining hubs. Between the pipelines and crude-by-rail, gross takeaway capacity exceeds current and projected production levels. However, crude oil is a complex market; the chemical composition of the crude, its intended market and related industries' concerns mean that there is still a need for more takeaway capacity in the short and long terms.
In gross numbers, western Canada has more than 4.1 million barrels per day (BBL/d) of crude-oil takeaway capacity in its existing pipeline infrastructure. When combined with crude-by-rail, this number exceeds 4.75 million BBL/d. According to the National Energy Board of Canada (NEB), 2014 had an average production rate of 3.75 million BBL/d of crude oil for the entire nation, not just the Alberta oil sands.
The total capacities for pipe and rail indicate that Canada is in good shape to get its bitumen to market with room to spare--even when factoring in the 200,000 BBL/d of new Western Canadian production that is scheduled to be brought online in 2016, according to Industrial Info data, and the gradual increase in throughput at existing bitumen upgraders and production facilities through increased efficiency and operational experience. As such, there should be no demand for more pipelines or crude-by-rail--but this is not the case.
Breaking down the makeup of existing export pipelines reveals that of the 4.1 million BBL/d, only the newly expanded 800,000-BBL/d Line 67 pipeline by Enbridge Incorporated (NYSE:ENB) (Calgary, Alberta) is wholly dedicated to transporting heavy crude oil. The remainder transport batches of light crude, condensate, natural gas liquids (NGLs) and some refined products. Of Line 67's 800,000 BBL/d, roughly 250,000 BBL/d would have to be condensate, due to the necessity of diluting the bitumen before it can be shipped via pipe, meaning less actual takeaway capacity than its nameplate would suggest.
On the crude-by-rail side of the equation, the sum of the nameplate capacities of Canadian loading terminals comes out to more than 900,000 BBL/d. While this number would be closer to the amount of crude actually being moved, the crude-by-rail industry has faced a severe shortage of rail tank cars, due to rail's lack of need for diluents--meaning these facilities are not likely operating at their full capacity.
The NEB broke down the production numbers from 2014 into heavy and light crude/condensate. In Alberta and Saskatchewan, the oil sands produced 1.68 million BBL/d of heavy crude, and 1.75 million BBL/d of light crude/condensate. Getting the heavy crude out of Alberta has been the challenge so far. With production continuing to increase, the demand for more takeaway capacity will keep export pipeline mega-projects for crude oil in demand through the end of the decade, when some are scheduled to be completed.
Looking at the realities, pipeline projects to get crude oil out of Alberta are still in demand, no matter how delayed some of them may be, and rail tank car manufacturers have a six-digit industry backlog of orders. The much-maligned, initially 500,000-BBL/d Keystone XL project by TransCanada Corporation (NYSE:TRP) (Calgary), is still being pushed through permitting, as is TransCanada's other mega-project, the 1.1-million BBL/d Energy East Project. Enbridge has been developing a replacement of its old Line 3 to bring it back up to its original operating level of 760,000 BBL/d, as well as its 525,000-BBL/d Northern Gateway pipeline that is currently embroiled in regulatory permitting processes, much like Keystone XL. The last major mega-project that is still being pursued to bring crude out of Alberta is the TransMountain Expansion project by Kinder Morgan Incorporated (NYSE:KMI) (Houston, Texas), which would add another 590,000 BBL/d of takeaway capacity. Together, they represent more than 3.4 million BBL/d of takeaway capacity to be brought online between late 2017 and 2020. As such, there appears to be a lot of demand for new pipeline capacity.
Thus, the talk of "constraints" in takeaway capacity is not entirely inaccurate. Crude oil volumes out of Canada hover around the total takeaway capacity, which explains some of the high volatility in Western Canadian Sour (WCS) pricing. While both producers and refiners maintain a certain amount of storage capacity, the actual flexibility afforded by these facilities is limited. The current situation can best be equated to a highway during rush hour: The roads are big enough to handle all the cars, but if something happens to disrupt normal flow of traffic, it suddenly becomes woefully inadequate.
Daily fluctuations in production volumes also can have an impact on prices and whether or not takeaway capacity is sufficient, to say nothing of refinery outages, planned or unplanned. So while the physical assets to move the crude oil out of western Canada may be in place, market conditions and volumes for production storage can create bottlenecks more readily in this system than others, due to a lack of wiggle room in the available takeaway capacity. This means that new takeaway capacity is still needed in order to give Western Canadian crude a robust transportation system that can absorb a reasonable amount of shock.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and ten international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
