Hicks: There is no transportation crisis for Alberta oil

If there’s a looming transportation crisis for Alberta oil, why have Suncor and its partners committed $10 billion to the new Fort Hills oilsands project?

Why is Exxon-Imperial Oil full speed ahead on its $8.9 billion expansion of Kearl Lake, even as Phase I is just getting up to speed?

Let’s not be stupid. Nobody puts that kind of money into any business, without 100% certainty the product will get to market.

Yet we keep hearing, time after time, that without new pipelines west (Northern Gateway) and south (Keystone XL), much of Alberta’s oil will be trapped with no way out.

Here’s the reality, as explained to me by a few veterans of the oil transport business.

Oil transport is a three-legged stool – existing pipelines, future pipelines and rail. You wouldn’t want to sit on this stool, because it’s constantly shifting. Each leg can be growing, or shrinking, or staying put.

Today, about 3.5 million barrels of oil (1.9 million from the oilsands) moves out of Alberta every day, just about all by pipelines. 

Today, there’s plenty of capacity to ship on conventional (light) oil pipelines. But our heavy oil pipelines, carrying thick oilsands bitumen or other thicker raw oils with diluents, are at capacity. 

Enter the safety valve – transport by rail.

If an oil producer can’t ship heavy oil by pipe because the pipes are full, the producer can turn to rail.

Major oil transfer hubs are being built in and around Metro Edmonton’s petro-chemical industrial areas – for oil to be transferred from pipeline to rail. 

A rail tanker holds 650 to 750 barrels of oil. A “unit train” with 100 tankers can carry 70,000 barrels of oil.  Five trains a day equals the same amount of oil as is moved out in a major pipeline, i.e. 350,000 barrels. Trains can carry oil to the same destinations as pipelines. 

Oil producers prefer pipeline transport, at $6 per barrel, compared to $8 to $10 per barrel (or more) for rail. And pipelines are safer. Said one wry analyst, “Pipelines don’t run into each other.”

But rail is fast becoming at least an interim solution for shipping oil from the oilsands – forecast to grow from 1.9 million barrels a day now, to 4.8 million barrels a day by 2030.

Despite being at capacity for heavy oil, the pipeline guys aren’t too worried about bottlenecks, at least not for a few years. “Brown field” pipe – expanding existing pipelines, twinning existing pipelines, reversing existing pipelines – isn’t that hard a sell in communities that have long lived comfortably with the industry, like most of Alberta. 

(The talk of Alberta heavy oil “differential” has disappeared. Recently opened new “brown field” pipelines in the USA have eased the bottlenecks that were discounting the price of our heavy oil in the USA.)

The wild card is  the “green field” pipelines. The opposition from the anti-fossil fuel crowd is so acute that nobody really knows if the Northern Gateway pipeline (from Edmonton to the B.C. port of Kitimat) and the entire Keystone XL pipeline (Alberta through the American midwest to refineries on the Gulf of Mexico) will ever be built.

There’s less opposition to the ambitious “brown field” plan to ship up to 1.5 million barrels a day from Alberta to Eastern Canada (and hence abroad) by a mix of retooled existing pipe and some new pipe to fill in the gaps. But the opposition is strong enough to conceivably push the entire “Energy East” project into worst-case scenarios not unlike Northern B.C. and the Northern Gateway pipeline.

But the oil will, somehow, find its markets.

I leave you with this under-reported news item. Suncor just loaded an oil tanker ship at a port outside Montreal with 700,000 barrels of Alberta oil,  bound for Italy. It is the first batch of Western Canadian crude to cross the Atlantic Ocean.

How did the oil get from Alberta to Montreal?

By rail.

FACTOIDS

Getting oil out of Alberta

By rail: Could be in the millions of barrels per day (bpd), but more infrastructure (specialized oil tankers, especially for bitumen) is needed and costs are higher than pipeline.

Current pipeline: Is handling most of the current production of 1.3 million bpd of conventional, 1.9 million bpd from the oilsands.

Major pipelines include 400,000 bpd Seaway system, Alberta Clipper (450,000 bpd), Canadian Mainline, Line 9 (240,000 bpd), TransMountain pipeline (300,000 bpd)

Future pipeline: Twinning of Seaway, to 800,000 bpd, expansion of Clipper with new Line 3, to 800,000 bpd,  twinning of Chicago to Cushing pipeline adding 450,000 bpd, expansion of Line 9 to 310,000, Energy East to Maritimes, 1.2 million bpd., expansion of Trans Mountain to 890,000 bpd, 

Proposed new pipelines:  Keystone XL ,590,000 bpd;  Northern Gateway, 525,000 bpd.

780-707-6379

graham.hicks@hicksbiz.com

www.hicksbiz.com

@hicksbiz

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