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Kinder Morgan joining market race Schedules open season to add 400,000 bpd of new capacity to Pacific Coast, but proposal faces environmental, community opposition Gary Park For Petroleum News
Kinder Morgan has removed any lingering doubt — it is in the race to open new export markets for Canadian oil sands crude.
The U.S.-based operator of the Trans Mountain pipeline from Alberta to the Pacific Coast has confirmed it is seeking firm shipping commitments to raise capacity by 400,000 barrels per day to 700,000 bpd by 2015, a decisive step forward on a concept it has been pondering since 2004.
Ian Anderson, the company’s Canadian president, told a Calgary conference discussions are under way with the market “to try and scope how big the expansion will be and what the commercial aspects will be.”
Depending on industry response to a planned open season this fall, Kinder Morgan could edge ahead of Enbridge’s controversial Northern Gateway project, which is targeting 525,000 bpd, the bulk destined for Asian customers.
Anderson said Trans Mountain expansion would initially involve three stages of 80,000 bpd each and, based on market demand, another 160,000 bpd in two phases.
The initial step toward that expansion requires National Energy Board approval of Kinder Morgan’s application to reallocate 27,000 bpd of Trans Mountain volumes to the company’s Westridge dock in the Port of Vancouver, raising capacity at the terminal to 79,000 bpd.
Watching for ‘market indications’
Anderson said Kinder Morgan will be watching over the next three months for “market indications” to decide what new capacity will be required for Trans Mountain.
He said the company also has plans to build a second berth at the Westridge terminal to expand capacity from Aframax tankers of about 650,000 barrels to Suezmax tankers of 1 million barrels.
Asia-bound shipments out of Westridge climbed to around 20,000 bpd last year, although Anderson said only 10 percent of crude moving out of Westridge is currently destined for China and the Panama Canal, with the rest going to California, but added “this scenario will change.”
If the expansion proceeds it would provide the first significant link to Asia and could be completed ahead of Northern Gateway, although some observers believe the two projects could co-exist if shipments out of Westridge primarily target the U.S. West Coast to replace declining volumes from Alaska.
The Kinder Morgan proposal “pushes out the necessity for gateway a little bit, but it doesn’t remove the need,” said Chad Friess, an analyst at UBS Securities. “We need a deepwater port (such as Kitimat) to ship our oil to Asia, which is the main argument behind Gateway.”
Raft of objections
While Enbridge is caught up in bitter opposition, especially from First Nations and environmentalists, Kinder Morgan is far from untouched, despite its claims of having carefully nurtured a close working relationship with First Nations over the years.
When the NEB starts hearing Kinder Morgan’s reallocation proposal on Aug. 22 it will hear objections from a raft of community groups and one producer.
A coalition of five environmental organizations says piecemeal approvals are inappropriate and contrary to the public interest.
It argues that if the NEB intends to weigh the application in terms of facilitating pipeline expansions and improved prices for oil producers, it must also consider the upstream socio-economic, environmental and cultural impacts associated with “tar sands” development.
A recent poll by the Dogwood Initiative, one of the coalition members, showed about 80 percent of British Columbians wanted an outright ban on tankers operating in the province’s offshore waters.
Spill concerns Separately, the Georgia Strait Alliance said the NEB should not approve the firm service and associated changes until a risk assessment on oil spills from West Coast ships has been conducted and acted on, noting that the federal Auditor General in 2010 had identified gaps and inadequacies in Canada’s system for responding to spills from ships.
The Raincoast Conservation Foundation said incremental applications and expansions would effectively quadruple the number of tankers traveling through the Georgia Strait and Gulf Island.
In the event of a tanker spill, collision or other accident, British Columbians would be “asked to bear these additional risks with virtually no public engagement,” the foundation said.
The Islands Trust, a federation of local governments, said the only apparent regulatory limits on tankers or oil barges operating from Westridge appear to be Trans Mountain’s pipeline capacity and operating limits on one section of the Port of Vancouver.
The Trust said it is extremely concerned that approval of firm service contracts would bind Trans Mountain to ship minimum volumes to the terminal, which could remove the ability of regulatory agencies to reduce the number of tankers or barges.
Producer objection, support MEG Energy, an oil sands start-up, has called for denial of the application, saying it does not believe Kinder Morgan’s proposal is the best way to achieve the important goal of using water-borne solutions to access new markets.
MEG said it is not appropriate to auction off to the highest bidder capacity that is currently allocated to common carriage, especially on a long-term basis.
It also objects to the use of firm service fees to fund Trans Mountain expansions, saying those fees are derived from shippers who may face higher adjusted tolls, a greater risk of apportionment and reduced access to expansion capacity.
But the NEB has received letters of support from PetroChina, which said it wants to gain firm access to transportation that can increase crude supply in the Pacific basin, while Cenovus Energy said firm service to Westridge would enable it to diversify markets and supply customers on a regular and predictable basis.
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