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Juggling pipeline options to Gulf Coast Oil sands producer Cenovus says it has no fallback for Keystone XL; Suncor mulls pipeline reversal, rail, possible exports to Asia Gary Park For Petroleum News
Suncor Energy and Cenovus Energy, two of Canada’s largest oil sands producers, have placed their bets on the best chance to ship diluted bitumen to the U.S. Gulf Coast.
For Suncor, the oil sands giant, it involves hedges should U.S. authorities turn down TransCanada’s Keystone XL application; for Cenovus, planning assumes approval of XL.
Suncor’s mix of alternatives includes Enbridge’s proposed Northern Gateway link to Asia, which is every bit as uncertain as XL. Failing that, it is eyeing the reversal of an existing crude oil line from Quebec to Ontario to get Western Canadian crude to Montreal refineries and joining the growing movement to deliver crude by rail.
For TransCanada, there is no waffling or wavering.
Chief Executive Officer Russ Girling said July 28 that all of the pipeline company’s planning and actions are predicated on receiving a United States presidential permit by the end of 2011 for the $7 billion, 500,000 barrel per day project.
He told analysts that TransCanada has procured all the pipe and equipment needed for XL and has agreements with the four largest unions in the U.S.
Shovel-ready The company also continues to negotiate with landowners along the pipeline route and has secured voluntary agreements with more than 82 percent of landowners, Girling said.
“We are truly shovel-ready, our construction plans are in place for early 2012 and we are anxious to get moving forward,” he said, targeting mid-2013 for the start of deliveries.
Cenovus, which has firm service contracts in place for unspecified volumes on XL, is counting heavily on XL to siphon output from the oil sands, aiming for a quadrupling of net production to 500,000 bpd by 2021, said Chief Executive Officer Brian Ferguson.
“There is some danger in accelerating your growth if you don’t have a place to put it. But we are not planning on any scenario other than Keystone XL getting approved in a fairly timely way,” he said, adding that Cenovus does not have any other options, while conceding that Enbridge and Kinder Morgan might provide outlets to the British Columbia coast for tanker shipment to Asia.
Suncor Chief Executive Officer Rick George said his company has ample pipeline capacity for several years.
“Keystone XL is more about the future and more about debottlenecking the system so we don’t see these large differentials between WTI and Brent prices. I don’t think there’s been nearly enough focus in the U.S. around that issue,” he said.
“At the end of the day let’s hope the U.S. State Department (which must decide on the presidential permit because XL crosses the Canada-U.S. border) does the right thing for the energy balance of North America, but there are other options out there,” George said.
Rail alternative The options are steadily embracing the steel rail as an adjunct to steel pipe, effectively reviving the sole means of moving crude oil until the late 1800s when John D. Rockefeller developed the use of pipelines.
The rail alternative is “kind of going crazy,” said Glen Perry, president of Altex Energy, which has pondered a pipeline from Alberta to the Gulf Coast and has partnered with Canadian National Railway Co. to promote the use of rail.
He said crude buyers such as refiners and asphalt plants in California, Texas, Louisiana and on the East Coast have made proposals, while about eight producers are now moving their heavy oil by rail, five of them transporting bitumen.
While unwilling to name the companies, Perry said about 5,000 bpd of Western Canadian production is being shipped by rail.
Pete Sametz, president of Connacher Oil and Gas, said his company has been transporting diluted bitumen by rail since the first quarter, reporting that rail companies have been responsive to Connacher’s needs.
Rock Energy is currently sending 500 bpd directly to Gulf Coast refineries, adding as much as $6-$7 per barrel to its netbacks in the process.
Rail terminals planned Utah-based Savage Cos. said it plans to build rail terminals across the U.S. within three to five years — starting with a 90,000 bpd facility at Trenton, N.D. — to handle demand from Bakken crude producers. US Development Group said it plans to double capacity at its St. James, La., crude rail terminal to 260,000 bpd by the end of 2011.
Nathan Savage, a senior vice president of refinery and sulfur services for Savage, said both coast and the upper Midwest would be logical outlets for the North Dakota terminal, adding a destination will be nailed down within six months.
However, John Auers, with the consulting firm of Turner Mason, estimated that rail costs are $7-$8 per barrel for large volumes and $11-$12 for smaller volumes, compared with an average $6 per barrel for pipeline transportation.
While that debate builds, the jostling over XL continues, with a Republican-sponsored bill directing the Obama administration to make a decision on XL by Nov. 1 passing the House of Representatives on July 26 by a vote of 279-147.
The State Department said it expects, as scheduled, to complete its deliberations and decide on a permit before the end of the year.
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