Blog Archive

Tuesday, November 12, 2013

The Hub: Saint John end point of ‘Energy East’ readies for crude revolution

Readers, take this one with a grain of salt -- it's from an industry publication
by , The Financial Post, November 9, 2013
More from Jeff Lewis | @JeffALewis
An aerial view of the Irving Oil Refinery in Saint John, NB. Energy East pipeline will give Irving access to a steady supply of growing production from the oil sands and lighter oil from shale deposits in North Dakota.
Andrew Meade for National PostAn aerial view of the Irving Oil Refinery in Saint John, NB. Energy East pipeline will give Irving access to a steady supply of growing production from the oil sands and lighter oil from shale deposits in North Dakota.
SAINT JOHN, N.B. – From the shelter of a blast-proof control room, a team of refinery technicians monitors an array of computer screens, watching for signs of trouble as an oil tanker bobs gently on the Bay of Fundy’s deep blue waters.
It is Monday morning at Irving Oil Ltd.’s sprawling plant, and the NS Arctic is making a routine delivery. The ship has arrived from a Louisiana port bearing the fruits of North America’s energy boom: A cargo of light, sweet crude coaxed from West Texas oilfields by drillers versed as much in brute force as complex geology. In less than 48 hours, the vessel’s holds will be siphoned dry, with about 330,000 barrels of oil funneled ashore into giant storage tanks through a concrete-encased pipeline that rests on the ocean floor.
The NS Arctic offers a glimpse of the sudden changes upending the continent’s energy flows. It carries oil purchased at a discount to global prices from Royal Dutch Shell. Privately held Irving has scoured the globe for similar bargains in recent years to avoid the fate of many of its regional competitors, buying shipments as far afield as Venezuela and East Africa as other refineries in eastern North America were shuttered. Irving has also turned to rail to feed its 320,000-barrel-capacity plant, Canada’s largest, with cheap oil from North Dakota and northern Alberta. Those volumes have soared, peaking at 140,000 barrels a day this year from a “couple thousand” in only nine months, says plant manager Mark Sherman. “We’ve gone from a consistent diet of six to eight crudes to 20 different crudes over the last couple of years,” he says.
Deliveries from ships such as the NS Arctic, one of roughly 100 crude carriers that call on Irving’s Canaport oil import terminal each year, may grow less frequent if a proposal to pipe Alberta oil to the Atlantic shore pans out. Calgary-based TransCanada Corp. intends to switch portions of its cross-country natural gas mainline to carry oil, allowing up to 1.1 million barrels a day — roughly one-third of Canada’s current daily output — to reach ports in Quebec City and Saint John. The $12-billion project stands to dramatically alter Canada’s oil diet, TransCanada says, replacing higher-priced imports with Alberta production that has, in recent months, ranked among the world’s cheapest sources of crude. Energy East would also change Irving, which has agreed to fund half of a $300-million export terminal, by giving it access to a steady supply of growing production from the oil sands and lighter oil from shale deposits in North Dakota.
Andrew Meade for National Post
Andrew Meade for National PostThe pipeline and other sources will allow Irving to become a global exporter of oil, says CEO Paul Browning.
“Our biggest competitors in North America come from the Gulf Coast and they all have access to this lower-cost midcontinent crude,” says Irving CEO Paul Browning. The company has booked capacity on Energy East, but won’t say how much. “When the pipeline arrives here and as we bring in other sources of this lower-cost crude, it allows us to be globally competitive and allows us to think about exporting our petroleum products, not just outside of Canada, but outside of North America,” Mr. Browning says.
First, though, TransCanada must navigate an increasingly divided landscape. Energy East has won a measure of political support from provincial leaders in Alberta, New Brunswick and Ontario, yet the project is unfolding against a backdrop of deep public skepticism over pipelines. A rival plan to carry Alberta crude east, Enbridge Inc.’s Line 9 reversal and expansion, has been marred by controversy; federal regulators cancelled public hearings in Toronto this fall amid security concerns, forcing Enbridge to submit its final arguments in writing. Bigger proposals such as Keystone XL and Northern Gateway face an uncertain future.
Canadian Press
Canadian PressTransCanada CEO Russ Girling, right, and TransCanada president of energy and oil pipelines Alex Pourbaix announce the company is moving forward with the 1.1 million barrel-per-day Energy East Pipeline project at a news conference in Calgary, in August. But before the pipeline is a reality, TransCanada must navigate an increasingly divided landscape.
Some unions, meanwhile, are suspicious of Energy East. The Alberta Federation of Labour, which favours domestic processing, has decried it as “a bitumen superhighway designed to ship raw bitumen right past jobs and refineries in Canada.”
TransCanada disputes the claim, arguing Canadian refineries will be served before export markets. “To access other refineries would mean taking on additional transportation costs, marine transportation costs, that will make accessing other refineries more expensive and as such, less desirable,” says Stefan Pohlod, president of Energy East. But Irving’s Mr. Sherman anticipates as much as 700,000 barrels — about two-thirds of the pipeline’s planned capacity — could bypass refineries in Montreal and Quebec City. “It’s way more than we would ever use at this refinery, so the bulk of it would all be exported,” he says.
There is no question Energy East is ambitious. TransCanada has likened it to construction of the Canadian Pacific railway and the Trans-Canada highway. The company has yet to formally apply for the project — that should happen next year, Mr. Pohlod says — but a proposed start-up of 2017 for the pipeline coincides with a torrent of new production anticipated in northern Alberta.
Suncor Energy Inc. and France’s Total SA, both shippers on the line, last month agreed to build a $13.5-billion oil sands mine with Teck Resources Ltd. Fort Hills will add 180,000 barrels a day to output in the region beginning in 2017, the partners say. Another 80,000 barrels per day will flow from Shell’s steam-driven Carmon Creek development in the same year, as companies wager that pipeline congestion weighing on Canadian crude prices will clear over time.
“We have taken positions in most export pipelines,” says André Goffart, president of Total’s Canadian unit. “Given the potential growth of our production in the oil sands, and the fact that we need to diversify our markets, it’s important that we are building a portfolio of opportunities for market access.”
In Saint John, the prospect of a pipeline coursing with Western crude at the city limits has been welcomed with open arms. Employment in New Brunswick increased by 2,800 in September, but the unemployment rate stood at 10.7% versus a national average of 6.9%, according to Statistics Canada. The province’s timber industry – once an economic mainstay – has withered amid competition and flat U.S. housing demand.
A flood of Western oil could boost the regional economy, says Shelley Rinehart, Saint John’s deputy-mayor. Saint John College at the University of New Brunswick recently launched a program to train professionals in “how to speak energy,” she says, in order to capitalize on potential spin-offs.
Energy East would mean “we’re able to access more product to really expand the capacity of what we have here currently,” she says. “It’s not about the pipeline itself, but it’s about the opportunities that it opens for us.”
The extent of those benefits remains subject to guesswork. A Deloitte study commissioned by TransCanada says construction of Energy East would generate 1,095 direct jobs in New Brunswick, adding $478-million to the province’s gross domestic product over six years. But the company was widely accused by critics of padding job-creation numbers for its more controversial Keystone XL project. And benefits for eastern refineries could diminish if today’s discounts on Western Canadian oil narrow, a likely scenario as export capacity expands, says Chris Barber, an oil market analyst with ESAI Energy LLC in Wakefield, Mass.
Mr. Pohlod says Energy East could spur refineries in the region to invest in plant upgrades needed to process more viscous Alberta oil. Irving can handle some heavier crude types today – Cenovus Energy Inc. is a regular supplier – but the company won’t say whether an expansion is in the cards.
Mr. Sherman, a mechanical engineer and veteran of oil sands consortium Syncrude Canada Ltd., says a coking unit running up to 150,000 barrels a day would cost up to $5-billion. “We’re a small company,” he says. “That would be a big stretch for us.”
For Western oil CEOs, Saint John’s appeal lies offshore, in markets along the U.S. eastern seaboard, and as far away as Spain and India. At the proposed site of a seven-million-barrel tank farm and two marine jetties, Irving’s Mr. Browning points across the bay to an open horizon. The undulating water is ice-free year-round, 128 feet (39 metres) deep and 64 kilometres across, he says. It is already plied by some of the world’s largest ocean-going tankers, ships capable of holding two million barrels of oil. “A lot of the shippers out of Alberta were interested in bringing the pipeline out here because we’re already sort of ready to roll,” the Irving executive says.
Postmedia News
Postmedia NewsBesides tankers, Fundy’s deep water is frequented by endangered North Atlantic right whales, which gather in late summer and early fall to gorge on swarms of plankton.
That includes getting ahead of potentially explosive environmental considerations, too. Besides tankers, Fundy’s deep water is frequented by endangered North Atlantic right whales, which gather in late summer and early fall to gorge on swarms of plankton. After dispatching oil at the refinery, ships such as the NS Arctic most often leave through a voluntary exclusion zone that skirts the deepest portion of the bay, where the whales feed.
Irving, Transport Canada and the International Maritime Organization agreed to move the shipping lanes in 2003, after several right whales died of blunt trauma from vessel strikes. The move reduced the likelihood of collisions with the animals by roughly 80%, according to Chris Taggart, a professor in the Department of Oceanography at Dalhousie University, whose fieldwork helped drive the change.
“That doesn’t mean it’s zero, it just means it’s less likely to happen,” he says. Compliance among vessels passing through Fundy is “almost 100%,” he says. But only about 17% of ship strikes involving right whales are ever observed along their Florida-to-Fundy range, according to his research. “There’s about 400 whales,” he says, “but how many thousands of ships are there?”

No comments: