As crude oil production continues to grow in the Western Canadian Sedimentary Basin, more pipeline capacity will be needed. The 590-Mb/d Trans Mountain Expansion in 2024 temporarily provided a period of surplus capacity, but that is shrinking. Today, we go through all the projects in the works.
A subsidiary of Bridger Pipeline is planning a 36-inch-diameter crude oil pipeline that would move up to 550 Mb/d of Canadian barrels 645 miles from the U.S.-Canada border to Guernsey, WY. The idea is to push crude south via existing rights-of-way, possibly reviving parts of Keystone XL in Alberta.
Most Canadian oil sands crude production comes from very expensive mining or underground steam heating operations designed to produce consistently for decades that are costly to shutter in a downturn. Right now the crude netbacks (market price less transport costs) for these projects are more or less under water depending on transport routes. Yet production continues and new projects are still coming online. Today we estimate the netbacks (market price less transport cost) that Canadian producers are realizing.
Western Canadian Select (WCS) – the benchmark for Canadian crude sold at Hardisty in Alberta fetched just $32.29/Bbl on Friday (July 24, 2015) down 60% from $81.34/Bbl a year ago in July 2014. That year has seen big changes in the U.S. oil market with drilling rig cutbacks and declining new production rates. The challenges for Canadian producers have not changed much in the short term – with transport capacity to market still top of the list. Trouble is that every time transport congestion occurs it pushes price discounts higher and lowers producer returns. Today we discuss the relationship between Western Canadian crude production and prices.
Most of the heavy crude oil arriving at the busy Hardisty hub in Alberta that throughputs up to 3.5 MMb/d – is already blended with diluent supplied closer to the production fields to the north. The diluent supply infrastructure to the oil sands today and planned for future expansion is primarily directed from Edmonton. But Hardisty fills an important role in final blending before the crude oil cocktail is transported to market. Today we round up our survey of Hardisty diluent requirements.
Hardisty is the main export hub for Western Canadian crude travelling to market in Eastern Canada or the U.S. That role will expand when (and if) the TransCanada Keystone XL and Energy East pipeline projects are completed. With 3.5 MMb/d of mostly heavy crude passing through, you might expect Hardisty terminals to require significant volumes of diluent. But in fact only one outbound diluent pipeline serves Hardisty region gathering systems. Today we explain why Hardisty requires less diluent.
The price discount for Canadian heavy crude benchmark Western Canadian Select (WCS) sold in Hardisty, Alberta versus Gulf Coast equivalent heavy grade Maya has narrowed from $35/Bbl last November to less than $12/Bbl today. The discounts to Maya this year have been less than the cost of rail transportation between Western Canada and the Gulf Coast – reflecting improving crude takeaway capacity. Next month the 600 Mb/d Flanagan South pipeline from Chicago to Cushing and the 450 Mb/d Seaway Twin from Cushing to Houston will open more new capacity for Canadian crude to compete against Maya at the Gulf Coast. The result is likely to be even lower differentials. Today we discuss the likely impact.
Canadian production of diluent range light hydrocarbon materials such as natural gasoline and condensate are not currently meeting demand from the oil sands region. Diluent is used to reduce the viscosity of heavy Canadian crude so that it can flow to market in pipelines. Diluent supplies required to supplement Canada’s domestic output are nearly all imported from the U.S. via two pipelines that originate in the Midwest. Those pipelines are mostly supplied with diluent sourced from the Gulf Coast. Today we look at how imported diluent gets to Western Canada.
Demand for diluent range light hydrocarbon materials such as natural gasoline and condensate that are used to reduce the viscosity of heavy Canadian bitumen crude so that it can flow in pipelines, is forecast to increase from 380 Mb/d in 2014 to 685 Mb/d by 2019. Increasing bitumen crude production in the Western Canadian oil sands region drives that demand. New large scale bitumen projects in Alberta requires two pipelines – one to ship crude production to market and one to ship in diluent for blending. Today we start a new series detailing the expanding western Canadian diluent distribution network.
A recent SEC filing to register a proposed Initial Public Offering (IPO) for their Master Limited Partnership (MLP) by terminal operator USD Group - whose principal asset is a unit train crude loading terminal in Hardisty, Alberta - reveals long-term commitments to rail by Canadian shippers. That development reflects frustration with continued delays to the expansion of congested pipeline capacity out of Western Canada but also indicates a new maturity in crude-by-rail transport. Today we discuss crude-by-rail’s coming of age in Canada.
