When you transport crude to market by pipeline its going to get mixed up with other folk’s production being shipped on that pipeline unless you have an exclusive pipeline – which is not the norm. Some pipeline systems use a batch mechanism to separate individual parcels but the usual approach is to mix together like crudes in a common stream. When that happens the pipeline operator uses a quality bank to credit or debit shippers for differences in the quality between the crude they put in and what they take out of the pipeline. Today we explore how quality banks work.
We have previously discussed the different crude types showing up at US refinery gates as a result of growing production as well as some of the challenges that refiners face in handling these new crudes (see Charge of the Light Brigade). We have also covered crude quality issues associated with very light crude oils that fall into the condensate category (see Don’t Let Your Crude Oils Grow Up to be Condensates). Generally speaking, the quality of a crude oil goes a long way towards dictating its value in the marketplace. Producers tend to categorize their crude in terms of two of the most important characteristics – the API degrees of gravity and the sulfur content. Refiners on the other hand are more particular and look at more complete assays of the components in a crude to judge its value when processed at their refinery (for more details see Refinery Yields Forever)
Pretty much every crude that comes out of the ground has different characteristics and these can vary within quite small geographic areas. But when a producer transports crude to market there is every chance that it is going to get mixed up with someone else’s crude along the way. When that happens – whether by accident or deliberately – there can be disagreement about any resulting changes in the quality of the crude as well as the impact those changes have on the value of the resulting “blend”. This is a big deal – there is a whole organization dedicated to the issue – the Crude Oil Quality Association. The majority of crude quality issues arise from pipeline transportation.
Pipelines are popular with shippers and producers because they can move crude easily and economically over long distances. Most of the time pipeline tariff costs between two points are lower than any other transport option except perhaps very large crude carriers that move MMBbl batches of crude across oceans. Pipelines allow for reliable and uninterrupted daily flow of crude to a terminal or refinery. However it is difficult if not impossible to maintain the integrity of an individual producer’s crude in a pipeline. Recognizing this reality, pipeline operators have developed different approaches to crude quality challenges.
Typically, small gathering system pipelines (2-4 inch diameter) take crude from the wellhead to a storage terminal at an injection point into a larger pipeline or a rail loading point. Many of those storage terminals cab also receive crude delivered by truck. During this part of the crude oil journey to market, crude volumes are measured wherever custody transfer occurs (e.g. to a shipper) and quality sampling occurs where required. Larger producers will have more control over the integrity of their crude at this point in its journey. Smaller producers are more likely to get their crude mixed in with others.
But it is usually only when crude oil is injected into larger pipeline systems for transport to market that greater attention is paid to quality differences. If the pipeline is dedicated to one producer, which is rarely the case, then that producer can exert more control over the crude quality. When multiple producers share a pipeline, which is the norm, then one of two methods are used to handle crude quality differences.
The first of these methods of sharing a pipeline is a batch system. That means individual producers or shippers crude is injected into the pipeline from a storage tank, one large batch at a time. A slug of light hydrocarbon liquid separates the batches. Batches of crude maintain a fair degree of quality integrity en-route but they can still pick up unwanted water and other contaminants. Batches may also get mixed with crude from the parcels behind and in front. In any case, batch pipeline systems are relatively expensive to operate since they require individual storage tanks at both ends. As a result batch systems are generally only used to ship large quantities of crude between big trading hubs. The batch shipping method is also used extensively in refined product pipelines.