Trans­port Costs

Alberta Oil - - FOCUS ON REFINING -

Rail trans­port costs more than pipe­line trans­port. Rail is also less safe and emits more green­house gases, two fac­tors which could trig­ger fu­ture cost-in­creas­ing reg­u­la­tions. An­other un­cer­tainty is that Cana­dian crude com­petes against other com­modi­ties, in­clud­ing coal, ore and grain for space on the rails, which drives up prices. So if En­ergy East is built, Al­ber­tan crude be­comes more at­trac­tive. De­pend­ing on the ori­gin and desti­na­tion of crudes, the dif­fer­en­tial be­tween North Amer­i­can rail and pipe­line trans­port is typ­i­cally be­tween $5 and $15 per bar­rel, which can be a makeor-break spread when oil prices are low. Tanker trans­port costs are still lower than pipe­lines. There­fore, even if En­ergy East is built, im­ported over­seas crudes will al­ways have a built-in cost ad­van­tage. So-called Very Large Crude Car­ri­ers (VLCCs) and Ul­tra Large Crude Car­ri­ers (ULCCs)—car­ry­ing up to two mil­lion bar­rels—are still the most eco­nom­i­cal method to de­liver crude oil to Eastern re­finer­ies. This fact is high­lighted by the eco­nom­ics of ship­ping di­luted bi­tu­men, which re­quires 30 per­cent dilu­ent in the pipe­line to move it. Dilu­ent would likely be sold at a dis­count in the east com­pared to the west and En­ergy East doesn’t in­clude plans for a re­turn pipe­line to re­cy­cle it.

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