Beyond Energy East: The push for new routes
Oil and pipeline firms are developing various strategies to get product to refineries and then on to customers
Canadian crude may soon find its way into international markets via the Great Lakes and New Jersey, as Alberta oil producers explore new routes to circumvent pipeline bottlenecks in North America.
Buckeye Partners Ltd. is in talks with companies to export Canadian crude possibly to international markets from its terminal at Perth Amboy, N.J., which is expected to be ready soon.
“Our conversation with potential customers is to bring Canadian crude into our facility,” Kevin Goodwin, vice-president and treasurer of the Houston-based company said in an interview, noting the crude will be segregated from U.S. crude, so it can be exported without any prohibitions.
It’s just one of many projects underway as pipeline companies struggle to secure regulatory approval or so-called social licence for flagship projects such as Northern Gateway, Keystone XL and Trans Mountain.
The delays have compelled midstream companies and producers to build and expand rail terminals, chart remote waterways on barges laden with Canadian crude, and reverse, refit and repurpose pipelines to keep the crude flowing.
While the 1.1-million-barrel-per-day Energy East project is garnering all the attention, many companies are quietly opening new avenues for Alberta crude to reach new markets. TransCanada Corp. expects to file an application for the Alberta-to-East-Coast pipeline shortly.
Buckeye bought the Perth Amboy facility in 2012 from Chevron Corp. for US$260-million, and has invested a further US$200-million to beef up its ability to handle and store crude.
Separately, Buckeye signed a deal in 2012 with Irving Oil Ltd. to provide crude oil services including off-loading unit trains, storage and throughput, at its terminal located in Albany, N.Y.
The Perth Amboy project was to be completed by the third quarter of 2014, according to a company presentation, but Mr. Goodwin said a new date would be announced in November.
He would not identify the companies Buckeye is in talks with, but given its location the project lends itself more easily to exports out of the U.S. rather than the Gulf Coast.
“It could be exported if that’s what the customer wanted to do, but it could also service some of the refiners on the East Coast,” Mr. Goodwin said. However, Eastern refineries are typically set up to receive Brent blends, compared to the heavy Canadian oil Buckeye expects to transport.
A possible route for Canadian crude en route to Perth Amboy could be via the Enbridge Inc. pipeline that ends at Chicago where Buckeye has a rail terminal. From there it could be loaded to another terminal with a rail facility, Mr. Goodwin noted.
While there are some community concerns about Canadian crude passing through densely populated areas by rail, it is less volatile than the more flammable Bakken crude, said Tony Hatch, a transport analyst based in New York.
“It is not nearly as volatile and is perceived to be significantly safer and under certain circumstances can be much closer to a pipeline cost than say the light sweet crude is,” Mr. Hatch said.
An average of 917,000 barrels of oil was transported by rail per day in the second quarter in the United States, according to estimates by New York-based Sanford C. Bernstein & Co., with flows to eastern United States leading growth.
“As the market adapts to changing production levels, pipeline capacity, and rail capacity, we are seeing North-South flows moderate and more flow to Eastern and Western coastal destinations,” wrote David Vernon, senior analyst at Bernstein in a note to clients.
In addition, plans to ship Canadian heavy crude via the Great Lakes is expected to gain momentum once again following a favourable draft report on Oct. 1 by the Great Lakes Commission.
“The region’s economy is heavily dependent on oil and petroleum products and the increase in production has benefits for the Great Lakes economy and our nation as a whole,” said GLC chairman Kelly Burch in its report that seeks public comment. The Ann Arbor, Mich.-based inter-state agency comprises eight Great Lakes states with associate member status for Ontario and Quebec.
“At the same time, our region’s economy is also directly tied to the health of our water. We need to manage the risks of transportation into and through the region so we can balance the benefits of both.”
The Wisconsin Department of Natural Resources (WDNR) is also seeking public comments for Enbridge’s proposal to construct the Sandpiper pipeline and replacing Line 3, that ends at Lake Superior.
Environmentalists fear it could open the way for crude to be transported on the Great Lakes, especially as there are plans to construct a loading dock to ship crude oil by Superior, Wisc.-based Elkhorn Industries Inc.
In December 2013, the Elkhorn application was dismissed by WDNR due to a lack of information. However, Elkhorn filed another permit application in August 2014 to reconstruct and deepen the dock to accommodate Great Lake vessels. In its filing, the company said it intends to “restore and improve the property as an intermodal harbour facility that will enable efficient and effective interface and transfer between Great Lakes bulk carriers and other transportation systems including truck and rail.”
While Enbridge makes no mention of the dock in its application, WDNR will address the project as part of the environmental impact statement.
“This shows the agency recognizes the likelihood and significance of increased oil shipping on the Great Lakes,” wrote Lyman Welch, water quality director at the Alliance for the Great Lakes, in a letter opposing the development. Elkhorn Industries could not be reached for comment.
In its report, GLC said it had taken note of Suncor Energy Inc. shipping heavy oil via tanker on the St. Lawrence River in September 2014.
Pipeline companies are also taking a look at their networks to optimize capacity. Close to 1.45 million barrels per day of new Canadian pipeline capacity is expected to come on line by the first quarter of 2015, according to investment bank Peters & Co.
Beyond Enbridge’s Northern Gateway pipeline, the company is creating space to move 1.7 million barrels per day of additional crude by 2017 for both Canadian and U.S. barrels, heading to Gulf Coast and eastern refineries.
“Projects in these programs are at varying stages of regulatory approval, from having received all approvals and being mechanically complete awaiting linefill (for example, Flanagan South), to other projects that are at less advanced stages in the regulatory approval process,” said Glen Whelan, an Enbridge spokesman.
The southern leg of TransCanada’s Keystone XL pipeline is already transporting Canadian oil to the Gulf Coast and Illinois, originating from the base Keystone line in Hardisty and flowing through Steele City, through Cushing and down through the Gulf Coast pipeline, according to Mark Cooper, the company spokesman.
The great transport push is not restricted to the east. Eleven refineries in Oregon and Washington are proposing rail terminals to process 858,900 barrels per day of crude that could serve as an important conduit for Canadian crude to be shipped to Asia, according to Seattlebased Sightline Institute.
“Some of them are built specifically to handle heavy crude; it is a pretty ripe destination for exports to Asia,” said Eric De Place, an analyst at Sightline.
Canada exported a record 3.248 million bpd of crude to its southern neighbour by Oct. 3, up 35% from the same period a year earlier.
Despite the industry’s relentless effort to find new routes, the environmental movement is vowing to resist.
“It is not a losing battle,” said Christopher Amato, an attorney with Earth Justice, which is concerned about transporting crude by rail through New York and New Jersey. “We are going to fight them at every step of the way.”