HYDROCARBON
ENGINEERING
16
announced plans to ban crude tanker traffic on the west coast
of British Columbia, severely compromising the ability to
move crude to market.
Eastwards, Enbridge has been given approval by the NEB
to reverse Line 9B, which delivers crude from Quebec to
Sarnia, Ontario. The reversal will allow the company to deliver
up to 300 000 bpd of heavy oil and lighter Bakken crude to
refineries in the Montreal region. But TransCanada’s Energy
East Pipeline project (which seeks to repurpose part of its
Mainline gas transmission system running from Alberta to
Ontario then extend it to tidewater with new build), is running
into significant opposition, and the 4500 km, CAN$12 billion
pipeline might not see the light of day for years to come.
There are two major crude storage hubs in the province:
one in Edmonton, and one in Hardisty. The Edmonton region
is a combination of caverns and tanks. In 2013, Edmonton
had approximately 11 million bbls of storage; most of the
usage was related to gathering conventional and oilsands
output from regional lines in order to serve nearby refineries
and petrochemical plants. Hardisty is located in southeast
Alberta at a junction point for major lines heading east and
south. In 2013, it had approximately 20 million bbls of
storage capacity.
Now, both centres are seeing dramatic increases in
capacity. Gibson Energy has announced plans to construct
900 000 bbls of new capacity in Hardisty. Keyera and Kinder
Morgan intend to add up to 6.6 million bbls in Edmonton.
TransCanada and Enbridge also have plans for expansion. In all,
Alberta is expected to see at least 9 million bbls of new
capacity, an increase of almost 30%.
In the US, crude production has also risen dramatically,
primarily due to unconventional shale oil in the Bakken in
North Dakota and the Eagle Ford and Permian plays in Texas.
According to the American Petroleum Institute (API), US crude
production reached 9.3 million bpd in March 2015, a 14.5%
increase over the previous 12 months. Since then, the output
has slipped by 200 000 bpd, averaging 9.1 million bpd in 4Q15.
The API expects the declines to continue, with an average of
8.5 million bpd in 2016.
Because there are relatively few major crude lines serving
North Dakota, much of the Bakken’s production has been
shipped by rail. What does come out by pipe makes its way to
Cushing, Oklahoma, where it joins the tide of heavy oil
marching south from Alberta. Cushing is the major storage
facility for the US Midwest, serving refineries throughout the
PADD 2 (US Midwest) region. In 2011, it had 60 million bbls of
capacity. Since then, it has expanded by 25 million bbls, or
over 40%. Pipeline operators have major plans to expand
transportation south to the US Gulf Coast (USGC), but
Cushing will need further storage expansion to meet growing
oilsands production bottlenecks.
Although shale oil in Texas has the advantage of being
close to the immense refinery and petrochemical complexes
in the USGC (located in the PADD 3, or Gulf Coast, region),
several wrinkles complicate its delivery to market. Most of the
shale production is light, tight oil (LTO) that is not best suited
to Gulf Coast refineries, which were engineered to handle
heavier feedstocks fromMexico and Venezuela. In addition,
the US has imposed a crude export ban since the early 1970s,
limiting markets.
As a result, operators have been seeking new capacity in
order to store production. In 2011, the USGC area had slightly
over 300 million bbls of capacity; since then, it has grown by
56 million bbls, to almost 360 million bbls. Very little of that
storage is going unused. According to the US Energy
Information Administration (EIA), PADD 2 and PADD 3 crude
inventories had reached a record high of 310 million bbls by
December 2015.
Storage continues to expand rapidly. Fairway Energy
Partners’ Pierce Junction crude oil storage facility is set to
come online at the end of 2016. Three caverns, capable of
holding 10 million bbls, will add to the 30 million total crude
storage capacity in the Houston area, and the company is
planning 10 million more. Enbridge is committing US$5 billion
to build three new oil terminals between Louisiana and
Houston. Phillips 66 is doubling crude storage capacity, to
16 million bbls, at its Beaumont, Texas, terminal. According to
Genscape, an energy consultancy, almost 20 million bbls of
new crude capacity are being added in the next two years.
Terminal and storage opportunities for crude by rail have
also grown tremendously in the last several years. Once a
niche market, onloading and offloading facilities have sprung
up in North America to the point where moving capacity
exceeds 1 million bpd. Terminals are located in regions where
there are pipeline constraints (such as the oilsands in northern
Alberta), or in regions where crude production has grown so
quickly that the growth of pipeline infrastructure has not kept
apace (such as the Bakken North Dakota). Although the
expansion in crude by rail has slowed recently due to low
commodity prices, it is expected to remain an area of capital
investment. For instance, markets that are under-served with
specific crudes, such as heavy oil refineries on the West Coast,
can use crude by rail as a viable delivery option.
Gas
Although the pace of drilling has fallen, unconventional gas
production is still rising. Production from the Marcellus shale
formation, which lies beneath West Virginia, Pennsylvania and
Ohio, is nearing 15 billion ft
3
/d, approximately 20% of all
lower 48 production. The EIA reports that, thanks to increases
in drilling efficiency, total gas production has grown to
86 billion ft
3
/d by the end of 2015, and is expected to reach
87.6 billion ft
3
/d in 2016. In Canada, explorers in northeast
British Columbia and northwest Alberta have also proven up
several trillion cubic feet of unconventional gas.
While gas consumption has risen in North America, it has
not kept pace with production, and new markets are
necessary in order to soak up the glut. In Canada, there are
currently over a dozen proposed projects to liquefy and ship
up to 14 billion ft
3
/d to markets to Asia, most of which would
be located in the British Columbia tidewater ports of Prince
George and Prince Rupert. The most advanced is Petronas’s
CAN$36 billion, 12 million tpy Pacific NorthWest LNG project;
first production is projected after 2020.
In the US, Cheniere Energy has been building four
liquefaction trains in the Sabine Pass region of Louisiana. The
first two trains, totalling 9 million tpy are reaching final
commissioning stage. The company also has another
19 million tpy in the planning stage. Other US LNG projects
include Sempra’s 12 million tpy plant in Cameron, Dominion’s
