Page 5 - NorthAmOil Week 44

NorthAmOil COMMENTARY NorthAmOil
water permits for Keystone XL in South Dakota is successful, in the immediate term, the Key- stone outage has broad implications in both the US and Canada.
As well as putting pressure on oil prices in Western Canada, Keystone’s closure hurts refiners on the Gulf Coast as they already faced reduced supply of heavy crude from elsewhere. Sanctions on Venezuela, OPEC production cuts and declining output in Mexico have all combined this year to force US refiners to look for additional heavy crude supplies from other sources. Canada had hoped to capitalise on this – and still can to an extent, but the country needs the Keystone system to come back online as soon as possible.
An RBC Capital Markets analyst, Michael Tran, said in a note that there was sufficient unused storage capacity in the Western Cana- dian oil handling system to mitigate the impact of the Keystone outage for about 20 days. How- ever, if the pipeline remains offline for longer than this, more crude-by-rail deliveries would be needed to relieve the pressure on Alberta’s producers.
“[This incident] underscores the structural issue plaguing the Canadian oil industry, whose fortunes are consistently one pipeline leak away from a materially wider WCS differential,” Tran said.
The outage may not last long enough to require additional crude-by-rail shipments, however. “The initial guesses on a pipeline leak of this magnitude are 7-10 days [of repairs] which will reduce flows into Cushing by about 3-3.5mn barrels of heavy crude and some syn- thetic crude,” an ICAP broker, Scott Shelton, told Reuters.
Nonetheless, this incident could add to the growing impetus for shipping more Canadian crude by rail as producers wait for pipeline bottlenecks to be addressed. No major new
pipelines out of Western Canada are set to start up until late 2020 at the earliest, when Enbridge hopes to bring its Line 3 replacement project into service. But further challenges to both the Line 3 replacement and the long-delayed Trans Mountain expansion project cannot be ruled out.
On October 31, the Alberta government said it would allow oil companies to produce more crude if they ship it by rail, easing curtailment rules that were brought in this year to reduce transport bottlenecks and boost regional oil prices.
The new rule will come into effect in Decem- ber, and the news that it was being brought in was welcomed by some major producers. Suncor Energy’s CEO, Mark Little, said his company was planning to move an additional 30,000 bpd of oil by rail within a couple of months as a result of the development. He estimated that there was an additional 200,000-300,000 bpd of crude by rail capacity that could be made available.
Meanwhile, Cenovus Energy said it would quickly add 10,000-20,000 bpd of oil sands out- put. The company is also intending to proceed with bringing an expansion online at its Chris- tina Lake project to add 50,000 bpd in the next 6-12 months following the Alberta government’s decision.
Imperial Oil’s CEO, Rich Kruger, said his company’s crude-by-rail volumes in the wake of the Keystone outage were yet to be determined. However, Imperial’s rail shipments have fallen in recent months, which Kruger attributed to the economics of crude-by-rail shipments worsen- ing over the summer.
The industry is also still awaiting news of what will happen to the Alberta government’s crude-by-rail contracts, which it said last week it was close to offloading to the private sector. Finalising the deal could provide an additional boost to crude-by-rail.™
The Alberta government said it would allow oil companies to produce more crude if they ship it by rail.
An estimated 9,120 barrels of oil were spilled from Keystone near Edinburg, North Dakota.
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