OGPSS - Pipelines and Eastern Canada

I wrote, last time, about the projected pipelines that are being anticipated to take advantage of increased production from the oil sands in Alberta, Canada with the intent that I would use that to lead into a review of the oil sands operation itself. However Gail has raised the issue of the proposed reversal of the pipeline (Line 9) that runs from Sarnia in Ontario to Montreal so that oil would flow to the Suncor refinery in Montreal, rather than the current flow which runs the other way. (Sarnia is right by Detroit). The pipeline reversal is planned to continue beyond Montreal, to include reversing the flow of a supply pipeline from Portland, ME so that the oil from Alberta might also supply northern New England. The project has been called “The Trailbreaker” and had been postponed two years ago when demand declined.

The overall question of the relative role of exports and imports on the Canadian oil supply equation was also raised in comments on the previous post. As a result I am going to look a bit more into the overall Canadian picture, and particularly that in the East Coast, and will postpone the oil sand piece a week (sorry Neil). To begin it helps to look at the current projects that Enbridge have in mind for pipelines.

Overview of the Enbridge planned pipeline projects (Enbridge)

The Ozark pipeline, which is shown running from Cushing to Wood River was closed on Friday, Sept 30th, when the pipeline was found to be exposed as it ran across the bottom of the Mississippi River. It carries around 240 kbd and the shut down is precautionary, since there has been no leak detected.

The dark green arrow from Cushing to Houston will be known as the Wrangler pipeline and would carry up to 800 kbd from Cushing to the refineries along the Gulf, competing with the Keystone XL, which is planned to bring an additional 500 kbd down from Alberta (about 500 kbd flows through existing connections). The intent is to move the oil away from Cushing where it is proving to be a bit of a glut.

With this surplus, and the ability to move oil around the Mid-West, the need for additional feed down from Montreal dissipates, and thus the argument for the reversal of flow so that crude from Alberta can be sent back up that pipe to the refineries in Eastern Canada. At present oil comes by tanker to Portland, ME and then enters the Portland-Montreal Pipe Line (PMPL) system. The oil flows through either an 18-inch or 24-inch line up to Montreal, a distance of 236 miles, with flow then continuing to Sarnia. A certain increase in energy security would thus be achieved for the East Coast of North America, if the oil refined on the East Coast was produced in North America, instead of coming from Russia and the Middle East. At present flow would be reversed in only one of the pipes, the 18-inch, coming from Portland. At present some 200 tankers a year offload in Portland, and send around 95 kbd up to Montreal. (The pipeline came into being in 1941 to avoid exposing oil tankers moving into Quebec to U-boats).

Portland Montreal Pipe Line (Wikipedia)

If one looks at the overall flows of oil in Canada, the increasing reliance on Albertan oil can be appreciated.

Flows of Canadian crude oil in thousand cubic meters/day – (multiply by 6.3 to get kbd) in 2009 (Canadian NEB)

Canadians consume around 1.5 mbd, of which half is gasoline, and 30% diesel. I discussed their exports in the last post.

Interestingly the largest exporter of gasoline from Canada to the US lies further East, where it comes from the Irving Oil refinery in St John New Brunswick with the 300 kbd refinery shipping 75% of the gasoline it produces into the Eastern United States.

There are two other refineries in the region, the Dartmouth refinery at Halifax in Nova Scotia refines 82,000 bd of crude, largely for the Eastern provinces of Canada. The crude is off-loaded from tankers, refined and then loaded onto smaller coastal tankers for delivery.

Yet further East is the Come by Chance refinery, now the North Atlantic Refinery in Newfoundland. In its time it was one of the largest bankruptcies in Canadian history, but it now refines some 115 kbd that arrives in 320,000 ton tankers at the nearby ice-free port. It suffers from that bankruptcy in that a subsequent sale was commensurate on the product not being sold in Canada (outside of Labrador and Newfoundland), which means that the products largely ship to the United States.

Yet one must go even further East to find the oil fields of the Eastern Canada Sedimentary Basin. And unfortunately while the nearest refinery might be near an ice-free port, the fields themselves are not.

Eastern Canadian Sedimentary basins and hydrocarbon fields (Center for Energy )

The fields include White Rose which is expected to yield around 230 milllion barrels, at around 120 kbd, with a life of 12 – 15 years. First oil was in 2005.

Terra Nova is estimated at 406 million barrels. With a production of around 125 kbd it is anticipated to last 18 years. Production began in 2002.

Seasonal floating ice in these parts varies from 1.6 to 5 ft thick and an average wind speed of around 20 mph. also leads to ice buildup on the tankers and superstructure making it a consideration in operations, as are icebergs. (Remember the picture of the tug pulling an iceberg). That was taken around here.

Hibernia is also producing at around 126 kbd, and by August 2010 had produced 704 million of the 1.4 billion potentially recoverable oil from the field, Approval has now been given to extend development to the south.

Current plans to develop Hebron, some 6 miles N of Terra Nova include also the fields of West Ben Nevis, and Ben Nevis. Production is expected to begin in 2017, at a rate of around 150 – 180 kbd of oil and 200 – 350 kbd of water. Reserves are considered to be in the 400 – 700 mb range.

Although these numbers are significant, and will provide for a considerable fraction of the need in this part of the world, and further south, they do not constitute the promise of sustained increased levels of production that are required for significant help against the declining production seen in many of the worlds major oilfields. For some help in that direction it is necessary to head West. And so it is time for the review of the oil sands.

There is however, considerable controversy over the operation of the oil sands in Alberta, particularly from those objecting citing the mess that is made of the landscape. In general the illustrations of oil sand operations that are used, show the site during mining, where the black color of the sand tends to make for a dismal picture. It might be more informative to show what the sites are like afterwards. And so, as a prelude to more discussion, here is a photo of some reclaimed land. It is here that the wood bison (as opposed to buffalo) roam.

Reclaimed land after the oil is removed from the sand (CAPP )

Gazprom and Ukraine - natural gas and the shale gas potential

Well now that is interesting. Quietly, while everyone’s attention was, increasingly focused either on the British Election or the oil spill in the Gulf (this was before the attempted bombing in NY) Russian Prime Minister made one of those almost un-noticed Friday announcements. He suggested that Gazprom, the Russian gas company, merge with the Ukrainian natural gas company Naftogaz.

In February the election in Ukraine switched the country from a Westward leaning Administration to one that favored Russia This could be one result of that, and it has a couple of implications. Firstly it ties the country much more tightly to Russian energy strings. Secondly it stops the embarrassing headlines that have occurred in recent winters as Ukraine and Russia have quarreled over the price Ukraine will pay for its natural gas.

The statement has apparently caught many Ukrainian administrators a little off guard. They might perhaps want to take the hint.

“It’s no secret that Russia continues work on its two pipelines by-passing Ukraine, specifically the South Stream project, which is soon to take off the ground. We’ve finished preparing all legal documents. What will this project mean for Ukraine? Serious losses,” Peskov explained. 


“Ukraine is interested to have a co-owner, Gazprom, for its Naftogaz. On the other hand, Gazprom is interested in Ukraine’s pipelines undergoing modernization and operating at full transit capacity,” the Russian official argued. 
Gazprom wants to merge with Naftogaz as it will provide a guaranteed route for meeting Gazprom’s obligations with regard to clients in Western Europe, the official said.

The first paragraph is, I suspect, just to ensure that Ukraine understands the underlying ground rules. And it is reported that this was no sudden whim, but rather has been under consideration for some time.

"We have talked about integration in the nuclear field. We are prepared to do the same in the gas field," Putin said. "I propose merging Gazprom and Naftogaz."

Although a spokesman for Azarov described Putin's comments as "impromptu," Putin's spokesman, Dmitry Peskov, said the proposal was in fact "a thought-out, calculated proposal."

Such a merger would allow Moscow to control its own gas transit to Europe, 20 percent of whose gas imports flow through Naftogaz's pipelines.

One point that is perhaps adding a little momentum to the discussion is the growing interest in gas shale and other resources. Gas shale may make Poland independent in energy and there is Western interest in providing some support.

EuroGas, Inc. today announced that through its subsidiary, EuroGas Polska sp.z o.o., it has entered into a confidentiality agreement with Total E&P Activites Petrolieres (Total), a wholly owned subsidiary of Total S.A., one of the world’s largest oil companies. The agreement was entered into in connection with the evaluation and possible acquisition by Total of certain rights held by EuroGas Polska’s wholly-owned West Ukrainian subsidiary in an onshore region in Western Ukraine. Total has also been evaluating the Bieszczady concession in Poland, in which EuroGas owns a 24% interest.

These properties are, however, coal bed methane related, and thus more readily accessible.

But at the same time there is a potential to break the dependence on Russian natural gas.

The International Energy Agency has estimated that Europe, which gets 25 percent of its gas from Russia, has around 35 trillion cubic meters of unconventional gas reserves – half of which is in shale. That’s around six times its remaining conventional gas reserves.

Energy giants such as ExxonMobil and ConocoPhilips are parked in Ukraine’s backyard. ExxonMobil is already drilling in Germany, ConocoPhillips is exploring in Poland and Austria’s OMV is test drilling at home.

The new technology requires work in wide-open spaces, making it more suitable to a country like Ukraine, which could possess some of the most promising shale deposits, than densely-populated Europe.

Russia had already agreed to lower the price it charged Ukraine for natural gas by 30%, provided it extended the lease for the Russian Black Sea Fleet.

As for Poland, it was at the end of last year that the energy advisor suggested that they could be self-sufficient in 4-5 years.

We already know ConocoPhillips, Exxon Mobil and Marathon among big players (and there are plenty of independents: Aurelian, San Carlo, BNK, 3 Legs etc)are investing in Poland. December 9 saw what should be the story of the month, where the energy adviser to the Polish Prime Minister predicted enough gas to export in 4 to 5 years.

The whole of Europe is undergoing a geological re-evaluation to determine the potential for natural gas from shale, and with the high cost of developing some of the larger deposits in Russia, thinking particularly of Yamal and Shtokman, shale may also be attractive to Gazprom.

Shale gas has even fueled interest up in New Brunswick

North of the border, oil and gas companies are beginning to pour money into surveying, drilling and producing gas from land in British Columbia, Alberta, Saskatchewan, Quebec and the Maritimes in the hopes they'll discover the next jackpot.

In March, New Brunswick issued its largest tender to date for oil and gas exploration - more than one million hectares of land - to Southwestern Energy Co. (NYSE:SW), a Texas firm known for pioneering exploitation of the Fayetteville shale in Arkansas for natural gas.

The Canadian division of Houston oil and gas major Apache Corp. (NYSE:APA) is interested, too, and plans on drilling two wells this summer for shale gas near Elgin.

But this international move to indigenous resources does not install confidence in the Kremlin that they can sustain the markets which they need to generate the funds to support their budgets. And so, in the hope perhaps that the change in Administration in Ukraine will help them, they have begun to possibly look at other ways of keeping themselves in business.