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Canadian Oil Pipelines Limiting Exports

Friday, October 14, 2016

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A new Canadian government report says the country’s oil pipeline infrastructure is lacking, limiting oil exports and leading oil companies to rely on rail transport.

As reported by UPI, the 2016 annual report from the National Energy Board indicates that oil export capacity “remained tight” this year, due to pipeline capacity that hasn’t increased at the same pace that crude supply in the western oil sands has.

Oil tanker railcar
© iStock.com / Brian Brown

Canada's National Energy Board says a lack of pipeline capacity is leading oil suppliers to rely on rail transport.

While several pipeline projects have been proposed to transport oil to ocean ports and to the United States, none, the report notes, are currently under construction.

Production Outstrips Capacity

Pipeline capacity has been increasing over the past five years, the report says, but crude oil supply in the Western Canada sedimentary basin has been increasing at a greater rate. Since 2012, according the NEB, rail transport has been required to supplement pipeline transport capacity.

Capacity vs production chart
Chart: National Energy Board

Pipeline capacity has been increasing over the past five years, the report says, but crude oil supply in the Western Canada sedimentary basin has been increasing at a greater rate.

The NEB sets forth in the report that markets generally benefit from having some spare pipeline capacity, and that the costs associated with having more capacity than necessary are less than the costs of having too little.

“When pipeline capacity between two market hubs is adequate,” the report states, “commodity prices will be connected and the price differential will in general be equal to, or less than, the transportation costs between the two points.”

Challenges to Pipeline Growth

Last November, Canadian Prime Minister Justin Trudeau vowed to ban oil tanker traffic on the north coast of British Columbia, effectively quashing Enbridge’s plan for the twin Northern Gateway pipelines, which would have moved oil in pipelines from Alberta to the coast, where tankers would have taken the oil to Asian markets.

More recently, reports indicated Trudeau might relax the ban. In June, a federal court ordered approvals that had been given to the pipeline plan to be overturned, however.

Around the same time, U.S. President Barack Obama denied TransCanada’s proposed Keystone XL pipeline, which would have moved oil from Alberta to Nebraska. The Obama administration said at the time that Keystone XL was not in the United States’ best interest.

Pipelines currently in the planning stages include TransCanada Energy East, which would move oil from Alberta to New Brunswick; Kinder Morgan Trans Mountain Expansion, from Alberta to southern British Columbia; and an expansion of the capacity of the Enbridge Line 3 pipeline, from western Canada to the U.S. Midwest.

Rail Transport Issues

Rail transport of crude has its critics, especially in recent years. The 2013 Lac-Megantic rail disaster in Quebec involved runaway rail tanker cars carrying Bakken formation crude; the crash and ensuing fire claimed 47 lives.

In the aftermath of that tragedy, both Canada and the U.S. increased regulatory scrutiny of rail tankers, especially those carrying crude from the Bakken formation, thought by some to be more volatile than other crudes.

Outdated rail tankers in Canada classified as DOT-111 are being phased out, with a deadline date of Nov. 1.

Other Findings

The report notes that natural gas pipeline capacities in Canada are adequate at this time, and that increased natural gas production in the United States in recent years has turned some Canadian export points into import points.

Production of oil and natural gas in both the U.S. and Canada increased in 2015, the report notes, presenting “opportunities and challenges for Canadian energy pipeline systems.”

The report also points out that all pipeline companies regulated by the NEB are financially stable and listed as “investment grade” by major financial indexes, though a handful have faced slight downgrades in the past five years.

   

Tagged categories: Asia Pacific; EMEA (Europe, Middle East and Africa); Government; Infrastructure; Latin America; North America; Oil and Gas; Pipeline; Program/Project Management; Railcars; Regulations

Comment from peter gibson, (10/14/2016, 3:28 PM)

Justin Trudeau ...another Green like his father -Pierre. Oil haters. What do you expect.


Comment from Car F., (10/18/2016, 10:53 AM)

"What do you expect.", expect leadership and the realization that you can't drink oil or eat bitumen. Without the hard, intelligent and sensible decisions, alternative sources of energy will never be used. We are relying on a non-renewable resource; is going to end one day and we can't be sitting idle waiting for that day to happen: it is not fair to damp that responsibility on our kids.


Comment from Car F., (10/19/2016, 11:42 AM)

Correction:.....dump not "damp"


Comment from M. Halliwell, (10/19/2016, 1:06 PM)

True, Car, you can't eat or drink oil / bitumen. But you can trade it to buy food and drink. Canada is not a mecca for solar (one of our local plants just had 5 days with no generation due to the weather), we have natives upset and protesting hydroelectric projects (they flood traditional lands), people are decrying bird deaths at wind farms and NIMBY kicks in hard when it comes to nuclear power. Yes, we need to transition to other, less damaging energy sources...but until some of the alternatives develop more, we still need to use what we have. Governments claim that the new carbon taxes (Alberta and Federal) will go to develop alternative energy....but I'll believe it when the national sales tax (GST) actually starts to pay off the debt (the promise when it was introduced). Realistically, and you can call me a cynic, I think alternative power will continue to languish without funding while the governments enjoy the extra revenue from carbon taxes while the oil sector struggles with getting their product to market.


Comment from peter gibson, (10/19/2016, 1:21 PM)

Car..eating ,drinking oil.What you talking about. I can see you are a real greenie. They told us oil would run out .Now there is glut.What say you now. More oil ; more gas. Thats what makes the world turn. Good luck on the green nonsense.


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