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CALGARY • Unexpected additions to Canada’s existing pipelines could relieve the pain felt by the country’s oil companies and reduce the total number of railway cars moving oil by late next year.
The Canadian subsidiary of Houston-based Plains All American Pipeline LP this week announced it was seeking contracts from oil companies to underpin an expansion to its existing Rangeland pipeline system by 80,000 barrels of oil per day.
The expansion will be completed in stages, with the first stage finished by the end of this year and later expansions operational by 2021.
“We remain focused on leveraging our existing systems in creative ways to meet the growing needs of our customers,” said Tyler Rimbey, Plains Midstream Canada vice-president, commercial, in a release.
Analysts said the 80,000-bpd expansion is not enough to relieve pressure on Canada’s overstretched pipeline export system by itself, but it follows similarly unexpected additions from competing pipeline companies such as Enbridge Inc. and TC Energy Corp. that cumulatively could alleviate pressures on the system.
“That will take away the immediate need for capacity, because that will at least take away the barrels that don’t currently have a home because they can’t get on transportation,” said Dinara Millington, vice-president of research at the Canadian Energy Research Institute.
Total oil production in Canada exceeds pipeline space by 350,000 bpd when you add up the amount of oil being produced in Alberta and the amount of oil that could be produced if the provincial government lifted production limits.
With the unexpected additions, the cumulative efforts of the large pipeline companies will add 450,000 bpd of space to the existing pipeline networks over the next couple of years, essentially removing the pressure in the medium term.
Those efforts include a 50,000-bpd addition to TC Energy’s existing Keystone pipeline to the U.S. Gulf Coast, additions to Enbridge’s mainline network to the U.S. Midwest and Central Canada, and the planned reversal of Enbridge’s Southern Lights pipeline, which is currently used to import light oil for blending with oilsands, but will be used to export oil from Canada beginning in 2023.
“We’re still showing a gap this year and most of next year,” Millington said. “Some of these upgrades aren’t going to happen overnight.”
That gap is partially because of a one-year delay to Enbridge’s Line 3 pipeline replacement through Minnesota, which the company initially expected would be in service by the end of 2019. Additional pipelines such as the federally owned Trans Mountain Expansion and TC Energy’s Keystone XL will be needed for longer-term growth.
“Longer term, we’d still need the Line 3 replacement, and TMX and to a certain extent Keystone XL,” Millington said.
The additions could add up to “real volumes” on the country’s pipeline network but there is some risk that regulatory delays along the route, whether in Canada or the U.S., could impede the ability to bring on new capacity, said Samir Kayande, director with RS Energy Group in Calgary.
“You need to have all of the pieces together. If one of the dominoes is missing, then you get caught somewhere,” said Kayande.
He also said it’s a bit confounding that the pipeliners hadn’t made these additions to their existing pipes earlier, given the challenges of getting crude oil out of Canada.
Still, the unexpected additions are providing some small hope for the energy industry, which is trying to find a way to clear a glut of oil built up in Alberta. Though producers have shut-in production, existing pipelines are maxed out.
“The good times appear to be rolling in Canada in recent weeks, or at least combatting some of the rough (pipeline opposition related) bumpiness,” Tudor Pickering & Holt analysts said in a research note.
The analysts noted that all three companies are planning to add 155,000 bpd more pipeline space to existing networks than previously expected.
As a result, the analysts believe there will be less oil moving on railway cars at the end of 2020 than previously expected. They still expect oil-by-rail exports to hit 400,000 bpd in early 2020, but that will drop to 325,000 bpd when the pipeline additions are complete.
National Energy Board data show crude-by-rail movements hit an all-time high of 353,780 bpd in December 2018, but have since dropped. Oil-by-rail exports averaged 236,152 bpd in April, the last month for which NEB data is available.
• Email: [email protected] | Twitter: geoffreymorgan
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