The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • Alberta's petrochemicals sector gets a big boost
  • Canadian heavy and light oil discounts widen, again ...
  • ... as demand exceeds pipeline capacity
  • WTI specs being updated in 2018
  • Mismatched documents loom over Keystone XL
  • Trump delivers big Christmas present for US energy companies
  • Alaskan wildlife reserve now open to oil & gas drilling
  • Statoil and Total bet big on Brazil
  • BP's seventh and final mega-project for 2017
  • Shell and Eni execs to stand trial over bribery allegations
  • Santa announces coal phase-out in North Pole Workshop

ALBERTA

Alberta's petrochemicals sector gets a shot in the arm
Inter Pipeline has sanctioned its $3.5 billion Heartland Petrochemicals Complex, to be located in Strathcona County near Inter Pipeline’s Redwater Olefinic Fractionator. The complex will include both propane dehydrogenation (PDH) plant, integrated with a polyprolylene (PP) facility, a first for Canada. The facility will be designed to convert locally-sourced propane into 525,000 t/y of polypropylene. Detailed engineering for the PDH plant began in 2013 and is already 85% complete, with about $400 million invested to-date. Front-end engineering for the PP plant began earlier this year and is about 70% complete. Construction of both plants will continue in 2018 with a start-up date of 2021. Inter Pipeline says it has already secured initial binding take-or-pay contracts and is working towards securing 70% to 85% of total capacity over the next four years. The Government of Alberta will be kicking-in $200 million in royalty credits under its Petrochemical Diversification Program.

Pipeline operators get greedy as demand exceeds capacity
Both Kinder Morgan and Enbridge announced apportionments on their respective export pipelines this week, thanks to strong demand and insufficient export capacity. Apportionments reduce contract volumes on the line, forcing desperate shippers to bid on spot volumes. Contract volumes on Kinder Morgan's Trans Mountain line to BC's Lower Mainland and Washington State will be cut by 35% in January. Enbridge's Mainline Lines 2, 3, 4 and 67 to the Midwest will be cut by 36% for heavy oil volumes and 17% for light crude. The heavy oil discount (difference between WTI and Western Canadian Select) widened to over US$26 a barrel this week. Canadian light oil is selling at a US$8 discount to WTI, despite being similar in quality. Alberta's oil sands output is expected to rise by 315,000 bbl/day next year and another 180,000 bbl/day in 2019 while the country is unlikely to see additional export capacity before 2020 at best.


CANADA

New NGL processing plant in BC
AltaGas announced the start-up of its $120 million North Pine NGL Separation Facility in northeastern BC. The 10,000 bbl/day facility connects to existing AltaGas infrastructure, producing propane, butane and condensate for North American markets. North Pine also connects to CN's rail network and will eventually connect to AltaGas' Ridley Island Propane Export Terminal (RIPET) for export to Asian markets. The company says RIPERT is tracking ahead of schedule and on-budget and should to be operational in the first quarter of 2019.

Don't expect a lump of coal in your Christmas stocking this year
Following in the footsteps of Alberta and Ontario, Santa announced plans to phase-out the use of coal in his North Pole workshop this year, and will no longer be delivering lumps of coal to any children on the naughty list. Santa says it will instead be handing out a less-carbon intensive fuel as an alternative, which could include diesel, LNG, wood pellets, ethanol or uranium (reserved only for those with lead-lined stockings). According to the National Energy Board (NEB), one lump of coal contains about 5 MJ of energy. The move is intended to help Canada meet its GHG reduction targets under the terms of the Paris Accord.


USA

Mismatched documents loom over Keystone XL
Nebraska's Public Service Commission (PSC) has denied TransCanada's request to amend its application for Keystone XL, required to match the alternative route approved by the PSC in late November. The approved route differs from the application route by about 8 kms, leaving the project more vulnerable to lawsuits since it is unclear if Nebraska's PSC has the legal authority to approve the alternative route. TransCanada says it is evaluating appropriate next steps before it makes a final decision.

Trump delivers on tax reform ...
US lawmakers passed President Trump's US$1.5 trillion tax reform bill, lowering the corporate tax rate from 35% to 21% and now allowing businesses to deduct 100% of capital expenditures over the next 5 years. The new rules are a big win for the US energy sector, including petrochemicals, LNG and pipeline operators, who have already planned billions in investments over the next few years.

... and finally opens ANWR to oil & gas drilling
Buried in the tax overhaul was a provision to open Alaska's Arctic National Wildlife Refuge (ANWR) to oil and gas exploration for the first time in 40 years. ANWR drilling has the support of most Alaskans, including state leaders and several Alaskan Native American tribes. The area holds an estimated 10.4 billion barrels of oil. Lawmakers expect to reap US$2.2 billion in exploration rights over the next 10 years.

Capline reversal given the green-light
Thanks to strong demand, Marathon Petroleum says it will go ahead and reverse direction on the Capline system. Capline was originally built to deliver 1.2 million bbl/day of crude oil imported or produced in the Gulf of Mexico to refineries in the Midwest. However, volumes have decreased in recent years due to abundant supply in the Midwest and falling production from Venezuela and Mexico. Marathon says the newly reversed line will have an initial capacity of 300,000 bbl/day, delivering crude from Patoka, Illinois to St. James, Louisiana. The reversal is very good news for Enbridge and Canadian heavy oil producers, providing better access to refineries in the Gulf Coast and reducing reliance on exports to the Midwest. If all goes according to plan, southbound service is expected to begin in the second half of 2022.

Expanding natgas pipelines in Texas
A subsidiary of Kinder Morgan, DCP Midstream and Targa Resources have made a positive final investment decision on their US$1.7 billion Gulf Coast Express Pipeline Project. The system will be designed to transport up to 1.92 Bcf/day of natural gas from the Waha Hub in the Texas Permian Basin to a terminal near Agua Dulce, Texas. If all approvals are received in time, the new line should be in service by October 2019.

Alaska settles dispute with TAP owners
The state of Alaska has settled its dispute with pipeline owners and several oil producers over the volumes of crude shipped from the North Slope through the Trans-Alaska Pipeline (TAP). The state claims TAP owners overstated pipeline tariffs, artificially devaluing delivery prices, thereby lowering state taxes and royalties. The TAP is operated by the Alyeska Pipeline Service Company, a joint-venture between BP, ConocoPhillips, ExxonMobil, Chevron and Koch Industries. The ruling is still subject to approval by FERC and the Alaska's Regulatory Commission. The payments could be worth as much as US$400 million.

NYMEX updates specs for WTI
The CME Group announced an expansion of its specifications for its Light Sweet Crude Oil Contract effective next year. The additional specs relate to the crude's vanadium, nickel and micro carbon residue (MCR) content, as well as the total acid number (TAN). The CME says the change is required to preserve the "quality and integrity" of West Texas Intermediate (WTI) crude delivered into the Cushing storage hub, required in part due to rising volumes of light oil produced from US shale. However, the change is not expected to affect prices or open interest contracts as most input streams are already in compliance with the new standards.


US PRODUCTION & INVENTORY DATA

The Energy Information Administration (EIA) reported another 6.5 million barrel decline in crude stockpiles last week, as refineries continue to maximize production. Refinery utilization rates topped 94% across the country, with Gulf Coast facilities running at almost 96% of capacity. Product stockpiles have been steadily rising since the middle of November.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

DEC 20, 2017

CRUDE STOCKPILES CONTINUE TO DECLINE AND REFINERIES CRANK THROUGHPUT

 

AROUND THE WORLD

BHP and Exxon go their separate ways in Australia
BHP Billiton and ExxonMobil's Australian subsidiary have agreed to end their 50-year-old gas marketing joint venture in Australia, as mandated by the country's competition bureau. The Australian Competition and Consumer Commission (ACCC) accused the Gippsland Basin Joint Venture of controlling gas supply in southern states and colluding on prices. Gas production from Gippsland Basin will be marketed separately for the respective companies, starting in 2019.

Boosting recovery in the North Sea
Norwegian energy major Statoil and its partners announced plans to extend output from its Snorre oilfield in the North Sea by 25 years, to about 2040. The US$2.3 billion expansion will add 24 new wells and six subsea templates, increasing recovery by about 200 million barrels. Transocean was awarded a US$286 million contract for 22-wells plus two one-well options. TechnipFMC was also awarded an EPC contract for Snorre, including 6 subsea templates and production equipment. Production from the new wells is expected to begin in 2021.

Statoil bets big on Brazil
Statoil also announced the purchase of a 25% stake in Petrobras' Roncador field in Brazil's Campos Basin for initial payment of US$2.35 billion plus additional contingencies, valued up to US$550 million. Roncador has been in operation since 1999 and remains one of the largest oil fields offshore Brazil, estimated to hold more than 1 billion barrels of recoverable volumes. Statoil says it aims to boost recovery by at least 5% and hopes to boost total remaining recoverable volumes to over 1.5 billion boe. Petrobras retains its 75% interest in the field.

Total also bullish on Brazil
Total announced a positive final investment decision for the first commercial phase of Libra, located in the pre-salt area of the Santos Basin, 180 km off the coast of Rio de Janeiro. The first phase will consist of 17 wells and a floating production storage and offloading (FPSO) unit with a production capacity of 150,000 boe/day. Libra is already producing 50,000 bbl/day and could reach over 600,000 bbl/day once all phases are constructed. Partners in the project include Petrobras, Shell, CNOOC and CNPC.

BP's seventh and final mega-project for 2017
BP announced first oil from the "super-giant" Zohr gas field, the largest natural gas field in the Mediterranean Sea. This is the final of seven mega-projects the company has brought online this year, aimed at delivering an additional 800,000 bbl/day of new production by 2020. CEO Bob Dudley called it "an important strategic milestone for BP, marking the completion of one of the biggest development programmes ... ever delivered in a single year." Zohr is operated by Italian energy major Eni.

Nigerian bribery trial set to begin next year
An Italian judge has ordered senior executives at Royal Dutch Shell and Eni to stand trial over alleged US$1.1 billion bribery payments made to the Nigerian government. Eni and Shell purchased an offshore oil field in the Gulf of Guinea for US$1.3 billion in 2011, but most of those funds ended up in the pockets of government officials. Both companies deny the allegations. The trial is set to begin on March 5, 2018.

OPEC's production cuts according to Goldman
Investment firm Goldman Sachs says global crude inventories will ease next year, prompting OPEC to exit its commitment to curtail production earlier than expected. The investment firm says oil markets will be in balance by the summer thanks to "stellar" demand. Reuters is reporting that OPEC is already working on an exit strategy, although both Russia and Saudi Arabia deny plans to change course despite expectations for a balanced oil market by the fall of next year.


NEXT WEEK'S EVENTS

Monday:

  • Cdn/US markets closed for Christmas day

Tuesday:

  • Cdn markets closed for Boxing Day

Wednesday:

Thursday:

Friday:

  • Baker Hughes Rig Count released @ 1:00pm ET
The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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