The Oil Sands Weekly

The Oil Sands Weekly

In the news this week:
  • Enbridge knocks out three refineries in Washington State
  • M&A frenzy continues in Canadian energy patch
  • Irving's Saint John refinery suffers a mishap
  • Hurricane Michael dents USGC production
  • Seaway pipeline expansion delayed to year-end
  • Chevron eyes more refining capacity in Houston
  • Exxon lobbies for US$40/t federal carbon tax
  • Shell warns employees against nosy neighbours
  • Saudi Aramco IPO delayed by a few year, but still a go.
QUICK LINKS:
CDN NEWS
US NEWS
GLOBAL NEWS
UPCOMING EVENTS
 
EDITOR'S NOTE: Our weekend summary of world oil markets and energy stocks can be found on the Weekly Market Summary page.


 
CANADA

A natural gas line exploded north of Prince George earlier this week, forcing the shutdown of two Enbridge pipelines and cutting gas supplies to parts of BC and the US Pacific Northwest. The pipelines form part of the 2.9 Bcf/day Westcoast Energy network, which supplies most of BC's gas and about half the demand from Washington State, Oregon and Idaho. Enbridge has since restored service on one of the affected pipelines, but has yet to establish a timetable for the adjacent ruptured line. No one was injured in the blast. The cause of the incident is still under investigation.

The loss of gas supplies from BC forced the shutdown of Andeavor's Anacortes Refinery and Shell's Puget Sound facility in Washington State. A third refinery, belonging to Philips 66, also curtailed production, sending gasoline prices sharply higher in the region, including BC's Lower Mainland. 

The 320,000 bbl/day Irving Refinery in Saint John, NB, was also rocked by an explosion earlier this week. About 3,000 workers were on site during the incident, but only minor injuries were reported. The plant was undergoing a maintenance turnaround at the time. Irving reported a malfunction in the refinery’s diesel treating unit on Monday, the day before the incident. The cause of the explosion is still under investigation.

M&A frenzy continues in the Canadian energy patch with fuel distributor Parkland Fuel announcing the purchase of a 75% stake in privately-held SOL Investments for $1.6 billion, expanding its footprint in the US Gulf Coast, Atlantic region and the Caribbean. International Petroleum, a subsidiary of Lundin Group, also announced the acquisition BlackPearl Resources in an all-stock transaction valued at about $175 million. No new offers have materialized on MEG Energy, but share prices fell below Husky Energy's offer price of $11 a share late in the week.

USA

Almost 90 oil and gas production platforms were taken offline in the US Gulf of Mexico (GoM) earlier this week, as Hurricane Michael passed through the region on its way to the Florida Panhandle. According to the Bureau of Safety and Environmental Enforcement (BSEE), almost all personnel have returned to their rigs. At its peak on Wednesday, about 40% of the region's oil production and one-third of gas production was taken offline. The outage reduced GoM output by more than 3 million barrels, which is likely be reflected in next week's US inventory report. By Saturday, over 330,000 bbl/day of oil and 247 MMcf/day of gas still remains to be restored. The devastating Category 4 hurricane claimed almost 17 lives in the US, with damages estimated at over US$4.5 billion. Michael is the fourth most powerful storm on record to hit the region, and the worst since Hurricane Camille in 1969.

A planned 100,000 bbl/day expansion of the Seaway Pipeline, which runs from the Cushing storage hub in Oklahoma to the US Gulf Coast (USGC), has been pushed back from September to the end of the year due to an unspecified upstream delay. Seaway was originally an import pipeline, transporting crude from the USGC into the Midwest. The line was reversed in 2012 and later twinned, bringing surplus barrels from Cushing into Houston-area refineries, particularly heavy crude from Canada. Operator Enterprise Products Partners plans to add drag-reducing agents to the crude, reducing friction and increasing total capacity from 850,000 to 950,000 bbl/day. Seaway is jointly owned with Enbridge.

Preliminary investigations by the National Transportation Safety Board (NTSB) into a series of gas line explosions near Boston last month concludes the incident was likely caused by incorrect maintenance procedures. Contractors for Columbia Gas of Massachusetts were instructed to replace a main header, which included the line's pressure regulators. The network's control system registered a loss of pressure on the line, and responded by increasing the pressure beyond its maximum capacity. The blast levelled dozens of homes, resulting in one fatality. The NTSB says the exact cause of the incident is still under investigation.

Speaking at the Oil & Money Conference in London this week, Chevron's head of downstream operations hinted at the company's plans to add refining capacity on the Houston Ship Channel, closer to the Permian Basin in West Texas. Chevron produces over 270,000 bbl/day of light oil out of the Permian, but most of the company's refining capacity is in California, where its facilities are designed to process heavy crude. The company says the economics of investing in the US Gulf of Mexico are "very sound."

ExxonMobil plans to spend US$1 million over two years to lobby for a US federal carbon tax, potentially starting at US$40 a ton and increasing gradually over time. The funds will go to Americans for Carbon Dividends, a new group co-chaired by several high level politicians. The company says it prefers taxation over regulations that elevate the cost of fossil fuels. The chances of a federal carbon tax south of the border remain slim to none, considering the US is one of few countries without a federal sales tax despite a whopping US$21.5 trillion federal deficit.

GLOBAL

According to Bloomberg, French utility provider Engie and Quebec's Caisse de Depot et Placement are in talks to buy PetroBras' natural gas pipeline network, for as much as US$9 billion. The 4,500 km Transportadora Associada de Gas (TAG) network spans ten states in northeastern Brazil, and would be PetroBras' largest divestment ever. The Brazilian oil major is looking to offload US$21 billion in assets in order to reduce debt-loads to more reasonable levels. In 2017, Petrobras sold Nova Transportadora do Sudeste, a similar but smaller pipeline network in Brazil’s southeast, to a consortium led by Toronto's Brookfield Asset Management for US$5.2 billion.

Royal Dutch Shell is looking to divest its joint-venture in Venezuela, most likely to Paris-based producer Maurel & Prom. The Dutch oil major also abandoned plans to buy a stake in KazMunayGas, on concerns of corruption at the Kazakh state oil company. Shell already has a significant presence in Kazakhstan and recently settled a contractual dispute with the government for U$1.7 billion.

Shell also remains embroiled in a length corruption trial in Nigeria. The company's legal department warned its employees they are likely to face numerous questions from nosy neighbours, relatives, friends and media outlets. The company denies the allegations and insists they did not engage in any wrong-doings. The court case stems from the 2011 purchase of an offshore oil field for US$1.3 billion.

Chevron became the first oil major to completely exit the Norwegian continental shelf after it transferred its last remaining oil exploration license back to the Norwegian government. Exxon, BP and Shell have also dramatically scaled down their presence in the Scandinavian country in order to focus on new growth opportunities elsewhere. Chevron completely exited Denmark last month and is still looking to dump most of its fields in the UK North Sea.

Saudi Crown Prince Mohammed bin Salman says his kingdom remains committed to the IPO of a 5% stake in Saudi Aramco, although it may not happen for a few more years. The IPO, which would have been the largest ever, was initially scheduled for 2017 but delayed due to soft oil prices. Prince Mohammed says the IPO is "100%" in the interest of the country, insisting his state-owned oil company is worth at least US$2 trillion. Saudi Aramco has now shifted focus to its pending merger with state-owned petrochemical giant SABIC, in a deal potentially worth US$70 billion. The prince says Aramco's IPO of a 5% stake will likely occur in late 2020, or early 2021.

The UN Intergovernmental Panel on Climate Change (IPCC) says the planet only has 12 years to tackle climate change, warning of pending catastrophic doom if global temperature are allowed to rise beyond 1.5°C. The panel calls on all countries to phase out coal and drastically cut the use of fossil fuels.

NEXT WEEK'S EVENTS

Monday:

  • Bank of Canada Business Outlook Survey (Fall)

Tuesday:

  • API Weekly Statistical Bulletin released @ 4:30pm ET

Wednesday:

  • EIA Weekly Petroleum Status Report released @ 10:30am ET
  • Q3/2018 earnings: Kinder Morgan and Kinder Morgan Canada

Thursday:

  • August Employment Insurance data released by StatsCan @ 8:30am ET
  • EIA Weekly Natural Gas Storage Report released @ 10:30am ET
  • Q3/2018 earnings: CP Rail

Friday:

  • September Consumer Price Index released by StatsCan @ 8:30am ET
  • Baker Hughes Rig Count released @ 1:00pm ET.
  • Q3/2018 earnings: Schlumberger
The Oil Sands Weekly

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