The Oil Sands Weekly

The Oil Sands Weekly

In the news this week:
  • NDP government throws kitchen sink ahead of spring elections
  • Suncor points out serious flaws in province's curtailment formula
  • Enbridge has really good news for Alberta's energy patch
  • Athabasca Oil Corp cuts executive pay and slashes head count
  • Fate of LNG Canada now sits with the NEB
  • First Nations groups slam Trudeau's BC tanker ban
  • Ottawa asks NEB to spell out options for boosting crude exports
  • Why oil and gas workers might want to avoid Whistler this winter.
ALBERTA

After announcing the purchase of new rail cars, convincing Ottawa to buy the Trans Mountain pipeline, forcing producers to cut output, and offering incentives for partial upgrading and petrochemical facilities, Alberta's NDP government is now dangling more taxpayer funds in hopes of attracting investment in the province's refining sector. In order to qualify for the new program, the refinery must be located in Alberta, and process diluted bitumen or partially-upgraded crude. Interested parties have been given two months to submit their proposals, which must include a business case, project schedule, plant configuration, economic viability, financing and marketing plans, environmental performance, owner competency and finally, participation of Indigenous communities. The government says only projects with a "strong return on investment for Albertans" will be considered. 

In its 2019 guidance released this week, Suncor Energy took the time to criticize the government's recently mandated production cuts, pointing out several flaws in the program. According to the curtailment formula, operators must cut 8.7% from the highest 6 months of production in the past year. Both Suncor and Syncrude were running at reduced capacity in 2018 due to several unplanned maintenance outages experienced throughout the year, making the cuts disproportionately deep for Suncor. The company says the government's intervention doesn't recognize major investments Suncor has made to shield itself from the daily spot price, and may impact future investments in the province.

Athabasca Oil Corp announced the sale of its Leismer pipelines and Cheecham storage terminal to Enbridge for $265 million. The company has been promised priority service on the network and discounted tolls for any unused capacity. Production at its Leismer and Hangingstone oil sands facilities is expected to average about 28,000 bbl/day next year. Athabasca says it supports the province's plan to cut output next year, viewing the curtailments as "a necessary step to rebalance inventories in the near term and provide a bridge to permanent market access initiatives." The company also announced a 25% reduction in head office staff and 10% salary rollback for its directors and executives.

Enbridge had some very good news for Alberta's oil producers this week, telling investors it might be able to squeeze another 500,000 bbl/day of capacity on its existing export pipelines, excluding Line 3. A combination of pump station upgrades, chemical additions and slate optimizations on the Mainline network could add another 450,000 bbl/day of export capacity to the Midwest. Enbridge's Express Pipeline to the Rocky Mountains region could also see 60,000 bbl/day of additional volumes. Some of the upgrades could come online as early as next year, with the remainder expected by 2023, subject to regulatory approvals.

After being approved for millions in credits from the Alberta government, Pembina Pipelines has delayed a final investment decision on its $3.5 billion PDH/PP Facility (propane dehydrogenation and polypropylene plant), owned jointly with Kuwait Petrochemical Corp. Pembina says it is still working to secure long-term contracts for half of the plant's output. The company now says it expects to sanction the project in the first quarter of next year.

CANADA

The National Energy Board (NEB) has scheduled three months of hearings into TransCanada's Coastal GasLink Project, whose provincial permit is being challenged by a BC lawyer. Coastal GasLink supplies natural gas to the recently sanctioned $40 billion LNG Canada export terminal in Kitimat, BC. Since the 670 km pipeline lies within BC's borders, the project falls under provincial jurisdiction, not federal. The lawyer argues the project should have fallen under federal jurisdiction, since the gas is intended to be exported and connects to a larger pipeline network in Alberta. A ruling against the project would likely delay construction by several years and may push back the 2023 start date for the LNG terminal.

A coalition of 200 First Nations groups is asking Ottawa to cancel Bill-48, which bans crude oil tankers on BC's northern coast. The group is being led by Eagle Spirit Energy Holdings, who plan to build an $18 billion pipeline from Alberta to Prince Rupert, BC. The group accuses the Trudeau Liberals of preventing northern communities from becoming financially independent, while supporting pipeline projects that terminate in southern BC. The group plans to file a complaint with the UN.

Canada's Natural Resources Minister has asked the NEB for "advice on how to optimize oil transportation capacity on existing pipelines and rail," including a review of pipeline nomination processes and short-term optimization options to boost rail capacity. The NEB has been asked to complete its report "as soon as possible."

Despite persistently low natural gas prices in Western Canada, FortisBC has received approval from provincial regulators to raise gas prices in January. The company says the increase will cover the costs of having to "stabilize supply" after Enbridge ruptured part of its T-South gas line near Prince George. Prices in the Lower Mainland are expected to rise 9%.

The mayor of Whistler has sent a letter to Canadian Natural Resources asking to be reimbursed $1.4 million for costs related to "drought, flooding and extreme weather" which he believes to be a direct result of climate change. Several BC municipalities have made similar requests in recent years to 19 multi-national oil companies, including ExxonMobil, Shell and BP. Several US cities have tried similar litigation tactics against Big Oil, which have so far largely failed. Those employed in Canada’s energy patch are being asked to consider their vacation options very carefully this upcoming ski season.

USA

Minnesota state regulators have once again rejected petitions from various special interest groups to overturn approvals for Enbridge's Line 3 Replacement Project. Project opponents are now headed to court as the company progresses on construction within the state. Earlier this week, Enbridge confirmed over 80% of the pipe is already in the ground, and construction should be completed by next July. The expansion should be operational by the fourth quarter of 2019, adding another 370,000 bbl/day of export capacity out of Western Canada.

A Pennsylvania judge has denied a petition by some state residents to stop service on two Mariner East natural gas pipelines. The residents claim they were not given adequate notice of emergency procedures in the event of a leak or rupture. The judge ruled the petitioners failed to demonstrate an immediate risk of death. Mariner East 1 is already in service, transporting gas out of the Marcellus and Utica shale fields in western Pennsylvania. Mariner East 2 is expected to begin commercial service by the end of this year. Both lines are operated by Energy Transfer.

Houston-based Cheniere Energy has shipped its first LNG cargo out of Corpus Christi this week, a first ever for the state of Texas. The Corpus Christi facility consists of three LNG production trains, which will all be completed by the end of 2021. Seven smaller trains are also potentially in the works, which would boost total output to 23 Mt/year. Cheniere is better known as operator of the Sabine Pass LNG Terminal in Louisiana, the first commercial LNG export terminal in the Lower 48, which will eventually be expanded to 27 Mt/year.

GLOBAL

The European Parliament has voted to block the construction of Gazprom's Nord Stream 2 pipeline, calling it "a political project that poses a threat to European energy security." The €9.5 billion expansion would double the volume of natural gas shipped from Russia to Germany under the Baltic Sea, bypassing the Ukraine. The US is the project's largest critic and has threatened to impose sanctions over the pipeline. The EU resolution is non-binding and largely symbolic. So far, Denmark is the only country holding back construction permits, which may require the line to be rerouted. Nord Stream is backed by Royal Dutch Shell, Germany's BASF and Uniper, French utility company Engie and Austria's OMV.

The Nigerian government has filed a US$1.1 billion lawsuit against Shell and Italian oil major Eni for alleged bribery related to a 2011 oilfield deal, which is the centre of an ongoing corruption trial in Italy. Prosecutors claim over US$1 billion in bribes were paid to a former Nigerian energy minister in order to win the license. Both Shell and Eni continue to deny any wrongdoing. Nigeria has another case pending in London courts against JPMorgan for its handling of the funds.

After taking over for Total as operator, China National Petroleum Corp (CNPC) has now pulled out of Iran’s South Pars Phase 11 natural gas project in order to appease the Americans. Iran says they are reviewing their contractual agreements with the company. Total pulled out of the region in August after they failed to obtain a waiver against US sanctions. South Pars is one of the world's largest natural gas field, bordered by Qatar's equally massive North Field.

Iran's oil minister has joined Twitter, which is especially odd considering the social media platform in banned in his country. Bijan Zanganeh says he joined Twitter "for a more dynamic and effective relationship with domestic and foreign audience." The minister’s Twitter handle is @BijanZanganeh.

NEXT WEEK'S EVENTS

Tuesday:

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

Wednesday:

  • EIA Weekly Petroleum Status Report released @ 10:30am ET
  • US Federal Reserve interest rate decision

Thursday:

  • EIA Weekly Natural Gas Storage Report released @ 10:30am ET

Friday:

  • Baker Hughes Rig Count released @ 1:00pm ET
  • Winter Business Outlook Survey released by the Bank of Canada
The Oil Sands Weekly

The Oil Sands Weekly

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