Upload
plg-consulting
View
471
Download
1
Embed Size (px)
DESCRIPTION
PLG President Taylor Robinson presented at the Crude Oil Transportation 2014 conference in Calgary, Alberta on September 3, 2014. Mr. Robinson’s analysis focused on comparing the crude by rail model created in the Bakken over the past five years with the new and quickly evolving Western Canadian model. As well, the potential impact of U.S. DOT regulatory changes are shared in the presentation.
Citation preview
Logistics Engineering Supply Chain
Crude-By-Rail (CBR) Phenomenon: Is Rail
in it for the Long Haul?
Prepared for:
Calgary, Alberta Hyatt RegencySeptember 3, 2014
2
Boutique consulting firm with team members throughout North America Established in 2001
Over 90 clients and 250 engagements
Significant shale development practice since 2010
Practice Areas Logistics
Engineering
Supply Chain
Consulting services Strategy & optimization
Assessments & best practice benchmarking
Logistics assets & infrastructure development
Supply Chain design & operations
Hazmat training, auditing & risk assessment
M&A/investments/private equity
Industry verticals Energy
Bulk commodities
Manufactured goods
Institutional investors
About PLG Consulting
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
Partial Client List
3
Deep rail industry experience
Operational
Commercial
Design & engineering
Equipment market
Broad CBR industry client experience over
past 3 years
E&P companies
Refiners
Terminal developers
Investors – private equity, hedge funds, investment
banks
Government agencies, industry advocacy groups
Equipment leasing
PLG’s Crude By Rail Industry Qualifications
Diverse projects
CBR supply chain optimization
Rail commercial negotiations
Rail car acquisition – commercial & technical inspection
Comprehensive design & engineering – rail, marine,
tankage, product handling, and related facilities
EH&S training
Investment advising
Industry’s only long term, CBR volume forecast with
complimentary rail tank car forecast
Recognized industry thought leader on CBR
and tank car markets
Numerous industry presentations, articles and advising
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
4
What Is Behind the North American Energy Revolution?
Resources• N.A. shale plays
• Western Canadian oil sands
Technologies examples• Hydraulic fracturing
• Horizontal drilling
• Steam Assisted Gravity Drainage (SAGD)
• Evolving exploration and production technologies
• Tremendous productivity gains drives cost reductions
• Logistics infrastructure “re-plumbing” in
progress
• Product abundance… overabundance
• Imports displaced… exports grow
• Recoverable resources grow…sustainability
• Globally competitive power and material cost structure
• Manufacturing industries grow/return to North America
Recoverable Resources &
Enabling Technologies
Continuous Improvement
Energy Revolution
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
5
Unconventional Energy Resources
US Shale Western Canadian (WC) Oil Sands
Source: CAPP, About Oil Sands, June 2013
Innovative, new E&P technologies developed by
smaller entities has allowed additional hydrocarbon
production in new and existing locations; each well
<$10MM
“Mass production” methodologies developed to
lower costs
Challenges -> product variability and volatility
Multi-billion dollar capital investments required by
a limited number of players to set up production
infrastructure
Open surface mining shifting to SAGD process will
harvest more bitumen over long term
Challenges -> diluent and distance to markets
Source: EIA, May 2014
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
6
The “Re-Plumbing” of Hydrocarbons in North America
Shift from coastal to mid-continent
supply points necessitated “re-
plumbing” the flow of carbon-based
energy in North America
Pipeline reversals, repurposing, new starts
Crude by rail comes of age – born in the Bakken
Waterborne imports being displaced as
shale oil and oil sands production
comes online
Infrastructure built rapidly to help
facilitate new energy movements
Crude Natural Gas NGLs
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
Source: Enbridge Investor Presentation, April 2014
North American Crude Supply Growth: 2013-2025
Source: Valero Investor Presentation, July 2014
7
PADD I Refineries
PADD V Refineries
PADD III Refineries
Oil Sands
PADD II Refineries
WaterborneImports
WaterborneImports Gulf of Mexico
Production
Alaska Production
WaterborneImports
California Production
Permian
PADD III to PADD II
• Coastal refineries supplied by waterborne imports
• Mid-Continent supplied from Gulf
N.A. Crude Logistics Flow
Before 2010
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
8
PADD I Refineries
PADD V Refineries
PADD III Refineries
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
Oil Sands
PADD II Refineries
WaterborneImports
Gulf of Mexico Production
Alaska Production
WaterborneImports
California Production
Bakken
Permian
Eagle Ford
PADD III to PADD II
WaterborneImports
• Mid-Continent has production over-supply –“exporting” east, west, south
• USGC major supply from TX light and WC bitumen displacing imports
N.A. Crude Logistics Flow
2014~2015
9
Crude by Rail Historical Perspective - Bakken
Three phases of crude by rail phenomenon in
North America
2009-2011
CBR developed from the Bakken to bridge the gap until pipelines
are built
First unit train shipment in Dec. 2009
Destination market: Cushing, OK WTI trading hub
2011-2013
Ascendancy of trading as main growth driver in CBR
WTI-Brent-LLS differentials become all important
St. James, LA LLS hub becomes most attractive destination
Coastal refineries begin rail receipt infrastructure build-out
Tank car market overheats, becomes main growth constraint
2013-current
CBR from Bakken assumes long-term structural role in crude oil
market
Bakken CBR transitioning to east and west coast markets; LLS
and WTI converge as Permian and Eagle Ford growth floods
USGC
Canadian CBR build-out begins; tank car market reorienting to
coiled/insulated car types (~2/3 of CBR fleet order backlog)
0
200
400
600
800
1,000
1,200
Mbbl/d ND Crude Production and Rail Transport
ND Production Crude by Rail
Source: North Dakota Pipeline Authority, PLG Analysis, August 2014
Source: RBN Energy, August 2014
Brent vs. WTI Spread ($/bbl)
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
10
Oil (bitumen) recovery uses two main methods
- mining and drilling (in situ)
20% of the Oil Sands reserves are close enough to the
surface to be mined using shovels and trucks (3% of oil
sands land area)
80% of the Oil Sands reserves will be recovered in situ by
drilling wells (97% of oil sands land area)
Steam Assisted Gravity Drainage (SAGD) is
most popular method
Two parallel wells are drilled
Upper well has high pressure steam continuously injected
Lower well recovers softened bitumen
Diluent is added to the bitumen (15~30%)
Diluent is very light oil or “condensate”
Enables the product to flow through pipelines and be
loaded into rail cars
Bitumen extraction has become profitable as
extraction technologies improved
Economical at ~ $ 45 - $ 65/bbl
Oil Sands Production Processes
Mining
Source: www.epmag.com
Drilling - SAGD
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
11
The Diluent Challenge and Possible Solution
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
Bitumen and diluent definitions Bitumen - heavy, viscous oil that must be processed extensively to convert it into a crude oil
before it can be used by refineries to produce gasoline and other petroleum products
Diluent - lighter viscosity petroleum products that are used to dilute bitumen for
transportation in pipelines
Dilbit – bitumen blended with ~ 30% diluent; allows for crude to flow and meet pipeline specs
Railbit – bitumen blended with ~17% diluent; allows for crude to be transported by rail using
coiled and insulated tank cars
Purebit or Neatbit – raw bitumen with little to no diluent; special steaming equipment is
needed at loading and offloading terminals to transport in coiled and insulated tank cars
Diluent Recovery Unit (DRU) Removes diluent from crude blend at the terminal before it is loaded onto railcar
Diluent returned to field to be reused
MEG Energy is planning on building a $75 M DRU as part of a 250 mile pipeline system from its
Christina Lake project to Canexus, with completion targeted for late 2015
Several other parties/facilities are investigating units; total cost benefit still not fully evident
Challenge at unloading facility if it is NOT the refinery – bitumen needs to flow via pipeline
again
Diluent penalty Additional freight cost (rail cost from WC to USGC)
30% diluent vs 17% diluent: freight costs on 1.43 bbls vs. 1.20 bbls for each bbl of
bitumen @$25/bbl freight costs = $5.60/ bbl of bitumen
Geographical difference in value of diluent
Higher value of diluent in WC vs the value you’ll receive with it blended in bitumen in US
Gulf Coast
Source: CN
12
Western Canada Production Forecasts
Large oil sands capital investments need to be
recovered with growing production
SAGD becoming dominant method with
increased productivity and lowering costs
Canadian shale oil is also increasing production
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
Some Oil Sands projects have been delayed as a
result of cost competitiveness and capital availability
Increasing production forecast despite lack of
corresponding pipeline takeaway volume growth
over next several years
0
1,000
2,000
3,000
4,000
5,000
6,000
2013 2014 2015 2016 2017 2018
Western Canada Production Estimates (kbpd)
Low Production Forecast
Base Production Forecast
High Production Forecast
*Source: Canadian Associate of Petroleum Producers (CAPP)
*
*
Production forecast increase of 4% CAGR through 2030
13
Current pipelines are at capacity with higher
apportionment due to maintenance and expansion
Oil Sands pipelines are under intense scrutiny and
subject to court challenges and protests in US and
Canada
NEB is extending its review of Trans Mountain expansion
by 7 months
Recent Canadian Supreme Court ruling gives more power
to First Nations in land claims
Innovation with existing pipelines increasing capacity
Enbridge will temporarily switch the flows of Alberta
Clipper and Line 3 on 17.5-mile segment across the US-
Canadian border
Will maximize the flows under existing permits until the
Department of State review is completed on expansion
Increases Alberta Clipper flows by 27% to 570 kbpd by end
of September and potentially up to 800 kbpd in 2015
Large Canadian oil producers and pipeline companies
are strategically investing in CBR as a flexible option
to pipelines for the short and long term
Western Canada Crude Oil Pipelines
Likely Built Within
Medium Term (~2019)
Trans Mountain Express
(Kinder Morgan)
Alberta Clipper (Enbridge)
Keystone XL (TransCanada)
Likely Delayed Until
2020 or Later
Northern Gateway
(Enbridge)
Energy East
(TransCanada)
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
Source: CAPP, June 2013
14
Western Canadian CBR Loading Update
Estimated WC crude by rail volume ended 2013 at ~150kbpd
Five unit-train crude loading terminals to be in operation
by end of 2014 with ~450 kbpd of takeaway capacity
Additional large-scale capacity expected in 2015
Gibson Energy and USD Group announce commencement of successful
operations at Hardisty rail terminal and open season on Phase 2 which
would double the capacity to 240 kbpd if enough interest
Kinder Morgan’s / Imperial’s Edmonton Rail Terminal will potentially increase
an additional 40 kbpd from its initial planned capacity to a total of 250 kbpd
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
Company Location 2014 Capacity (kbpd)
2015 AdditionalCapacity (kbpd)
Altex Lashburn, SK 60
Canexus Bruderhiem, AB 70 +30
Gibson/USD Hardisty, AB 120 +120?
KM/Keyera Edmonton, AB 40
Torq Kerrobert, SK 168
KM/Imperial Edmonton, AB - +210
15
Heavy Crude Unloading Overview (USGC)
US Gulf Coast is logical home for WC heavy crude, however,
unit train unloading facilities with steaming capabilities
seem to be lagging growth of loading facilities in WC
Current unloading facilities are mainly handling dilbit in
higher volume and railbit in lower volumes due to
investment required for steaming equipment
Current unloading facilities for WC heavy crude
Other large terminals advertise they are in process of
developing steam capabilities Arc Terminals - Mobile, AL expand to 92 kbpd
Jefferson Refining - Beaumont, TX – install steaming equipment for 70 kbpd
Genesis – Raceland, LA – 2 trains per day, start-up Q1 2015, heating
capability
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
Company Location Heating Capabilities?
Genesis Natchez, MS Yes
Valero St. Charles, LA Yes
GT Omniport Port Arthur, TX Investing
KM/Watco Houston, TX Possibly
Texas Int. Terminals Galveston, TX 2015
Genesis Maryland, LA Yes
Source: Gateway Terminals
Source: Texas International Terminals
16
Oil Sands
Hardisty, AB
$77
Heavy/Sour at TX GCMexican Maya (ship): $92WCS (pipe): $95WCS (rail): $101
Sources: Enbridge Investor Presentation, EIA, PLG analysis (Google Earth)
Mexican Maya
Marine
3,375kbpd
2,525kbpd
PADD III Demand
8,150kbpd
PADD VDemand
Light/Sweet
Heavy/Sour
Light/Sweet
Heavy/Sour
Heavy/Sour
Light/Sweet
PADD IIDemand
TX Gulf Coast Refiners
Pacific Northwest Refiners
California Refiners
MidwestRefiners
Rail
PipelineClearbrook, MN
Chicago, IL
Spread Jan. 2013 August 2014 Change
Mexican Maya - WCS $38/bbl $15/bbl -$23/bbl
Heavy Crude Market and Price Differentials
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
17
High Profile Accidents Changing Crude by Rail
Rail industry has a strong safety record, but optics of CBR
accidents are overwhelming any positive statistics
Regulatory approach has focused on:
Prevention – RR operations, track inspections, lower train speeds, increased
track-side technology, route planning requirements
Mitigation – Tank car engineering standards, enforcement of product testing
& classification
Response – Emergency response planning in case of accident
Three key links in supply chain are critical to safety:
At the well – increased enforcement of product testing, documentation and
traceability (FRA directive)
Railroad operating practices and maintenance procedures must be robust
Railroad operating rule changes on hazmat train handling
Increased scrutiny, insurance requirements
Short line and regional railroads in particular
May have consequences in CBR freight rates and lead time
Tank car design regulations
DOT NPRM released July 23
60 day comment period through end of September
Expect final ruling by early 2015
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
Example only
18
U.S. DOT NPRM Potential Impact On CBR
Classification $ characterization of mined gases and liquids (minimal)
Was expected; most parties have already taken steps to tighten process
Rail routing risk assessment (minimal)
Class 1’s had already agreed to do this voluntarily
Given limited options in some cases will not have significant impact to actual routings
Reduced operating speeds (minimal ~ large negative)
40 mph speed restriction for HHFT trains with any cars not meeting enhanced standard in:
High threat urban areas OR Areas of > 100k population OR all areas
If “areas of >100k population” or “all areas” is selected this could have negative impact
Enhanced braking (minimal ~ large negative)
If ECP braking system is required it has potential to negatively impact CBR
Three tank car options announced for HHFT trains (minimal ~ large
negative)
PHMSA and FRA Designed Tank Car, AAR 2014 Tank Car, Enhanced CPC 1232 Tank Car
2 with shell thicknesses of 9/16”
NPRM expects existing 7/16” shells will meet new standard (9/16”) by adding an additional
1/8” thickness to the retrofitted jacket (no grandfathering in mentioned in NPRM)
Uncertainty on how many cars can actually have this performed and to what extent tank
car owners will want to retrofit
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
Tank CarInsulation
Top Fittings Housing Manway
Tank Jacket
Tank Shell
Tank Head
Head Shield
Source: API with PLG simplification
Bottom Outlet Valve/Protection Skid
19
Bakken and WC Crude Oil Takeaway Forecast
Source: www.CBRforecast.com
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2013 2014 2015 2016 2017
Base Case Takeaway (kbpd)
Pipeline
Crude by Rail
Local Refining
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
20
Tailwinds
New WC pipelines will likely be
delayed beyond announced dates
Increasing Bakken & Oil Sands
production
Additional imports still to be
displaced in US east, west, USGC
More terminals coming online
US crude export ban easing
(condensate first)?
West coast export potential for WC
bitumen via rail?
N.A. Crude By Rail Future Drivers
Headwinds
Oversupply of light crude in the US
2014~2015 -> “Day of Reckoning”
Environmental hurdles at terminals
causing delays in permitting (CA, WA)
Tight railcar supply due to new rail car
regulations impact
WC pipelines will eventually be built
(2018 or beyond) and take CBR share
Potential regulatory backlash from
future disasters? (biggest wild card)
Crude-By-Rail Phenomenon: Is Rail in it for the Long Haul?
Logistics Engineering Supply Chain
This presentation is available at:www.plgconsulting.com/categories/presentations
-
Thank You !For follow up questions and information,
please contact:
Taylor Robinson, President+1 (508) 982-1319 / [email protected]