Benzinga
What does the cancellation of Keystone pipeline mean for rough-per-rail
The withdrawal of President Joe Biden from the March 2019 permit that will allow the construction of the Keystone XL pipeline, according to industry observers, is likely to result in more rough-per-rail volume. But how many volumes will increase can largely depend on the price that heavy crude oil can fetch on the world market. “The cancellation of the Keystone pipeline project was inevitable once the government changed. Despite the merits or disadvantages, it is now an empty political football,” said Barry Prentice, professor of supply chain management at the University of Manitoba and former director of the Transport Institute there said. “This means that more crude has to move by train. The large investments in the oil sands will not be abandoned, and the oil must go somewhere.” But crude-by-rail “was problematic, because with the low oil price and the relatively higher price for rail transport, nothing seems very attractive. The problem is not the supply of oil, it is the reduced demand during the pandemic. From this period, demand will return, and so will oil of $ 100 a barrel, “said Prentice. The oil markets are indeed one very visible factor that determines how much crude oil is produced and shipped. To reduce the production and transportation of heavy crude oil. To make oil from Western Canada and the US profitable, the price spread between a heavy crude product like Western Canadian Select (WCS) and a light, sweet crude like West Texas Intermediate (WTI) is to be favored. is usually priced at a discounted price against WTI crude oil due to the lower quality and greater distance of U.S. refineries on the Gulf Coast.The COVID-19 pandemic was one of the factors contributing to WTI’s crude oil prices in 2020. Why the interest in production and transportation of crude oil? The oil market is not the only factor that determines the production of crude oil and the subsequent transportation. Another is the large oil reserves and the amount of investment already directed in the production of crude oil, as well as the export prospects of crude oil. According to the Alberta government, the province’s oil sands represent the third largest oil reserves in the world, following Venezuela and Saudi Arabia. Its reserves are equivalent to approximately 165.4 billion barrels, and capital investments for the upstream sector amounted to as much as $ 28.3 billion in 2016 and $ 26.5 billion in 2017. According to Natural Resources Canada, 98% of crude oil exports in Canada to US investments in 2019 and large oil reserves also led to significant investments in other parts of the energy sector, including investments in pipelines. According to Rob Benedict, senior director of petrochemicals, transportation and infrastructure for the American Fuel and Petrochemical Manufacturers Association, the pipelines are Canadian heavy rough south to U.S. refineries because U.S. refineries were built and optimized to handle mostly heavier crude oil. Crude oil pipelines from Canada to the US are considered an efficient way to transport large quantities of Canadian heavy crude oil to US refineries on the Gulf Coast. TC Energy’s 1,210-kilometer Keystone XL pipeline would have had 830,000 barrels of crude oil a day from Hardisty, Alberta, and en route to Steele City, Nebraska, where it would then be shipped to U.S. Gulf Coast refineries. If construction continued, the pipeline would be commissioned in 2023. But TC Energy abandoned the project after Biden revoked an existing presidential permit for the pipeline in January. “TC Energy will review the decision, assess its implications and consider its options. Due to the expected revocation of the presidential permit, the promotion of the project will be suspended. The company will stop activating costs, including interest during the construction., with effect from 20 January 2021, the date of the decision, and the carrying amount of its investment in the pipeline will be assessed, net of the restoration of projects, ‘TC Energy said in a statement last month. “XL pipeline ‘is an essential piece that would enable Canada and the US to continue the very good relationship with the transportation of energy products across the border,’ ‘Benedict said, but the suspension of the pipeline construction does not mean, according to Benedict not necessarily a one-on-one increase in rough-per-track volume. “The crux of the story is that it will have some impact on rough-per-track. It’s not going to move all 830,000 barrels a day on the track, but any additional amount may have some impact, “Benedict said.” Several factors will affect how much crude moves on the track. In addition to the WCS / WTI price spread The railroad’s ability to handle trains by rail is crucial. There are not only speed constraints for rough trains and possible social consequences, but also capacity issues. The Canadian railways have reported record grain volumes in recent months, and rough volumes must with grain, as well as other commodities, competing for the same railroad.There are other pipelines between Canada and the U.S. that could use some of the volumes that would be handled by the Keystone XL pipeline, Benedict said, including Endbridge (NYSE : FNB)’s Line 3 pipeline, which runs from Canada to Wisconsin; Endbridge’s Line 5 pipeline, which runs under Mackinac and Lake Michigan Straits to the Michigan Peninsula; and d ie Trans Mountain pipeline being developed in Canada. It will stretch from Alberta to the Canadian West Coast and then possibly south to U.S. refineries. And another factor that could affect crude-by-rail is how much crude oil volumes are stored, Benedict said. “It’s not just a simple question, is one pipeline being cut off, sending everything to the railway? It’s complicated because you have to consider all the different nodes in the supply chain, including the storage space that would come into play,” Benedict said. said. The Canadian railways’ view of crude-by-rail For their part, Canadian Pacific (NYSE: CP) and CN (NYSE: CNI) both said they expected more crude volumes, but neither indicated how many volumes would grow. CP said during its earnings call in the fourth quarter on January 27 that it sees greater activity as the price spread has become favorable. The railroad also expects to shift crude volumes from a diluent unit (DRU) near Hardisty, Alberta. US Development Group and Gibson Energy have agreed to build and operate the DRU in December 2019. As part of the agreement, ConocoPhillips Canada will process the inlet bitumen mixture from the DRU and ship it via CP and Kansas City Southern (NYSE: KSU) to the U.S. Gulf Coast. “These DRU volumes will provide a safer option for competitors in the pipeline and will help stabilize our crude business in the future,” said CP chief John Brooks. CP President and CEO Keith Creel also said he favored U.S. action on the Keystone pipeline as ru-per-track and the DRU volumes. The actions “predict more power and more potential demand for crude oil. We think it creates more support for the scaling up and expansion of the DRU. We are therefore optimistic about the opportunity,” Creel said. He continues: ‘We still see the pipeline capacity in the short term, not long term [eventually] catch up [but] we think there’s just a longer tail to it now. We therefore think that in both spaces there will be a space for a possible upside down. ‘Meanwhile, in an interview with Bloomberg on 27 January, JJ Ruest, president of CN and JN Ruest, mentioned a’ question mark ‘in terms of what energy prospects the railway sees for 2021. Ruest said low oil prices, reduced travel and the cancellation of the Keystone pipeline are some of the factors affecting CN’s energy prospects. “Bloomberg quoted Ruest. CP and CN declined to comment further on FreightWaves by rail, and CN directed FreightWaves to Bloomberg’s article. Subscribe to FreightWaves’ e-newsletters and get the latest cargo insights in your Click here for more FreightWaves articles by Joanna Marsh Related articles: Social risks trump financial risk for Canadian crude-rail Transport Canada sets new speed limits for trains transporting dangerous goods Construction of Alberta crude oil is not expected to take off in April start Comment: Railway tankers get hit See more of Benzinga Click here for BenzingaForward Air options doubles amid increased interest from activistsDrilling Deep: Review Q4 Earnings; How did Werner do so well? © 2021 Benzinga.com Benzinga does not provide investment advice All rights reserved.