Operators See No Immediate Need For Pipelines To Kitimat

By Richard Macedo
Oil Sands Review
July 9, 2009

Opening up Asian markets for growing oilsands production is a top strategic goal for producers, although pipelines that could further support this, such as like proposals to Kitimat, British Columbia, are still a ways off, major pipeline operators said Wednesday.

Ian Anderson, president of Kinder Morgan Canada, told a TD Newcrest unconventional oil conference that the Kitimat option is on the company's radar screen.

"It's a great northern port option," he said. "(Enbridge Inc.) has done a lot more work than we have in accessing Kitimat.

"We stand with them in recognition of the viability of Kitimat and the attractiveness of Kitimat."

He said, though, that incremental expansion south to the Port of Vancouver and increasing ship sizes over time is more in line with where the supply/demand economics will be, at least for the next decade.

"Kitimat remains an option for us," he noted. "We've got the capabilities to go into Kitimat, we've done enough preliminary work to understand what some of the basic engineering is to get into Kitimat.

"The key question when you think about Asia is when will producers develop the markets for Canadian crude in an adequate volume that would support and underpin a major pipeline expansion for the West Coast?"

The company has shipped Canadian crude through the Trans Mountain pipeline to tidewater for over 50 years. While the majority of volumes shipped by tanker go to California, some bbls have gone to the United States Gulf Coast and Asia, Norm Rinne, senior director of business development with KMC, later told the Bulletin.

When examining its marine exports on a monthly basis, he said that in March, 134,000 bbls per day was shipped across the dock in the Lower Mainland, a record. This, he said, illustrates more clearly the capacity of the existing pipeline system and the ability for Canadian crude to access tidewater in response to changing market conditions.

Deliveries across the dock are typically heavy crude.

Trans Mountain was recently expanded with the support of shippers in 2008 from 225,000 bbls per day to 300,000 bbls.

"Part of this pipeline expansion was to support growing marine exports," he noted. "This year we expect about 70,000 bbls per day on average will be loaded onto tankers.

"In addition, changing rules that govern tanker movements through the Port of Vancouver will see savings for our customers in excess of 50 cents per bbl for Aframax tankers to Asia making these movements more attractive for buyers and sellers."

KMC has two incremental expansions available to the south coast supporting deliveries to the pipeline connected Washington State refineries and marine exports through Vancouver to California, the U.S. Gulf Coast and Asia.

Rinne said that these are the lowest cost expansions (25% of the second pipe is already in the ground) and when combined with low pipeline tolls and competitive tanker costs, "should serve these markets well for many years."

"We do not at this time have commercial agreements in place with customers to underpin these expansions and have therefore not made the necessary regulatory applications to move forward," he added. "We can do so relatively quickly once commercial agreements are in place. We expect this will occur in lock step with longer-term crude supply deals being made between Canadian producers and customers.

"Because Kinder Morgan already has an operating pipeline that provides tanker access we believe Kitimat makes sense when we have reached the maximum capacity of those facilities (or) our customers require VLCC (very large crude carrier) tanker access to Asian markets. We have done the necessary technical work to confirm that Kitimat is a viable location."

Rinne said that the expansion to Kitimat will happen later rather than sooner and it will occur in smaller incremental phases as production and markets grow.

"The recent slowdown of production growth and approximately one million bbls per day of new pipeline capacity to PADD II and more planned into PADD III reinforce our view on this," he noted.

In the event that market conditions change and the company is asked to build to Kitimat, Rinne said KMC can lever off its existing Trans Mountain base and extend a 750 kilometre long line from Valemount, B.C. to Kitimat, the northern leg.

"Our expansion plans have been designed to be modular so we can go north to Kitimat before or after expansion to the south coast," he said. "It is impossible to put a time on when this expansion might happen as that timing is in the hands of our customers."

Al Monaco, executive vice-president, major projects for Enbridge Inc. said the current supply profile doesn't dictate an immediate need for a project like its proposed Northern Gateway. This would transport crude from Edmonton to Kitimat where it would be loaded into VLCCs for shipment to Asian or West Coast refineries. A second smaller pipeline would transport 193,000 bbls per day of imported condensate from Kitimat to Edmonton.

"That is certainly a forward-looking project, it's a long-term project based on getting to the markets over time," he said, adding development for projects like this take several years.

"We're talking probably a three-year construction timeframe, we're also looking at about a year or two in terms of the regulatory process," he added. "The point is we need to initiate those projects early on.

"The supply profile dictates probably beyond 2015 for that pipeline to be required."

Russ Girling, president of pipelines for TransCanada Corporation, added that having alternative markets for producers is positive but the issue is complicated.

"Oil is a very strategic resource in North America," he said. "That tension between what Canada wants to do from a producing perspective and what North America wants to do from a strategic perspective will be the tensions that we need to deal with over time."