By Gordon Hamilton, Vancouver Sun, August 24, 2012
Kinder Morgan limits allocation as demand exceeds what pipeline can carry
Chevron Canada has begun shipping Alberta crude to its Burnaby refinery by tanker truck as a result of a supply cap imposed on customers on the Trans Mountain pipeline.
Pipeline owner Kinder Morgan Energy Partners is delivering only a portion of its customers' requested crude allotments because demand is higher than the 300,000 barrel-a-day capacity of the pipeline. Thursday it told shippers that they will be limited to 33 per cent of their requested volumes for the month of September.
This latest notice is part of a continuing capacity crunch on the pipeline, the only pipeline linking Alberta oil and the Pacific Coast.
"The over-subscription is the result of a number of things, including other over-capacity issues in refining and just having difficulty in finding space in other transportation systems or pipeline systems" said Andrew Galarnyk, director of external relations for Kinder Morgan Canada. "We have been over-subscribed for some time now and this is not uncommon or unusual for us over the past year and a half."
The Edmonton-to-Burnaby pipeline carries mostly Alberta crude to the West Coast, where it is delivered to Chevron's Burnaby refinery, shipped to refineries in Puget Sound, and exported to California and Asian destinations through Kinder Morgan's Westridge marine terminal. Kinder Morgan has proposed a $4.1-billion doubling of the capacity of the 1,150kilometre-long Trans Mountain pipeline, to bring the capacity up to 750,000 barrels of oil a day. The expansion would not be completed until 2017.
"Our proposal will look to expand the pipeline and therefore provide additional capacity for those shippers that are looking to find space," Galarnyk said. "So we are hopeful that some of the expansion, if it is approved, would satisfy the market and allow for those shippers to have additional capacity on our system."
In the meantime, Chevron is bringing oil by rail from Alberta to Langley, where its is transferred to tanker trucks and delivered to the Burnaby refinery. It's an interim measure, said Chevron spokesman Ray Lord. The truck shipments began in May.
"These measures are being taken in response to these extreme levels of apportionments that we are currently experiencing. They are only a portion of the volumes that we have been curtailed, and they can't realistically or economically replace the pipeline in the long-term," Lord said.
Chevron is bringing 2,000 to 6,000 barrels a day of oil in by truck. It expects to have a direct rail link in place by 2013, which would permit it to bring in an additional 8,000 barrels a day of supply. Lord said Chevron wants to bring the total supplemental supply up to 14,000 to 16,000 barrels a day.
The rail and truck shipments are not enough to replace the supply curtailment, Lord said, and Chevron has applied to the National Energy Board for priority access to the Trans Mountain pipeline for 57,000 barrels a day.
As bad as the September limit is, it is an improvement over July, when shippers were permitted only 25 per cent of their allotted volume.
Chevron Canada said the curtailments are affecting its Burnaby refinery - the only West Coast refinery in Canada - on a month-by-month basis and if they continue, will harm the long-term viability of its operations here.
"We are getting 25 to 30 per cent of what we want and that has been the case for the last several months. That's an issue. It's a challenge to the viability of the refinery," Lord said.
Chevron buys space on the pipeline on a spot-contract basis and has no long-term contract with Kinder Morgan. Lord said that the oil company has been a customer on the pipeline since the 1950s but changing economic conditions have made it more difficult to receive the volumes it needs.
Lower prices for Alberta oil coupled with growing demand in Asia are two of the more apparent changes that have taken place. Alberta crude normally sells at a discount to West Texas crude because of qualitative reasons, according to Scotiabank commodities analyst Patricia Mohr, but the discount has increased this year.
"Unusually high price discounts on western Canadian oil reflect over-reliance on one key export market - the U.S. Midwest - and inadequate pipeline export capacity, especially to the faster-growing markets of Asia-Pacific," Mohr said in her April research report.
Chevron 's application to the National Energy Board will not be heard until January. In the meantime, Chevron is in talks with Kinder Morgan in a bid to gain more access to the pipeline.
"We have been a customer of Kinder Morgan's for many, many years and we are continuing to engage in ongoing dialogues with them on many levels," Lord said of the crude shortages afflicting the refinery. "We are exercising, however, the option to apply for a priority designation."
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