What a Canadian Energy Strategy might look like
Oil pipeline to the East Coast, oil pipeline to the West Coast
No need to build two pipelines to the West Coast, says retired engineer.
By Mike Priaro
Albertans have been presented with three proposals to export very large volumes of raw bitumen from the Alberta oilsands. The proposed Keystone XL pipeline to the U.S. Gulf Coast and the Northern Gateway pipeline and the recently proposed TransMountain pipeline expansion to the west coast are all unacceptable from Albertan and Canadian economic, environmental and energy security perspectives.
The case for a far superior proposal to use existing pipeline rights-of-way to build oil pipelines to ship upgraded bitumen to refineries on Canada’s east and west coasts for domestic consumption, and for export of refined products, is presented here along with the outline of a comprehensive Canadian Energy Strategy.
Keystone XL Pipeline
TransCanada’s proposed 1,700-mile, $8-billion Keystone XL pipeline is an export pipeline for raw bitumen from Alberta’s oilsands. It is designed to access American Gulf Coast refineries that are capable of refining raw bitumen and exporting refined products such as diesel and jet fuel. It is not, as some assume, to sell and distribute refined products to the U.S. market. The refineries to receive up to 660,000 bbls/day of raw Alberta bitumen via this pipeline are located in Port Arthur, Texas, a Foreign Trade Zone. Any product made in that Zone is exempt from U.S. customs duties and Federal and State taxes – as long as it’s exported.
President Obama recently announced his intention to get the southern leg of TransCanada’s Keystone Pipeline from Oklahoma to the Gulf Coast port refineries approved and built immediately. The environmentally-challenged northern leg from Canada to Oklahoma may, or may not, receive approval after the U.S. election this fall. TransCanada’s announcement on April 17 to reroute the northern leg around sections of the sensitive Ogallala Aquifer area in Nebraska may increase, but not guarantee, its chances for U.S. approval.
TransMountain Pipeline Proposed Expansion
On April 12 Kinder Morgan announced a $5-billion proposal to expand its 62 year-old TransMountain Pipeline from its current 300,000 bbls/day to 850,000 bbls/day by twinning it. This 750-mile pipeline currently transports light and heavy crude oil, as well as refined products like gasoline and diesel, in batches, to B.C. from Edmonton, Alberta. It has a branch pipeline which heads south across the U.S. border in Abbotsford, and another branch pipeline which transports jet fuel from Burnaby to Vancouver International Airport.
The proposed TransMountain Pipeline expansion would ship raw bitumen diluted with condensate to TransMountain’s Westridge Marine Terminal in Burnaby via Kamloops and Sumas. This 550,000 bbls/day expansion would require a large oil tanker to manoeuvre every day into Burrard Inlet, past Stanley Park, underneath the Lions Gate Bridge, through busy Vancouver harbour and underneath the TransCanada Highway (Second Narrows) Bridge to Kinder Morgan’s Westridge Terminal. Currently, only one small crude tanker makes that trip about every four days loading an average of only about 80,0000 bbls/day.
An Oil Pipeline to the West Coast
Chevron’s modern refinery in B.C. is located adjacent to Kinder Morgan’s Westridge Marine terminal for the TransMountain Pipeline in Burnaby. About 50,000 bbls/day of gasoline, diesel and jet fuels, asphalts, heating fuels, heavy fuel oils, butanes and propane are produced every day at Chevron’s refinery from light, heavy and upgraded bitumen shipped to it through TransMountain’s existing pipeline.
There could be a saving grace for Kinder Morgan’s proposed TransMountain pipeline expansion if it were to transport only conventional crude and upgraded pipeline-quality bitumen to an expanded Chevron Burnaby refinery capable of refining all of it. Then refined products such as diesel fuel, heating oil, jet fuel, and gasoline could be transported with a pipeline from the Burnaby refinery to the Tsawwassen Deltaport, on the Strait of Georgia, which has easy tanker access to the wide-open Strait of Juan de Fuca after navigation between the Gulf and San Juan Islands. This removes all oil tanker traffic from Burrard Inlet and Vancouver’s inner harbour and allows safer and more acceptable export of high-value refined products to Asia and the U.S. west coast.
Even better, is there an opportunity to negotiate moving the refinery, marine terminal and tank farm from Burnaby to a suitable location on the west sea coast near the Deltaport in Tsawwassen? Refineries, marine terminals and tank farms are essentially modular and can be physically moved and set-up elsewhere though I’m not saying it would be inexpensive. Kinder Morgan’s proposed TransMountain pipeline expansion would require significant expenditures for extensive physical modifications and expansions to all existing facilities anyway.
Northern Gateway Pipeline
Enbridge’s proposed $5.5 billion, 750-mile long Northern Gateway pipeline will transport raw bitumen diluted with condensate from Edmonton to a new Kitimat marine terminal at the head of Douglas Channel. The main line is 36-inches in diameter and will carry an average of 525,000 bbls/day of raw bitumen diluted with condensate. The twinned condensate pipeline will transport condensate, shipped back to Kitimat by tanker, from Kitimat to Edmonton. It is 20-inches in diameter and will carry an average of 193,000 bbls/day of condensate.
Environmental Concerns
Both the proposed new Northern Gateway pipeline and TransMountain pipeline expansion incorporate twinned pipelines to export raw bitumen diluted with condensate and a second pipeline to import recovered condensate and pipeline it back to the oilsands. Both require massive increases in oil tanker traffic increasing risk of a marine oil spill more than tenfold. Since each pipeline is twinned the risk of an oil spill on land is doubled and both operating and capital costs are significantly increased as a result.
The Keystone XL pipeline proposal has no provision for returning condensate using a twinned pipeline. Instead, Enbridge has just applied to have the Cochin gas liquids pipeline to Sarnia reversed to augment condensate supplies in Alberta.
The raw bitumen diluted with condensate that would be shipped in the proposed Keystone XL, Northern Gateway, and TransMountain pipelines is unlike conventional crude oil. The tar-like raw bitumen must be diluted with natural gas condensate, and possibly heated as well, to make it pumpable. The condensate is essentially natural gasoline and contains a significant amount of carcinogenic benzene hydrocarbons. Raw bitumen diluted with condensate is also significantly more corrosive to pipeline systems than conventional crude. Pipeline safety standards are not written with this kind of fluid in mind especially if it is heated. If it is spilled into the environment, this fluid will cause significant health and fire hazards and will cause major cleanup problems as the raw bitumen is denser than fresh water and sticks to everything it contacts like the proverbial you-know-what to a blanket.
Enbridge proposes that some of the oil tankers required by their Northern Gateway pipeline proposal will be Very Large Crude Carriers of two million bbls capacity – the largest of their type. Can you imagine manoeuvring these lumbering behemoths in the pristine waters around Haida Gwaii, across shipping and ferry/liner lanes, and then 180 km through the island-strewn entrance guarding Douglas Channel, the shallow, winding, rocky fiord to Kitimat, sometimes in the dark, and in the fog, storms, and wind so typical of weather on Canada’s west coast waters?
No one in their right mind could possibly think large-scale oil tanker traffic through B.C.’s coastal waters and inland fiords is anything but madness. Except of course for TransportCanada’s minions who have already pronounced with unseemly haste that such massive tanker traffic is safe.
First Nations peoples are united in opposition to both the Northern Gateway and TransMountain pipeline proposals to construct pipelines through their lands because of unsettled land claims, because of the very large quantity of oil and hazardous condensate that could be spilled from a leak in those high-volume pipelines and because of the risks massive oil tanker traffic poses to western coastal waters.
Environmentalists are also united in opposition to both those pipelines through B.C. because of the risks associated with massive marine oil tanker traffic in B.C. coastal waters and inland waterways and watersheds.
The mayors of both Vancouver and Burnaby have both expressed opposition to expansion of the TransMountain pipeline in order to protect their beautiful cities and marine environs.
Reversal of Enbridge’s Line 9 through Ontario
Enbridge’s half-century old, existing oil pipeline system through the U.S., which could deliver a mix of conventional crude and upgraded bitumen, but not raw bitumen, to southern Ontario, but not the east coast, is oil spill-prone and not the answer. Enbridge’s Line 9 through Ontario from Sarnia to Montreal has a capacity of only 240,000 bbls/day and does not extend to east coast ports.
Reversal of Portland, Maine to Montreal, Quebec Pipeline
Currently, imported Brent-priced crude oil flows in this 236-mile pipeline system from South Portland, Maine to a Montreal, Quebec refinery. Consisting of one 18-inch and one 24-inch diameter pipelines, it has transported over four billion barrels of foreign crude to Montreal refineries since 1941, largely contributing to Portland’s status as the Eastern Seaboard’s second largest oil port, according to the city of Portland.
If it were to be reversed, up to 600,000 bbls/day of upgraded bitumen from Alberta, or refined products from Montreal, or both, could be shipped to American markets in the heart of the eastern seaboard via Portland, Maine.
Economics
The proposed Keystone XL, Northern Gateway and TransMountain pipelines all export raw bitumen. They all fail to capture the current differential between raw bitumen and upgraded bitumen, between upgraded bitumen and West Texas Intermediate, between WTI and Brent-priced crude and between Brent-priced crude and refined products. They also fail to capture upgrading jobs, refining jobs, jobs at spin-off petrochemical plants and all the associated engineering, support and service jobs required to build and operate upgraders, refineries and petro-chemical plants.
In addition, any pipeline carrying raw bitumen diluted with condensate has significantly higher capital, operating, maintenance and spill-cleanup costs than a pipeline carrying conventional crude or upgraded bitumen. This differential amounts to several dollars per bbl shipped.
The total differential between raw bitumen and refined products approaches $150/bbl. Canadians will therefore forego $55 billion/year for each million bbls/day of raw bitumen exported, but not refined here, by the proposed Keystone XL, TransMountain and Northern Gateway pipelines.
An Oil Pipeline to the East Coast
By far the best solution to the problem of providing a market for oilsands production is to build an oil pipeline to ship upgraded, pipeline-quality bitumen to eastern Canada.
Premier Redford of Alberta has repeatedly requested discussion of a Canadian Energy Strategy with the Prime Minister and her fellow premiers. An oil pipeline to eastern Canada must be the centrepiece of any such discussions for a Canadian Energy Strategy.
Unlike the divisive and destructive National Energy Program, a Canadian Energy Strategy can only be an amicable, win-win accord between provinces and with the federal government for the benefit of all Canadians. It is now time for all Albertans to let go and move on, if not to forgive and to forget the injuries and insults of the National Energy Program. And it is about time Premier McGuinty of Ontario stopped blaming development of the Alberta oilsands for Ontario’s manufacturing industry’s economic woes.
Supporters of an oil pipeline to eastern Canada include Danielle Smith of the Wildrose Party, former New Brunswick Premier Frank McKenna, Independent Director of TransCanada Corporation Derek Burney, Conservative MP for New Brunswick Southwest John Williamson, Conservative Senator Mike Duffy and representatives of Irving Oil Company in New Brunswick. Irving Oil’s heavy-oil capable, low-emission refinery in Saint John, a safe deep-water port, could easily have its current capacity doubled to 600,000 bbls/day.
On April 27 President and CEO Russ Girling confirmed that TransCanada is actively looking at converting part of their gas mainline to send oil to eastern Canada.
Total existing refining capacity on mainland eastern Canada is 1.2 million bbls/day. Proposed expansions by Irving and Shell could bring that figure to 1.7 million bbls/day. Newfoundland has an additional 0.1 million bbls/day of refining capacity with another proposed 0.3 million bbls/day possible.
By 2025, the Canadian Association of Petroleum Producers forecasts total crude production in western Canada, in the growth case, to be 5.3 million bbls/day, an increase of 2.6 million bbls/day over today’s 2.7 million bbls/day.
Eastern Canada imports and consumes almost one million bbls/day of expensive Brent-priced crude. Another one million bbls/day of refined products could easily find export markets in the United States, Europe and Asia from east coast deep-water ports and refineries in Dartmouth, Saint John, and Montreal.
A 3,300-mile long crude oil pipeline from Alberta to Nova Scotia is a big project. The justification is the third largest proven oil reserve on earth. But a comparable pipeline building challenge, TransCanada Pipeline’s natural gas pipeline to eastern Canada, was successfully met 55 years ago and has shipped gas ever since.
Using preliminary engineering rules-of-thumb, an oil pipeline of two million bbls/day capacity to eastern Canada, using 36-inch diameter pipes, could be completed for less than $15 billion. Cost savings and minimal environmental damage result by using the existing pipeline right-of-way for most of the way and by placing pumping stations on existing compressor sites wherever possible. A new right-of-way could follow the TransCnada Highway for the rest of the way. It may be possible to test and re-purpose existing, unused gas pipe in the existing right-of-way and dramatically reduce the cost. However, considering potential damages from leaks and oil spills, laying new pipe may be the wiser strategy.
Assuming a pipeline toll of $7/bbl and an average throughput of 1.5 million bbls/day over a 40-year life, total pipeline revenue of $150 billion is almost ten times the capital and operating costs of a new pipeline. This is a terrific project business return by any measure – though pipeline tolls must be approved by regulators.
But the real value of this pipeline is economic. Based on a value of $200/bbl for refined products, two million bbls/day of Canadian bitumen extracted, upgraded, pipelined to eastern Canada and there refined, and consumed or exported, will contribute more than $150 billion/year to Canada’s economy and balance of payments.
And those economic benefits do not include spin-off petrochemical plant jobs and all of the engineering, support and service jobs and other benefits to local economies associated with upgrading, petro-chemicals and refining.
It is likely fuel prices in Alberta will increase once bottlenecks to world crude markets are removed with sufficient pipeline capacity. Therefore, it is important that a Canadian Energy Strategy finds a way, acceptable to Albertans, to keep domestic fuel prices below world levels for all Canadians.
A Canadian Energy Strategy
An outline of a comprehensive Canadian Energy Strategy incorporating export of refined products follows;
1. Build a crude oil pipeline to eastern Canada to meet all domestic needs.
2. Export refined products to the U.S., Europe and Asia from expanded refineries on relatively safe, deep-water, east coast ports.
3. Upgrade all oilsands bitumen to pipeline-quality crude in Alberta.
4. Approve export of upgraded bitumen only after all domestic crude and refined product export requirements are met.
5. Never approve export of raw bitumen.
6. Twin the TransMountain Pipeline to transport upgraded bitumen to Kinder Morgan’s Westridge Terminal in Burnaby, B.C.
7. Expand the Chevron refinery in Burnaby to meet all of B.C.’s needs for refined petroleum products and to export the rest.
8. Build a pipeline to transport refined products from the Chevron Burnaby refinery to the Tsawwassen Deltaport on the Strait of Georgia for export thereby eliminating all oil tanker traffic in Burrard Inlet and Vancouver’s inner harbour.
9. Increase royalties on oilsands production.
10. Limit and eventually decrease foreign ownership of the oilsands.
11. Do better to mitigate the environmental footprint of oilsands operations.
12. Find ways to consume hydrocarbon products more efficiently and responsibly.
13. Develop clean energy in the form of wind, solar, tidal, geothermal and hydroelectric in their appropriate niches.
14. Develop Canada’s relatively safe heavy water nuclear reactor technology for power generation and for export and for possible use in the oilsands to reduce the relatively high carbon emissions of bitumen extraction.
In essence, Canadians must stop exporting low-value beaver pelts and strive to make high-value beaver felt hats.
The economic benefits of the hydrocarbon component of this Canadian Energy Strategy of more than $150 billion/year will eliminate Canada’s current deficit and eventually all of its accumulated debt, pay for all reasonable social, pension and healthcare programs, allow improvements to public infrastructure from coast-to-coast, pay for world-leading environmental action to reduce hydrocarbon emissions, mitigate the environmental impact of oilsands extraction, and help fund development of eventual alternative sources of energy.
Providing energy security to eastern Canadians by eliminating dependence on imported crude and refined products with an oil pipeline to eastern Canada is an absolute necessity.
Only oil pipelines to Canada’s east and west coasts remain viable if application of hydraulic fracturing technology to tight oil formations in the U.S. results in a glut of oil in the U.S. Midwest similar to what happened to natural gas. In that event, the U.S. market for Canadian oilsands raw bitumen could evaporate.
Albertans must be more proactive in managing their resources better. Otherwise they may find that a win by the NDP in the next federal election could result in the imposition of National Energy Program-like measures on the oilsands to make up for Alberta’s, and the current federal government’s, inadequate economic and environmental stewardship.
Oil pipelines to Canada’s east and west coasts are not just ideas whose time has come but are absolute provincial and national economic necessities of transcendent value and transformative power. They will be the “energy backbone” of this country and will far exceed the transcontinental railroad in economic impact and ability to transform and unite this country.”
Mike Priaro, B.Eng.Sc.(Chem.Eng.), a former member of APEO and APEGGA, now semi-retired, worked in facilities, production, operations and reservoir engineering, as an engineering consultant, and in engineering management in Alberta’s oil patch for 25 years for companies such as Amoco and Petro-Canada. He worked the historic Turner Valley oilfield and brought in under-balanced drilling technology to drill out and complete several of the highest deliverability gas wells ever in Canada at Ladyfern. He co-authored ‘Advanced Frac Fluids Improve Well Economics’ in Schlumberger’s Oilfield Review and developed the course material for the ‘Advanced Production Engineering’ course at Southern Alberta Institute of Technology.”
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