EPRINC: Economic gains to be made from Keystone XL project

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Dec. 2 -- The proposed Keystone crude oil pipeline expansion would provide an estimated $100-600 million/year of net economic benefits from improved transportation and processing efficiencies in addition to an immediate boost in construction employment, a new Energy Policy Research Foundation Inc. (EPRINC) study concluded.

TransCanada Corp.’s Keystone XL proposal to construct a cross-border pipeline from Hardisty, Alta., through Cushing, Okla., to US Gulf Coast refineries still awaits US Department of State approval, which is expected early in 2011, EPRINC’s study noted. It said that the extension would permit shipment of an additional 509,000 b/d of Canadian crude to the gulf, most of which would be blended bitumen, which is similar to heavy crude.

“Additionally, TransCanada is looking to expand the Keystone XL capability by offering Bakken oil producers, located in North Dakota and Montana, a chance to link into the pipeline and send their crude to Gulf Coast refineries for the first time,” the study continued. “By increasing transport efficiency and allowing Bakken producers to tap into new refinery markets, the Keystone XL project will have the added benefit of improving wellhead values for oil production from the Bakken formation.”

It said that since many Gulf Coast refiners invested heavily in equipment to process heavier crudes from Mexico and Venezuela, where production has declined, higher volumes from Canada potentially could improve domestic refiners’ margins by matching the heavy grade with abundant and complex Gulf Coast refining technology.

Simultaneously, the project would deliver crude oil more efficiently into the US refining market while improving supply security with a long-term commitment accompanied by a high degree of confidence that commercial and trade relations would be sustained, EPRINC’s study indicated.

‘A false choice’
It noted that some critics of Canadian oil sands production have recommended that the US restrict imports from Canada and try to replace them with alternative fuels and conservation. “However, this strategy is a false choice,” EPRINC said. “Alternative fuels can reduce net imports of crude oil and petroleum products, but these alternatives (biofuels, electric vehicles, natural gas vehicles, new auto fuel standards) offer only limited opportunity to substantially lower oil imports in the near to medium term. Even under the most optimistic scenario for using alternative fuels and technologies, the US will import large volumes of petroleum in the next 10-20 years.

“If US refiners are denied access to Canadian oil sands production, Canadian bitumen blends will likely flow to alternative markets, displacing crude supplies which would eventually make their way to US import centers,” EPRINC said. “Total Canadian production and total US imports will likely remain the same with or without US imports of oil sands from Canada.”

Many US refiners are able to maintain profitable margins when they can take advantage of the price spread between light and heavy crude, the study observed. “When this spread is large, complex refineries purchase heavy crude at a discount to light crude and are able to produce a product slate commensurate with that coming from the refineries processing lighter, more expensive crudes, thus maximizing profit,” it explained. “However, when the spread collapses, as it has recently, and there is very little discount between heavy and light oil, heavy [crude] refiners are unable to realize any benefits from purchasing heavy crudes. They become less profitable, suffer underutilization, and forgo revenue.”

Much like US refiners, producers operating in Canada’s oil sands have an incentive to capitalize on a light-heavy crude price spread, the study continued. “Some Canadian producers would prefer to upgrade the raw bitumen into synthetic light crude and take advantage of the resultant higher value. However, given the convergence of heavy-light valuations, the incentive to upgrade larger volumes of Canadian oil sand output remains low,” it said.

“Upgraders, like complex refineries, are very capital intensive; without a substantial light-heavy value spread there is little economic incentive to build such facilities,” EPRINC said. “While there is a push by the government of Alberta to increase upgrader capacity, most Canadian oil sand producers will realize higher wellhead values by selling non-upgraded bitumen into the US market.”

Contact Nick Snow at nicks@pennwell.com.

Related Articles

Oil-price collapse may aggravate producing nations’ other problems

02/05/2015 The recent global crude-oil price plunge could be aggravating underlying problems in Mexico, Colombia, and other Western Hemisphere producing natio...

Alberta’s premier seeks more North American energy integration

02/05/2015 Better policy integration and cooperation will be needed for Canada, Mexico, and the US to fully realize the North American energy renaissance’s po...

EPA suggests DOS reconsider Keystone XL climate impact conclusions

02/03/2015 The US Department of State might want to reconsider its conclusions regarding potential climate impacts from the proposed Keystone XL crude oil pip...

Syncrude sees additional $260-400 million in possible budget cuts

02/02/2015 The estimate for capital expenditures has also been reduced to $451 million net to COS, which includes $104 million of remaining expenditures on ma...

Novel upgrading technology cuts diluent use, capital costs

02/02/2015 A novel bitumen upgrading process that decreases the amount of diluent required for pipeline transportation and reduces overall operating costs has...

BHI: Texas anchors 90-unit plunge in US rig count

01/30/2015 The US drilling rig count plunged 90 units—a majority of which were in Texas—to settle at 1,543 rigs working during the week ended Jan. 30, Baker H...

Oxy cuts capital budget by a third

01/30/2015 In the midst of falling oil prices, Occidental Petroleum Corp., Houston, expects to reduce its total capital spending for 2015 to $5.8 billion from...

Cenovus trims additional $700 million from capital budget

01/28/2015 Cenovus Energy Inc., Calgary, will defer $700 million in additional capital expenditures originally planned for 2015 until crude oil prices recover...

Pengrowth cuts capital spending due to declining oil prices

01/23/2015 The recent “rapid” decline in world oil prices is the main reason given by Pengrowth Energy Corp., Calgary, for setting its 2015 capital budget at ...
White Papers

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected