When we say that ‘a sea change’ has occurred to something, we mean that it has undergone a profound transformation. In mid-November, ConocoPhillips sold its interest in the Gulf Coast Seaway Pipeline in Cushing, Oklahoma for US$ 1.15 billion. Enbridge snapped up the 50% interest and, along with its joint venture partner Enterprise, decided to reverse the flow through the Seaway line, sending oil from Cushing to Gulf Coast refineries and thereby easing the bottlenecks that have plagued the Cushing hub.
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Cushing is the delivery point for West Texas Intermediate (WTI) crude and the glut of oil at this point in the chain has kept WTI prices depressed, as North Sea Brent crude prices soared. The divergence between the two oil stocks since they split earlier this year has kept traders busy hedging one trade against the other. However, upon news that the Seaway pipeline is to be reversed in Q2 2012 – initially transporting 150 000 bpd to the coast and increasing to 400 000 bpd by 2013 – the price of WTI reached US$ 103/bbl, and settled on around US$ 95 after the flurry. This greatly reduces the spread between WTI and Brent and will go someway to balancing the global oil markets. Of course, there is still surplus oil in the Midwest but this sudden sea change for Seaway should be a boon for the US market.
Meanwhile, I read that North American railway networks are playing their, considerable, part in transporting oil – hundreds of thousands of barrels are delivered by train in North America every day – and the market is growing. Lack of pipeline connections open up opportunities for rail companies to step in and claim the business. In Canada, Canadian Pacific has moved over 8000 rail cars of crude this year so far, which amounts to approximately 5.2 million bbls. Railways have been bridging the gaps left by lack of pipeline infrastructure, providing a flexible, relatively quick solution for oil transport.
Which brings me to the inevitable subject of delayed pipeline projects.
This month, President Obama’s administration delayed its decision on TransCanada’s proposed Keystone XL pipeline until after the 2012 presidential election. The 1700 mile pipeline would deliver Canadian oilsands to the Gulf, where refining capacity is tailored towards such heavier crudes, having been used for Venezuelan crude when relations between the US and Venezuela were sweeter. The Seaway pipeline reversal will help deliver some of this oilsands production to the coast, but can only go so far (not that far, as it happens) in making up what is lost by delaying the XL line.
Alberta oilsands must be provided with an artery leading to Gulf coast refineries. This latest delay might indeed be the administration’s neat sidestep of what would be a very difficult decision ahead of an election year – given it would be a choice to alienate either the environmentalists or the labour groups, no pleasing both – but whatever the political motivations behind the 15 month pushback, the project is in jeopardy and so is security of supply. Canadian oilsands might find more welcoming markets in Asia. Technology for extracting and producing oilsands might not be pushed forward, meaning that potential environmental improvements to the oilsands production process would be halted.
This month’s issue includes our annual end-of-the-year global report (Postcards from the edge, beginning on p. 12), which chronicles the progress, and lack thereof, of pipeline projects all around the world. Read on for insight into the current ebbs and flows of the pipeline industry and discover how pipelines get into the ground despite detractors and delays.