North America’s oil and gas sector is beleaguered from all sides, but cross-border movement of energy remains viable. Gordon Cope assesses the impact of recent upheavals on the region’s energy exchange network.
The integration of the movement of oil, gas, natural gas liquids and refined products by pipeline between Canada, the US and Mexico represents one of the largest and most complex energy exchange networks in the world. The North American Free Trade Agreement (NAFTA), which has been in effect for several decades, allows the tariff-free flow of energy between the three nations, primarily crude from Canada to the US, gas from Canada to the US (and from the US to Mexico), and fuel products from the US to Mexico.
However, the recent upheavals that have been challenging the world’s supply of energy are having a profound impact on all aspects of the oil and gas sector, including trans-border exchanges in North America.
Although the US has seen a huge increase in domestic production over the last decade due to the unconventional reservoir revolution, crude from shales tends to be lighter and sweeter than the heavy sour (sulphur laden) feedstocks that US refineries are designed to process. Heavier crudes for USGC refineries, for instance, have traditionally been supplied from Mexico and Venezuela. Due to production problems from the two latter sources, refiners have increasingly relied on supplies from Canada. In 2010, Canada exported 2 million bpd to the US, primarily from Western Canada through various mainlines to the main storage hub in Cushing, Oklahoma and onward to Midwest and Gulf Coast refineries. By early 2020, that figure had almost doubled, to 3.8 million bpd.
Significantly, Canada is the largest recipient of US crude exports, some 450 000 bpd. Most of the crude, which originates in both Western Canada and North Dakota, enters by Enbridge’s Line 5, 540 000 bpd pipeline through Sarnia, Ontario (across the border from Detroit, Michigan), to service refineries in both Ontario and Québec. Imports grew dramatically in 2015 after Enbridge reversed its pipeline 9 running from Sarnia to Montreal, displacing tanker imports up the Gulf of St. Lawrence from Africa and the Middle East.
When the COVID-19 crisis reduced fuel consumption in the US, refineries began to restrict runs. Canadian crude also began to compete with cheap Saudi products flooding the market as part of their price war, and, according to Statistics Canada, crude exports dropped 8%, to 3.5 million bpd in March 2020 alone, and the federal agency expected significant further declines. Although easing of isolation rules in the US has resulted in a resurgence in fuel demand, crude flows are not expected to recover to former levels before 2021.
Condensate and NGLs
As part of its exit strategy from the Canadian pipeline sector, Houston-based Kinder Morgan recently sold its share of the Cochin pipeline to Calgary-based Pembina Pipeline for US$1.57 billion. The 2900 km pipeline moves 110 000 bpd of condensate from Chicago, Illinois, to Fort Saskatchewan, Alberta. The condensate is used to dilute oil sands bitumen for shipping to the Chicago area, then recycled.
Kinder Morgan retains the Utopia pipeline, the eastern portion of the Cochin pipeline network. The Utopia line moves up to 50 000 bpd of ethane from central Ohio to the Canadian border at Windsor, Ontario, and on to industrial customers in Canada.
In February 2020, Sunoco Pipeline LP launched a binding open season to gauge ethane shipper interest in its 50 000 bpd Mariner West liquids pipeline running from gathering hubs in Pennsylvania to Michigan and the border near Sarnia, Ontario, Canada, for onward transportation.
For decades, Canada has been a major supplier of natural gas to the US, averaging 8.9 billion ft3/d in 2010. Over the last several years, however, shale gas from Appalachia has slowly replaced Canadian supplies, and imports from the north stood at 7.4 billion ft3/d in 2019.
A significant portion of the cross-border gas to the US is transported by TC Energy’s Great Lakes system. From a connection point in Manitoba, approximately 2.4 billion ft3/d of gas travels through the 2115 mile interstate system to the US Midwest and ultimately to the USGC. In May 2020, TC Energy announced that it is spending CAN$300 million to expand its ANR pipeline system to better service US industrial and market centres, as well as LNG projects in the USGC.
US pipeline exports to eastern Canada have been climbing over the last several years as new lines come into service. The NEXUS pipeline, a 256 mile, 36 in. line running from eastern Ohio to southern Michigan and the Dawn hub in Ontario, came into service in 2018. It has a capacity of 1.5 billion ft3/d. The Rover pipeline, which entered service in 2018, runs 713 mile from processing plants in West Virginia, Ohio and Pennsylvania to Michigan and the Dawn Hub in Ontario. The system has a total capacity of 3.25 billion ft3/d. In 2019, US gas flowing into eastern Canada averaged 2.5 billion ft3/d.
Natural gas exports from the US to Mexico have surged over the last several years due to several factors. In Mexico, electricity usage per capita stands at 15% of North American usage. International organisations point to a direct link between greater availability of electricity and GDP growth; the Mexican government has been instructing its electricity monopoly, CFE, to modernise and expand its network by building gas-fired turbines.
Mexico consumes over 8 billion ft3/d but produces only 2.75 billion ft3/d. Gas production, which is largely associated with crude production, has been dropping as giant oilfields such as Cantarell in the Bay of Campeche slowly tap out. Fortunately, shale gas production in Texas and New Mexico has climbed dramatically, creating a cheap and abundant alternate source.
There are now 20 gas lines in service between Texas and Mexico, with a total capacity of over 11 billion ft3/d. They include TC Energy’s Sur de Texas natural gas pipeline running from Texas to a port on the Gulf of Mexico. The 800 km line, capable of carrying 2.6 billion ft3/d, entered service in September 2019.
Pipelines carry 90% of the gas reaching Mexico, with the rest supplied by LNG tankers. In all, the US supplied 1.9 trillion ft3, or an average of 5.2 billion ft3/d, in 2019. Long-term exports are expected to rise as CFE continues to convert older, bunker fuel fired plants to natural gas.
To read the rest of this article, which includes a report on refined products, as well as a look into the problems and what the future may hold, click here.
Read the article online at: https://www.worldpipelines.com/special-reports/20112020/maintaining-the-free-flow-of-energy/