East coast exports of Western Canadian crude

As Western Canada produces more heavy crude oil, will it be exported from ports on Canada's relatively distant east coast?

Eastern Canadian exports of Western Canadian crude oil may increase, according to Canadian oil producer Suncor Energy Inc.  In its third quarter investor call, company Chief Executive Officer Steve Williams indicated that it could have long-term opportunities to export Cold Lake-grade crude oil by sending it by rail from Alberta to East Coast ports.  According to ExxonMobil, Cold Lake Blend is an asphaltic heavy crude blend of bitumen and condensate.

If long-term opportunities may exist, so too have recent opportunities.  In September 2014, Suncor confirmed that it had sent its first shipment of Western Canadian crude by rail to a storage facility in Sorel-Tracy, Quebec, from which it was loaded onto a tanker ship and sent to Europe.

Many aspects of the Canadian oil industry are regulated, such as the development of new crude oil pipelines from landlocked Alberta to distant refineries, storage facilities and ports.  Several pipelines have been proposed to increase takeaway capacity from the Western Canadian oil sands region, including the Energy East Pipeline in Canada and the Keystone XL Pipeline in the U.S.  But as securing regulatory approvals for pipelines takes time, shipping crude oil by rail has emerged as a quicker alternative.

In its most recent investor presentation, Suncor touted its near-term access to global markets, with over 600,000 barrels a day of sendout capacity.  Its current capacity includes over 80,000 barrels per day by rail, as well as over 70,000 barrels per day via pipeline to the U.S. Gulf Coast.  By 2015, Suncor plans for the 130,000 barrel per day "Line 9" pipeline to be reversed, allowing flows from Sarnia into Montreal.  Beyond then, Suncor is looking at additional pipeline projects including Keystone XL, Energy East, the Trans Mountain Expansion, and the Enbridge Northern Gateway pipeline to British Columbia.

As Suncor and other Western Canadian oil producers eagerly await new pipeline capacity, rail shipments may continue to serve as a temporary measure.  If pipelines can be developed to key market points, they typically offer a lower shipping cost per barrel than railroads can.  At that point, railroads may see a reduction in the volume of oil they ship  -- but until then, Western Canadian oil producers may continue to rely on rail to reach eastern ports.

Coal freighter traverses Northwest Passage

Today, a sea freighter capable of carrying 75,000 tons of cargo is traversing the Northwest Passage.  The Nordic Orion is carrying coal from Vancouver, British Columbia, to Finland.  Does this trip illustrate a new trend?

The traditionally ice-bound Northwest Passage across the Arctic edge of the North American continent is increasingly ice-free during summer months.  For shippers, the route offers a significant savings in distance, fuel, and cost compared to alternatives.  For example, cargo shipments between the west coast of Canada and northern Europe can cut off over 1,000 nautical miles by taking the Northwest Passage instead of the Panama Canal.  This saves time and money, and enables ships to carry more cargo (and less fuel) per trip.  It can also reduce carbon dioxide emissions associated with the shipping industry.

The Nordic Orion's cargo - coal - highlights another trend.  If the Northwest Passage becomes practical as a shipping route, Canadian west-coast ports become that much closer to markets in Europe and elsewhere along the Atlantic.  Plans to increase U.S. coal exports from Pacific ports are facing headwinds, but the economics of Canadian exports may improve if coal can be shipped east through the Northwest Passage.

At the same time, transit routes through the Northwest Passage come with risks, including icebergs, less well-mapped hazards, and local impacts to the Arctic environment.  Royal Dutch Shell PLC's aborted attempts to drill for oil in U.S. Arctic waters in 2012 illustrate some of these hazards.

Will cargo traffic through the Northwest Passage continue to increase?  How will it affect global markets?  What impacts will it have to the Arctic?

Keystone XL pipeline supplemental Environmental Impact Statement

The proposed Keystone XL pipeline took a step forward this month, as the U.S. State Department released its evaluation of the project's potential environmental impacts.  The draft Supplemental Environmental Impact Statement (EIS) released on March 1, 2013 documents the State Department's analysis of the pipeline's impacts to environmental resources based on the currently proposed route.  The EIS is still preliminary, and is now subject to public comment.  Moreover, even a final EIS would not reach any conclusion as to whether the pipeline serves the national public interest, and the project would still need a presidential permit to ship oil across the US-Canadian border.  Nevertheless the draft EIS does suggest that any environmental impacts from the pipeline would be relatively minor.

The Keystone XL project is a proposed extension of an existing crude oil pipeline.  The $7 billion project would run from the Canadian province of Alberta to Texas, delivering Canadian crude to refineries on the U.S. Gulf Coast.  The oil shipped on the pipeline would likely include so-called synthetic crude derived from Canada's oil sands or "tar sands" resources.

The draft EIS (available from the State Department's website) makes a series of findings about the project's potential environmental impacts, ranging from direct impacts along the pipeline's route to indirect impacts like further development of the Alberta oil sands.  As the State Department found in its earlier environmental review, the supplemental EIS found that the pipeline would not have significant impacts to any resources along the proposed project route.

Notably, the draft EIS found that Keystone XL would not be likely to substantially increase the rate of development of the oil sands, nor would it likely increase the volume of crude oil refined in the Gulf Coast.  For example, the draft found that denial of the pipeline's presidential permit would not mean a reduction in oil production in Western Canada or from the Bakken formation; rather, oil producers would resort to other transportation modes such as pipelines to British Columbia or even rail shipment of crude.  For similar reasons, the draft EIS found that the Keystone XL pipeline would not substantively change global greenhouse gas emissions.

Next steps for the Keystone XL project include a 45-day public comment period, after which the State Department will issue a final EIS.  Later this year, the State Department is expected to issue a so-called national interest determination, considering factors including foreign policy, economics, environmental concerns, and national security. This determination will involve consultation with other agencies, including the U.S. Departments of Defense, Justice, Interior, Commerce, Transportation, Energy, Homeland Security and the Environmental Protection Agency.  The final decision whether to allow the pipeline falls to President Obama.