Sunday, September 05, 2010

In Alberta, An Instinctive Understanding

This article appears in the August issue of Oilweek magazine
By Peter McKenzie-Brown
“Pipelines are us,” Bob Taylor reminded me one day over lunch. Formerly Assistant Deputy Minister of Energy (Oil) with the Alberta government and now a consultant who specializes in energy systems innovation, he was discussing the two-fold importance of pipelines to the oilsands.

Before moving to the punch line, however, he put the discussion into context. Because of environmental worries, “oilsands producers are facing steadily increasing resistance in the provincial, national and international arenas.” He continued: “Unless we address these issues, the industry risks losing the social license to operate.”

With that, our wide-ranging discussion turned briefly to a particular theme. One reason you need pipelines is to take production to market. Without new or expanded pipelines, production growth would be next to impossible. However, the oilsands also require specialized pipeline networks to reduce their environmental impacts and to produce more efficiently.

Several examples illustrate this theme, and each carries a budget of $400 million or so. One is Williams Energy’s Boreal Pipeline, which will run from just north of Fort McMurray to Redwater, Alberta. The other is Enbridge’s Waupisoo pipeline expansion. Waupisoo originates at a terminal on Enbridge’s Athabasca Pipeline, 70 kilometres south of Fort McMurray. From there it stretches southwest to a pipeline hub near Edmonton. In addition, Pembina Pipelines is building a pair of lines to serve producers operating near Slave Lake.

Boreal Pipeline
The proposed new Williams pipeline is part of a project which turns waste into commercial products. So doing, it reduces carbon emissions and feeds valuable feedstock to the petrochemical sector. Williams Energy’s cryogenic liquids extraction plant near Fort McMurray recovers natural gas liquids and olefins from a stream of off-gases produced at the Suncor plant. Located about five kilometres away, it returns a sweet, leaner fuel to Suncor, which uses the returned gas for generating industrial heat. This enables the plant to operate more efficiently and reduces its carbon dioxide emissions.

As importantly, this profitable project provides feedstock for the petrochemical industry. Williams transports the recovered gas liquids to a facility in Redwater, northeast of Edmonton, for processing into products such as ethane, propane, butane, condensate and the olefins of ethylene, propylene and butylene. Before Williams began this operation, the hydrocarbons were just burned.

Now eight years old, this business has been so successful that Williams is expanding it. The new 420-kilometre long, 12-inch diameter Boreal pipeline will initially transport to Redwater up to 43,000 barrels of liquids per day. Later, it will expand to 125,000 barrels per day. Pipeline construction will take three seasons – from this fall to spring 2012.

As part of this large project, the company is building up processing facilities at both ends of the pipe. For example, Williams recently raised a 70-metre fractionation tower at its Redwater plant. This allows the company to produce a higher-quality product from the existing 14,000-barrel-per-day plant by splitting the butane and butylene components. There is much more to come.

Waupisoo Expansion
As summer began, Enbridge announced that it had made commitments to producers to make available an additional 229,000 barrels per day of capacity on the Waupisoo Pipeline. The 380-kilometre pipeline system is designed to carry up to 600,000 barrels per day of oilsands crude.

Four additional pumping stations and upgrades to two existing stations are the basis for the expansion which will take Waupisoo to design capacity of 600,000 barrels a day. The expansion will take place in two phases. The first 65,000 barrel per day expansion will be complete in the second half of 2012. An additional 190,000 barrels per day will be added by the second half of 2013.

The actual capacity of the line will depend on the viscosity of the crude it is carrying. Heavier oils travel more slowly, reducing capacity. Lighter oil blends are faster, and will be the transportation product used when the line is operating at design capacity.

Regulated by Alberta’s Energy Resources Conservation Board (ERCB), Waupisoo links producers to their upgraders and to refineries in the Edmonton area. It also connects to some of Canada’s other oil pipeline systems.

Enbridge operates the world’s longest crude oil and liquids transportation system, with a network of lines in Canada and the United States. The Waupisoo expansion will strengthen Enbridge’s position as the largest pipeline operator in the oil sands region; also, it likely will cement the company’s position as the shipper of choice for new oilsands producers.

Of course, no one will ever dominate that market, as another pair of lines now under construction by Pembina Pipelines illustrates. The company’s new Nipisi Pipeline – designed initially to transport 100,000 barrels per day of diluted heavy oil – will reach from north of Slave Lake to Judy Creek. From there it will connect to an existing pipeline system, delivering products to the Edmonton area. Ultimately, Nipisi’s capacity can be doubled.

As part of this project, Pembina will construct its Mitsue Pipeline, which will ship 20,000 barrels per day of condensate diluent from Whitecourt to producers operating north of Slave Lake. Mitsue could ultimately be expanded to 45,000 barrels per day. Cost of this package of pipelines? About $440 million.

Each in its way, the pipelines covered in this review represent different aspects of what’s going on in the industry. On the one hand, they support growth. On the other, they contribute to greater efficiency and reduced environmental impacts. In Alberta the understanding of these two purposes seems almost instinctive – probably because, for decades, within the province vast networks of these systems have been operated by tens of thousands of employees. As a result, new pipelines and pipeline expansions encounter relatively little public resistance. Pipelines are us.
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