SPECIAL REPORT: Keystone study looks at increased BC west coast tanker traffic, oil terminal at Prince Rupert

The future of tankers sailing along the British Columbia coast, and the export of crude through BC could change drastically by the end of 2014.

      • By some time in 2014, the planned expansion of the Panama Canal will be complete, allowing more large ships, including tankers, to pass through the Canal and ply up and down the west coast.
      • It is also possible that British Columbia coastal ports could not only be used for export of bitumen from the Alberta oil sands and liquified natural gas from northeast BC, but also for oil shale crude found in the Bakken Shale formation in North Dakota and Montana, possibly later shale oil from Saskatchewan and Manitoba.

Those startling conclusions are found in the full draft supplementary Environmental Impact Statement (EIS) on the Keystone XL pipeline project issued last week by the United States States Department. (Most media reports concentrated on the EIS executive summary, the details on British Columbia are contained in the actual report).

The Keystone EIS surprisingly contains a number of scenarios in British Columbia, even though BC is thousands of kilometres from the proposed TransCanada pipeline from the bitumen sands to the refineries on the US Gulf Coast.

The State Department report had to give President Barack Obama all possible options and that it why the EIS report included what it calls “no action alternatives” –what would happen to the bitumen and oil if Obama rejects the Keystone pipeline. Assuming that the oil, whether bitumen or Bakken oil shale has to get to the Gulf refineries by other means, the EIS takes a close look at one case, via CN rail to Prince Rupert, from Prince Rupert by tanker down to the expanded Panama Canal, then through the Panama Canal to the oil ports of Texas and Louisiana.

Another possibility, although less detailed in the EIS, also considers scenarios where bitumen from the Alberta oilsands or shale crude from the Bakken formation was shipped to Vancouver via the Kinder Morgan pipeline system, to Kitimat via the proposed Northern Gateway pipeline.

The State Department rejected the Kinder Morgan and Northern Gateway options for detailed analysis because of the controversy over both projects.

The Keystone EIS was released by the State Department on Friday, March 1, 2013, and is seen as generally favouring TransCanada’s Keystone XL pipeline project. Despite the EIS report conclusions that the Keystone project would have little adverse impact, the final decision by President Obama will be largely political.

The Prince Rupert scenario

The State Department “Supplementary Enviromental Impact Statement” on the Prince Rupert and several other scenarios were undertaken

In developing alternative transport scenarios, efforts were made to focus on scenarios that would be practical (e.g., economically competitive), take advantage of existing infrastructure to the extent possible, used proven technologies, and are similar to transport options currently being utilized.

The State Department studied a scenario that would

Use of approximately 1,100 miles (1,770 kilometres) of existing rail lines from the proposed Lloydminster rail terminal complex to a new approximately 3,500-acre (1,400 hectare) rail terminal complex where the oil would be offloaded from the rail cars, with a short pipeline connection to the port at Prince Rupert.

That possible replacement for Keystone scenario calls for adding approximately 13 trains with 100 tanker car per day on the CN and Canadian Pacific rail lines between Lloydminster and Prince Rupert. (There is also a separate scenario for a rail route from Alberta to the US Gulf Coast. That scenario is not examined in this report)

That, of course, would be in addition to the already heavy rail traffic to Prince Rupert with grain and coal trains outbound and container trains inbound, as well as the VIA Skeena passenger train.

(David Black who is planning a possible refinery at Onion Flats, north of Kitimat, has said that if the Northern Gateway pipeline is stopped, the Kitimat refinery could be serviced by six trains per day, 120 cars in each direction.)

The railway to Prince Rupert is evaluated using the same criterion under US law that was used to evaluate the Keystone project, including affects on surface water, wetlands, the coast, wildlife, threatened and endangered species, fisheries, landuse, construction, green house gases and even sea level rise.

The EIS for Prince Rupert, however, dodges one of the key questions that is plaguing the Northern Gateway Joint Review panel. While it points out the possible dangers of an oil spill, the report does not go into any great detail,

The overall EIS view of the impact of a Prince Rupert project would likely bring protests from those who already oppose the Northern Gateway pipeline project.

the transport of the crude oil via tankers from Prince Rupert to the Gulf Coast area
refineries would not have any effects on geology, soils, groundwater, wetlands, vegetation, land use, socioeconomics, noise, or cultural resources, other than in the event of a spill.

The State Department scenario says there would be

one to two additional Suezmax tanker vessels per day (430 tankers per year) would travel between Prince Rupert and the Gulf Coast area refinery ports via the Panama Canal.

That, of course, could be in addition to any tankers from the Northern Gateway project, if it is approved, as well as tankers from the liquified natural gas projects at both Kitimat and Prince Rupert.

Expanded Panama Canal

The concept of the Suezmax tankers is critical to the west coast, even if none of the scenarios eventually happen.

The State Department report notes that the Panama Canal is now being expanded, and that beginning sometime in 2014, larger ships, including tankers, can go through the canal. The current size is Panamax (maximum size for the current Panama Canal) to Suezmax (the maximum size for the Suez Canal).

(The Panama Canal expansion program began in 2006 and is scheduled for completion in 2014.
 Latest Panama Canal progress report  (pdf)

The Vancouver Kinder Morgan Scenario

According to the State Department that means even if the even bigger Very Large Crude Carriers are not calling at west coast ports to take petroleum products to Asia, the Suezmax tankers might likely be calling in Vancouver at the terminal for the existing (and possibly expanded) Kinder Morgan pipeline.

Both Kinder Morgan and Port Metro Vancouver have said that the ships that call at the Kinder Morgan Westridge Terminal are Aframax tankers, and even they are not loaded to capacity, because of the relatively short draft in the Burnaby area of Vancouver harbour. Both Kinder Morgan and Port Metro Vancouver say that there are no current plans for larger tankers to call at Westridge.

 

Port Metro Vancouver tanker diagram
Port Metro Vancouver diagram showing the tankers that are permitted and not allowed in Vancouver harbour. (Port Metro Vancouver)

So one question would be is the State Department report pure speculation or is there, perhaps, somewhere in the energy industry, a hope that one of Vancouver’s deeper draft ports could be the terminal for a pipeline?

Rails to Rupert

The Keystone EIS for the first time outlines the railway to Rupert senario, which has long been touted by some supporters as an alternative to the Northern Gateway project, but without the detailed analysis provided for Northern Gateway by both Enbridge and those opposed to the project. Although based largely on published documents and in some ways somewhat superficial (the State Department can’t find any cultural resources in Prince Rupert), the EIS largely parallels the concerns that are being debated by in Prince Rupert this month by the Northern Gateway Joint Review Panel.

 

Northwest Coast Energy News Special report links

What the Keystone Report says about Kitimat and Northern Gateway
What the Keystone Report says about the Kinder Morgan pipeline to Vancouver.
What the Keystone Report says about CN rail carrying crude and bitumen to Prince Rupert.
The State Department Environmental Impact Study of the railway to Prince Rupert scenario.

State Department news release

State Department Index to Supplemental Environmental Impact Study on the Keystone XL pipeline

 

 

PART ONE: What the State Department Keystone EIS says about Kitimat

The United States Department draft Environmental Impact Statement (EIS) not only had to evaluate the main subject, the controversial Keystone XL pipeline project, but possible alternatives as well.

So that’s why the EIS took a couple of looks at Kitimat, with two possibilities for replacing the Keystone XL with a Kitimat terminal.

• Rail to Vancouver or Kitimat, British Columbia and tanker to the Gulf Coast area refineries
• The proposed Nothern Gateway Pipeline project.

The study doesn’t just include various forms of diluted bitumen from the Alberta bitumen sands, but  petroleum products from the Western Canadian Sedimentary Basin (WCSB) and crude oil from the Bakken shale shipped to the refineries on the US Gulf Coast which would be served by the Keystone XL pipeline if it was not approved.

The EIS examined the Northern Gateway project and rejected the Enbridge pipeline as a possibility for Alberta bitumen and crude because of the continuing controversy.

However, a reading of the report shows that there could be pressure in the future for a bitumen or crude export terminal at Kitimat that would be served by the existing CN rail line (even though the State Department report prefers Prince Rupert as the best choice as an alternative to Keystone).

Enbridge is proposing to construct the Northern Gateway pipeline, which would transport up to 525,000 bpd of crude oil 1,177 km from Bruderheim, Alberta, to the Port of Kitimat, British Columbia. The port would be improved with two dedicated ship berths and 14 storage tanks for crude oil and condensate. Enbridge intends for the pipeline to be operational around 2017. A regulatory application was submitted in 2010, which is undergoing an independent review process led by the Canadian National Energy Board and the Canadian Environmental Assessment Agency. The pipeline would traverse First Nation traditional lands and important salmon habitat. The project has been controversial and has encountered opposition from some
First Nation bands and other organizations. Opposition to the project remains strong as evidenced by media reports of the January 2013 public hearings in Vancouver on the permit application. It remains uncertain at this time if the project would receive permits and be constructed, and therefore the option of moving additional crude to Kitimat was eliminated from detailed analysis.

The report goes on to say that Enbridge is moving the target for the Northern Gateway due the controversy and the longer than expected Joint Review Panel hearings

Enbridge is now stating in investor presentations that the Northern Gateway pipeline
(525,000 bpd expandable to 800,000 bpd) may be operational by “2017+”

However the State Department report does seriously consider transportation of WCSB crude by rail to Vancouver, Kitimat and Prince Rupert. The report takes an in-depth look at the railway to Prince Rupert option.

One reason is that even if it is transported by rail, the market in Asia is still more attractive to the energy industry than using Kitimat or Prince Rupert as a possible terminal for export to the US Gulf.

The transportation costs of shipping to Asia via the Canadian or U.S. West Coasts
would be significantly cheaper than trying to export it via the U.S. Gulf Coast.

The total per barrel cost of export to Asia via pipeline to the Canadian West Coast and onward on a tanker is less than just the estimated pipeline tariff to the U.S. Gulf Coast for the proposed Project, and is less than half the cost of the Gulf Coast route to Asia. If pipelines to the Canadian West coast are not expanded or approved, even incurring the additional cost of rail transport to the West Coast ports (Vancouver, Kitimat, or Prince Rupert), estimated at $6 per barrel, results in a total transport cost to Asia that is still 40 percent cheaper than going via the Gulf Coast Absent a complete block on crude oil exports from the Canadian West Coast, there would be little economic incentive to use the proposed project as a pass through. The high costs of onward transport to other potential destinations tend to mitigate against WCSB heavy/oil sands crudes being exported in volume from the Gulf Coast.

The EnSys 2011 study found that the rail systems of the United States and Canada were not at that time running at capacity, that there is significant scope to expand capacity on existing tracks through such measures as advanced signaling, and that adequate cross-border Canada/U.S. capacity exists to accommodate growth in rail traffic that would be associated with movements at the level of 100,000 bpd cross-border increase per year or appreciably higher. In addition, rail lines exist to ports on the British Columbia coasts (notably Prince Rupert, Kitimat, and Vancouver), which could be used for export of Western Canadian crudes.

And later in the report:

both of these proposed pipeline projects to Canada’s West Coast face significant
resistance and uncertainty, but there are strong cost advantages when compared with moving WCSB crude to the Gulf Coast even if rail were used to access the Canadian West Coast In fact, using rail and tanker to ship crude oil from the WCSB via the West Coast to China is comparable to the pipeline rate to reach the U.S. Gulf Coast. An increase in the transport costs to the Gulf Coast (utilizing alternative transport options such as rail) would have a tendency to increase the
economic incentive to utilize any West Coast export options, if they are available.

The report also notes the change in Canadian laws in the omnibus bills pushed through by Stephen Harper’s Conservative government:

Also not examined above, are more speculative political impacts that might occur as a result of a decision on the permit application for the proposed Project. In 2012, the Canadian government enacted new laws changing the way some major infrastructure projects, such as pipelines, are reviewed. Among the changes made were limits on the amount of time for such reviews. A declared intent was to promote alternative routes for the export of WCSB crude oils, especially
ones that would reduce reliance on the United States as, essentially, the sole market option.

In other words, even if Northern Gateway is stopped, there could be considerable pressure to export bitumen and crude oil from Alberta not only through Prince Rupert, the site preferred by the State Department EIS, but though Kitimat as well.

That might just open the door for David Black’s proposed $16 billion refinery at Onion Flats near Kitimat. As noted elsewhere on the site Black has possible investors for construction of a new oil refinery approximately 25 kilometers to the north of Kitimat BC on a 3,000 hectare site.

Black’s Kitimat Clean website says the refinery would process 550,000 barrels per day (87,445 cubic meters per day) of diluted bitumen from the oilsands region of Alberta delivered to the site by pipeline or by rail. The diluent will be extracted at the refinery and returned to Alberta if needed there. If not, it would be processed into gasoline. The bitumen will be converted into fuel products, primarily for export.

Black’s plans call for connecting the Northern Gateway bitumen Pipeline to the site. From the refinery six dedicated product pipelines will run to a marine terminal on the Douglas Channel. The Douglas Channel is a wide and deep fjord. VLCC (Very Large Crude Carrier) tankers will transport the refined fuels to markets around the Pacific Rim.

If the Northern Gateway is stopped, Black’s plans call for 12 additional 120 car trains running through every day. (Six in each direction)
Northwest Coast Energy News Special report links

What the Keystone Report says about Kitimat and Northern Gateway
What the Keystone Report says about the Kinder Morgan pipeline to Vancouver.
What the Keystone Report says about CN rail carrying crude and bitumen to Prince Rupert.
The State Department Environmental Impact Study of the railway to Prince Rupert scenario.

State Department news release

State Department Index to Supplemental Environmental Impact Study on the Keystone XL pipeline

 

PART THREE: Keystone EIS looks in-depth at the railway to Prince Rupert option for bitumen and crude

There have always been commentators who believe that if the Northern Gateway Pipeline is rejected by the Joint Review Panel or stopped by other means, that the bitumen from Alberta should be carried by rail to Prince Rupert.

A pipeline to Prince Rupert has already been rejected by Enbridge as impractical given the mountainous terrain and the narrow footprint along the Skeena River from Terrace to Prince Rupert.

That means taking bitumen by rail to Prince Rupert has not been seriously studied—until now.

The State Department Environmental Impact Study (EIS) on the controversial Keystone XL pipeline from Alberta to the US Gulf, does give serious consideration to the rail to Rupert option.

That’s because under its mandate the State Department had to consider alternatives to Keystone. The detailed look at carrying crude to the west coast is contained in the “No Action Alternatives” section of the Keystone report (that is telling President Barack Obama what might happen if he takes no action on Keystone)

The EIS took a brief look at the possibilities of rail to Kitmat, but concentrates mostly on Prince Rupert.

As for sending bitumen to the Gulf,via rail and tanker, the Keystone report concludes, as have most analysts that even if bitumen was shipped by rail to Prince Rupert, it would be cheaper to send it to markets in Asia than through the Panama Canal to the US Gulf Coast.

If pipelines to the Canadian West coast are not expanded or approved, even incurring the additional cost of rail transport to the West Coast ports (Vancouver, Kitimat, or Prince Rupert), estimated at $6 per barrel, results in a total transport cost to Asia that is still 40 percent cheaper than going via the Gulf Coast.

Absent a complete block on crude oil exports from the Canadian West Coast, there would belittle economic incentive to use the proposed project as a pass through. The high costs of onward transport to other potential destinations tend to mitigate against WCSB [Western Canada Sedimentary Basin] heavy/oil sands crudes being exported in volume from the Gulf Coast.

As an alternative to Keystone, the State Department examined a scenario where bitumen and possibly Bakken shale crude oil would be:

• Loaded onto rail in Lloydminster and transported to Prince Rupert, British Columbia;

• Transferred to a new/expanded marine terminal at Prince Rupert; and

• Shipped via Suezmax vessels to the Gulf Coast area (Houston/Port Arthur) through the Panama Canal.

If the tanker cars are hauling bitumen, they would be actually loading “railbit” which the report says is “similar to dilbit but with less diluent added” (Dilbit is the standard diluted bitumen in pipelines) There is also, according to the EIS, a possibility that the tank cars would carry raw bitumen without dilutent (although this requires insulated rail cars with steam coils)

New facilities in Prince Rupert would consist of a large rail terminal complex, most likely on themainland, where off-loaded crude oil would be stored until it could be loaded onto tankers, and an expanded port. The entire facility would cover 4,700 acres (1,900 hectares), including 3,500 acres (1,400 hectares) for storage and off-loading/on-loading facilities at the rail terminal and approximately 1,200 acres (487 hectares) of land at the expanded port.

The new tank terminal construction would consist of the following:

• Fourteen petroleum storage tanks (11 oil and three condensate);

• A security fence to encompass the tank terminal;

• A 180-foot-wide (55 metre) firebreak area around the outside perimeter of the terminal;

• Electrical supply and distribution (this terminal would be serviced by the Texada Island

Reactor substation); and

• Buildings (control center and civil infrastructure including roads).

Related Link Prince Rupert Port Authority Performance Report

 

The scenario calls for adding approximately 13 trains with 100 tanker cars per day on the 1,100 miles (1,770 kilometres) of CN and Canadian Pacific rail lines between Lloydminster and Prince Rupert.

(On the other hand, media mogul David Black who has proposed a refinery at Onion Flats half way between Kitimat and Terrace is considering a rail link to Kitimat if the Northern Gateway pipeline is stopped. Black estimates there would be six trains per day, 120 cars in each direction. While there is usually only one train a day to Kitimat or less, that idea would increase traffic along the Skeena and in his news release Black says 

If BC remains set against a pipeline the oil will come to the refinery by rail. CN and the oil companies are keen on this. A great deal of crude in North America is being moved by rail now. The costs are not that different in this case and no permits are required. Rail tankering is, however, not as safe and it is more disruptive. Small towns along the route with level crossings would rue having 12 more trains running through every day.

The State Department scenario says that if the Prince Rupert option actually happened there would be “one to two additional Suezmax tanker vessels per day (430 tankers per year) would travel between Prince Rupert and the Gulf Coast area refinery ports via the Panama Canal.”

The concept of the Suezmax tankers is critical to the west coast, even if none of the scenarios eventually happen, because the State Department report notes that the Panama Canal is now being expanded, so that larger ships, including tankers, can go through the canal after 2014.

The current size is Panamax (maximum size for the current Panama Canal) to Suezmax (the maximum size for the Suez Canal), and, according to the State Department that means even if the even bigger Very Large Crude Carriers are not calling at west coast ports, the newer, larger Suezmax tankers may  be.

It should be noted, however, that if WCSB crude oil reaches a Pacific port, regardless of whether by rail or by pipeline, the economics for movement via tanker would favor shipping the oil to Asia rather than the Gulf Coast area. The cost of transporting crude oil via tanker from Prince Rupert to Houston and Port Arthur is estimated to be approximately $4.70/bbl, whereas the transport cost via tanker from Prince Rupert to refinery ports in Asia (e.g., Ulsan, South Korea and Dalian, China), is estimated to be only approximately $1.70 and $2.00/bbl, respectively. The lower transport cost to Asia versus the Gulf Coast area is attributable to shorter trip duration (30 to 37 days to Asia versus about 45 days to the Gulf Coast area), avoiding the Panama Canal toll(about $0.70/bbl), and being able to use a larger tanker because it would not be constrained by the Panama Canal (a VLCC tanker to China would have a capacity of almost 2 million bbl versus a Suezmax tanker to the Gulf Coast area with a capacity of about 884,000 bbl).

So what would happen if there was a scheme to truck bitumen and crude to Prince Rupert and ship via the Panama Canal to the Gulf?

The State Department EIS says:

 the transport of the crude oil via tankers from Prince Rupert to the Gulf Coast area refineries would not have any effects on geology, soils, groundwater, wetlands, vegetation, land use, socioeconomics, noise, or cultural resources, other than in the event of a spill.

It goes on to note:

The Gulf Coast area refineries already receive crude oil shipments via tankers from Mexico, Venezuela, and other locations; the Rail/Tanker Scenario is expected to simply displace these sources of crude oil with WCSB crude oil. Therefore, no new construction or new operational impacts are expected to occur as a result of this scenario at the Gulf Coast area refineries or surrounding habitats or communities.

In its study of a possible expanded Prince Rupert terminal that would welcome tankers, the State Department says:

The proposed Northern Gateway terminal at Kitimat, British Columbia was used as a surrogateto estimate the marine facilities needed at Prince Rupert. The Northern Gateway facility isdesigned to handle about 525,000 bpd of crude delivered by pipeline for loading on vessels to theWest Coast and Asia. In addition, it is designed to receive about 193,000 bpd of diluent (a verylight oil obtained from natural gas production) from cargoes arriving by water and discharging into storage at the terminal and moving back to Alberta via a parallel pipeline. The total volumeof about 718,000 bpd approximates the volume of WCSB heavy crude oil that would be loaded at Prince Rupert.

 

 

More Details:
Northwest Coast Energy News Special report links

What the Keystone Report says about Kitimat and Northern Gateway
What the Keystone Report says about the Kinder Morgan pipeline to Vancouver.
What the Keystone Report says about CN rail carrying crude and bitumen to Prince Rupert.
The State Department Environmental Impact Study of the railway to Prince Rupert scenario.

State Department news release

State Department Index to Supplemental Environmental Impact Study on the Keystone XL pipeline