ANALYSIS: Rail supply of brent crude offers Canada a pipeline to the future

Updated 25 November 2018
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ANALYSIS: Rail supply of brent crude offers Canada a pipeline to the future

Faisal Mrza RIYADH: Crude oil prices continued their downward fall last week, reaching their lowest level in more than a year, almost 30 percent lower than in last October. Brent crude ended the week at $58.80 per barrel and WTI fell to $50.42.
The steep slide started in early November from oversupply concerns that put bearish pressures on market sentiments. A worldwide glut is the major concern for futures, while the prompt physical market is balanced.
The real physical supply concern must be focused on the pipeline constraints that weigh on Canadian heavy crude. The Western Canadian Select (WCS) benchmark dipped to a record low last week, down to $11 per barrel, with pipeline demand far over capacity. This is the lowest since the financial crisis of 2008.
Although Canada has 10 percent of the world’s oil reserves, 95 percent of these reserves are heavy unconventional oil in the Canadian Oil Sands, located in the province of Alberta in the west.
Due to a geographical infrastructure imbalance, the capacity of the Canadian refineries, which reaches about 1.9 million barrels per day, is mostly located in the east.
In fact, the Canadians import oil to supply their eastern refineries. Therefore, Canada cannot take full benefit from its oil sands. It exports nearly all its oil production to the US at a steep discount. Due to the lack of appropriate infrastructure, the loss to the Canadian economy stands at $80 million per day.
Output from Canada’s oil sands is far beyond pipeline capacity to its US markets. Two pipeline projects that should have helped are still tied up in legal proceedings. The TransCanada Keystone XL pipeline is supposed to begin near Hardisty, Alberta, Canada and end in Steele City, Nebraska, US. It would have the capacity to deliver up to 830,000 barrels of oil per day. On Nov. 8, a US court issued an order blocking construction until an additional environmental review is conducted.
The existing Trans Mountain pipeline carries 300,000 barrels of crude and refined oil per day from Alberta to the west coast of British Columbia, Canada. Construction was supposed to begin this year on a 590,000-barrel expansion to the pipeline. However, in August 2018, on the same day that approval came for the pipeline to be sold to the Canadian government, an ongoing court battle blocked the permit for the pipeline expansion.
With pipelines over capacity, Canadian producers are moving their crude oil by rail. Crude-by-rail loadings at monitored terminals in Western Canada reached a record high monthly average of 274,000 barrels per day in October, according to Genscape Inc. data. This is more than double a year ago. The situation is dire. For the week ending Nov. 9, crude inventories at five monitored terminals in Western Canada reached 34.2 million barrels. The discount on Canadian crude is so high that some US refineries are reselling the oil outright rather than processing it.
The Canadian government is working on a deal to buy trains to move an additional 120,000 to 140,000 barrels of crude per day. Shipping crude by rail has its detractors, however. Opponents of the practice call the transportation method “bomb trains,” and claim that spills and deaths are inevitable when crude-by-rail shipments increase. As oil takes over the railways, overall shipping costs go up as capacity is strained. Pressure builds on the rail network, resulting in shipping delays for other goods. And Canadian production will continue to rise. Imperial Oil will move forward with construction of its $2 billion Aspen project in northern Alberta. The 75,000 barrel per day project is expected to begin producing in 2022.
The oil industry had hoped that well-maintained pipelines would last forever. A major spill from the Enbridge pipeline in 2010 showed that even with excellent maintenance and surveillance, it is difficult to keep pipelines running incident free. More than 40 percent of US oil pipelines were built in the 1950s and 1960s. In Alberta, at least 40 percent of the pipeline network was built before 1990.
Corrosion is a major issue. Pipeline companies fight rust corrosion through the use of coatings and cathodic protection. But with time, all coatings fail, and the level of expenditure increases for inspection and maintenance to keep pipelines intact. When downtime on the pipelines is required for maintenance, this disrupts crude oil flows.
For now, Canada will move forward with the expansion of crude oil rail shipments. A study from Carnegie Mellon University found that the environmental and health costs of transporting oil by rail are double the cost by pipeline. But with Alberta desperate to relieve the pressure on oil storage in the province, it is certain that for the foreseeable future rail shipments of Canadian crude are the only option.

Faisal Mrza is an energy and oil marketing consultant. He was formerly with OPEC and Saudi Aramco. He is the president of #Faisal_Mrza Consulting. Twitter: @faisalmrza


To fight off unemployment, Iraqi youth plant start-up seeds

Updated 50 min 21 sec ago
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To fight off unemployment, Iraqi youth plant start-up seeds

  • Iraqi entrepreneurs are taking on staggering unemployment by establishing their own start-ups
  • Under current legislation, private sector employees are not offered the same labor protections or social benefits as those in the public sector

BAGHDAD: Stuck between an endless waitlist for a government job and a frail private sector, Iraqi entrepreneurs are taking on staggering unemployment by establishing their own start-ups.
The first murmurs of this creative spirit were felt in 2013, but the Daesh group’s sweep across a third of the country the following year put many projects on hold.
Now, with Daesh defeated, co-working spaces and incubators are flourishing in a country whose unemployment rate hovers around 10 percent but whose public sector is too bloated to hire.
Many self-starters begin their journey at an aptly named glass building in central Baghdad: The Station.
There, they sip on coffee, peruse floor-to-ceiling bookshelves for ideas and grab a seat at clusters of desks where other stylish Iraqis click away at their laptops.
“We’re trying to create a new generation with a different state of mind,” said executive director Haidar Hamzoz.
“We want to tell youth that they can start their own project, achieve their dreams and not just be happy in a government job they didn’t even want,” he said.
Youth make up around 60 percent of Iraq’s nearly 40 million people.
After graduating from university, many spend years waiting to be appointed to a job in the government, Iraq’s biggest employer.
Four out of five jobs created in Iraq in recent years are in the public sector, according to the World Bank.
And in its 2019 budget, the government proposed $52 billion in salaries, pensions, and social security for its workers — a 15 percent jump from 2018 and more than half the total budget.
But with graduates entering the workforce faster than jobs are created, many still wait indefinitely for work.
Among youth, 17 percent of men and a whopping 27 percent of women are unemployed, the World Bank says.
When Daesh declared Mosul its seat of power in Iraq back in 2014, resident Saleh Mahmud was forced to shutter the city’s incubator for would-be entrepreneurs.
With Mosul now cautiously rebuilding after the militants were ousted in 2017, Mahmud is back in business.
“Around 600-700 youth have already passed by Mosul Space” to attend a seminar or seek out resources as they start their own ventures, said the 23-year-old.
He was inspired after watching fellow Mosul University graduates hopelessly “try to hunt down a connection to get a job in the public sphere.”
“A university education isn’t something that gets you a fulfilling job,” he said.
Another start-up, Dakkakena, is capitalizing on Mosul’s rebuilding spirit, too.
The online shopping service delivers a lorry-full of home goods every day to at least a dozen families refurnishing after the war.
“On the web, we can sell things for cheaper than stores because we have fewer costs, like no showrooms,” said founder Yussef Al-Noaime, 27.
Noaime fled Daesh to the Netherlands, where he was introduced to e-commerce. When he returned home, the computer engineer partnered with another local to found their venture.
A similar service, Miswag, was set-up in the capital Baghdad in 2014 and last year reported hundreds of thousands of dollars in profits.
On an autumn day, some 70 young Iraqi innovators converged for a three-day workshop in Baghdad on founding start-ups.
They flitted among round tables planning projects, their Arabic conversations sprinkled with English terms.
“What we’re doing is showing youth what entrepreneurship is — not necessarily so they succeed, but so they at least try,” said organizer Ibrahim Al-Zarari.
He said attendees should understand two things: first, that the public sector is saturated. And second, that oil isn’t the only resource on which Iraq — OPEC’s second-largest producer — should capitalize.
More than 65 percent of Iraq’s GDP and nearly 90 percent of state revenues hail from the oil sector. Many youths turn to it for work, but it only employs one percent of the workforce.
Widespread corruption and bureaucracy also weaken Iraq’s appeal for private investors. The World Bank ranks it 168th out of 190 for states with a good business environment.
Under current legislation, private sector employees are not offered the same labor protections or social benefits as those in the public sector.
And Iraq’s stuttering banking industry appears too cautious to dive in, said Tamara Raad, 26, who researches start-ups.
“The banks have a role to play. They must make loans without interest and help young entrepreneurs,” she said.
Banks or no banks, Mahmud in Mosul is already planning how he’ll grow his business in 2019.
“We will open a new, larger space for new gatherings,” he said excitedly, to bring together returning designers, developers and other inventors.