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

Updated 25 November 2018

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


‘Dubai will be my new Beirut,’ say grieving Lebanese workers

Updated 30 min 33 sec ago

‘Dubai will be my new Beirut,’ say grieving Lebanese workers

  • About 350,000 Lebanese now live and work in the six Gulf nations

DUBAI: Just days after the enormous blast that shattered Beirut, Ali Hammoud found himself looking down on the rubble from an airplane window, leaving behind his family and hometown.

Born and raised in Lebanon’s capital, the 30-year-old IT engineer finally decided to head for Dubai after the explosion destroyed his last hopes of ever seeing Beirut prosper.

“It’s not easy at all, but I had to finally leave. I feel I’ve betrayed the city I love to death, but there is nothing left for me there except depression,” Hammoud said after arriving in the Gulf emirate.

“Now I can start a professional career, live in peace and send money back to my family,” said Hammoud, who had spent a year looking in vain for work before the Aug. 4 disaster that left more than 170 people dead and compounded Lebanon’s financial crisis.

Like many of his compatriots longing for safety and stability, the young man has applied for a job in Dubai. He joins tens of thousands of Lebanese who helped build a glitzy city that reminds them of their parents’ tales of the glamor of old Beirut — but with glimmering skyscrapers instead of Ottoman-era and French colonial villas.

Last week’s explosion of a long-neglected stock of ammonium nitrate at Beirut’s port ripped through the vibrant coastal city known for its rich history as well as legendary nightlife and cuisine.

The fact that Lebanese officials had long tolerated a ticking time-bomb in the heart of the Mediterranean city has served as proof to many of the rot at the core of the state apparatus.

“My aim is to overcome the guilt of leaving,” said Hammoud. “Dubai will be my new Beirut.”

Long before the explosion, Lebanon was heading downhill fast. The country was mired in its worst economic crisis since the 1975-1990 civil war, with runaway inflation and bank capital controls fueling angry street protests.

Political life in the country has been dominated for three decades by former warlords who exchanged their military fatigues for suits.

Among Sunni Muslim, Christian and myriad other groups, the most powerful force is the Shiite Hezbollah movement.

After years of systematic corruption, unsolved assassination cases, wars with neighboring Israel, and lack of basic services, many Lebanese now see the country’s elite as fighting over the spoils. They are viewed as beholden to their personal and sectarian interests, rather than the good of the nation of 6 million.

“I can’t explain how frustrated I am. I had to leave my country years ago because of those warlords. They stole from us and now they kill us?” said Firas Rachid, a 31-year-old salesman who has lived in Dubai since 2016.

Beirut, once famous for top educational and medical establishments, has lost much of its pre-civil war identity and its reputation as an oasis of enlightenment.

Millions of Lebanese, from doctors to engineers, to teachers and other professions, have emigrated over the years, seeking a better life in the Gulf and beyond.

About 350,000 Lebanese now live and work in the six Gulf nations, more than 100,000 of them in the United Arab Emirates alone, mostly in Dubai.

“Why Dubai? We drive in lanes here, we don’t fear militiamen holding guns to our heads, we have basic services, and we get paid well,” said Rachid. “My parents always describe Beirut as a hub for the region in the ‘60s and ‘70s, but this is exactly what Dubai is now.”

In his book “My Story,” Dubai’s ruler Sheikh Mohammed Bin Rashid Al Maktoum recalls his first visit to Beirut, years before the civil war that brought the “Paris of the Middle East” to its knees.

“In the early 1960s, its streets were clean, neighborhoods beautiful, its markets modern. It was a source of inspiration for me. I had a dream for Dubai to become like Beirut some day,” he wrote.

Decades later, Dubai has become a magnet for millions of Arabs whose countries have been ravaged by poverty and conflict.

Jordanians, Palestinians, Moroccans and others have opted to build their future in the desert city.

It does not have the history or cultural heritage of their homelands, but for many it is a fair tradeoff for peace and financial security.

At a basketball game in Dubai last year between two Lebanese clubs with different sectarian ties, there was no violence, no sectarian chants, only the slogan: “Three, two one! We are one!“