Derrick Digest for Aug. 25, 2017: Dakota Access Pipeline reduces region's dependence on rail

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Completion adds competition to shipping options

The Derrick Digest is a weekly collection of curated content, based on events from across the oil and gas industry, that caught our eye at Pennine Petroleum Corporation.

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AUGUST 25, 2017

 

Now that the Dakota Access Pipeline is complete, producers in the Bakken are breathing a sigh of relief . . . and seeing higher returns.

Since oil production rocketed in 2009, producers have had to rely on rail to get their product to market. Before DAP was brought on line in June, about 25% of the oil shipped out of North Dakota travelled by rail; since its completion, that figure has fallen to 7%. That brings overall costs to the level of other U.S. shale producers in Texas and New Mexico.

“It’s going to be a pretty powerful advantage that we haven’t had for the past six or seven years,” Enerplus Corp.’s Ian Dundas told the Financial Post.

At one point, almost half of the Bakken’s 1.2 million bpd total production was travelling by rail car. While it costs about $10-$14 US per barrel to ship by rail, the DAP rate is approximately $5-$6 US.

“Oil-by-rail as a concept is unique. It’s really quite inefficient, but it has definitely served a role during more robust oil prices, where you are able to layer on that extra cost. And that is what propelled all of this extra growth in North Dakota,” Dundas said.

In related news, a lawsuit was launched in a North Dakota court earlier this week alleging that in the protests surrounding DAP, Greenpeace International “cynically planted radical, violent eco-terrorists on the ground amongst the protesters, and directly funded their operations and publicly urged their supporters to do the same.” The suit against Greenpeace International, Earth First! and other groups was filed on behalf of Energy Transfer Partners LP by Kasowitz Benson Torres LLP, a New York-based law firm.

“Under the ‘Greenpeace Model,’ raising money and the network’s profile is the primary objective, not saving the environment,” Energy Transfer said. “ ‘Issues’ are selected according to which ones will generate maximum publicity and donations, irrespective of the environmental merits.”

The suit isn’t about the protest, according to Greenpeace USA, which was also named in the suit. Rather, it’s about silencing future actions, the organization claims. Kasowitz Benson Torres LLP’s lawyers are “corporate mercenaries willing to abuse the legal system to silence legitimate advocacy work,” according Tom Wetterer, general counsel for Greenpeace USA.

 

When will Mexico start to frack for natural gas?

While operators have fracked nearly two million commercial wells in the United States, Mexico has only carried out the procedure on a few test wells.

And although the country has been shifting away from fuel oil- and diesel-fired electricity toward natural-gas — which currently fuels nearly 60% of its power generation —  Mexico’s domestic production has been on the decline.

According to the U.S. Energy Information Administration’s (EIA) estimate, Mexico has nearly 550 trillion cubic feet of recoverable gas. So what’s standing in the way? Key obstacles facing the industry, according to a story on Forbes.com, include:

  • A lack of knowledge on unconventional resource geology
  • Higher costs
  • A smaller service industry
  • Water shortages
  • A lack of pipelines
  • Security challenges

But increasing production is critical to Mexico’s energy security. There’s potential in the portion of the Eagle Ford and potentially even the Permian Basin plays that lie in Mexico. Currently, Mexico imports 60% of its LNG from the U.S., taking on 23% of that country’s exported LNG. The EIA forecasts that Mexico’s gas production will take off starting in 2025.

The 2013 Energy Reforms made it more palatable for foreign investors to put their money into Mexico’s energy sector, but the spectre of energy nationalist Andrés Manuel López Obrador is reason for caution. Obrador is doing well in early polling for the 2018 presidential election. One of his platform points is to hold public consultations on those very energy reforms.  

But there is also the possibility that a renegotiated NAFTA agreement could lock the reforms in place, free from political control.

“One could rewrite NAFTA to put a firmer foundation in place to keep those markets open,” said Alan Krupnick, a senior fellow at the RFF Center for Energy and Climate Economics in Washington, D.C.

 

Panel offers fresh take on Supreme Court ruling

The recent Supreme Court of Canada ruling on the Chippewa of the Thames First Nation versus Enbridge was subject of at a panel discussion hosted by the University of Calgary’s School of Public Policy on Monday.

Writes Deborah Yedlin of the Calgary Herald: “The Chippewas decision clearly stated the “. . . duty to consult does not provide Indigenous groups with a ‘veto’ over final Crown decisions,” and that the interests of Indigenous groups need to be balanced against the greater societal good. While some might be inclined to view this as negative, the fact a veto cannot be used means the only other alternative is to come to an agreement by negotiating in good faith.”

And, that is how Norinne Saddleback, a panel participant, interprets the ruling.

“The veto is not a veto. The veto is saying the door is open, let’s walk through together . . . so that we understand and advocate for the same rights, use and benefits for a better tomorrow for our children,” said Norinne Saddleback.

Saddleback is the consultation lead from the Louis Bull First Nation and a member of the Indigenous Monitoring Committee for the Trans Mountain Expansion project.

Yedlin writes: “Moreover, reaching an agreement between the Indigenous communities, the government and project proponents, leaves out the environmentalists — who are often looking to leverage their interests in the guise of protecting those of the First Nations, but are in fact looking to fund their business plans.”

Panelist Gerry Chipeur, a partner with the law firm of Miller Thompson, said that

“Make a deal, get an agreement . . . and then you can exclude some of those environmental groups from Washington, D.C., who have never been here, don’t know anything (about) what they are talking about, but sometimes find a voice through someone who does represent a First Nation,” Chipeur said.

But it’s too soon in the process, according to Saddleback, to say this heralds the beginning of a new chapter in resource and infrastructure development. She does, however, see it as providing more regulatory certainty, on both sides.

“We don’t need to always litigate. The best way is to provide certainty. Capability. And mutual benefits do those things,” said Saddleback.

Meanwhile, the National Energy Board announced Wednesday that its review of the Energy East pipeline is expanding to include upstream and downstream climate change impacts.

The shift to include greenhouse gas impacts — which industry says should be in public policy areas, not regulatory reviews — came following a request for public input that saw 700 form letters submitted out of a total of 820 responses.

“Given increasing public interest in GHG emissions, together with increasing governmental actions and commitments (including the federal government’s stated interest in assessing upstream GHG emissions associated with major pipelines), the Board is of the view that it should also consider indirect GHG emissions in its NEB Act public interest determination for each of the projects,” the NEB said in a letter to proponent TransCanada Corp.

 

Utah oilsands project produces first diluted bitumen

A biodegradable solvent extraction technology for mined oilsands production without tailings has started to pay off for US Oil Sands, although not without some setbacks.

The Calgary-based company says its PR Spring project in Utah has achieved first production of diluted bitumen, a milestone that was expected to take place by the end of June. A phased startup of the mining and extraction project was put on hold in May due to equipment failure in Phase 5 of its nine-step startup procedure.

“Since March 31, 2017 the Company has initiated operations into all areas of the PR Spring Project’s extraction plant. This process has involved the sequential introduction of water, clean solids and finally oil sand into various sections of the plant in a staged approach. The final stage involving the introduction of diluted bitumen into the distillation section was initiated this week,” US Oil Sands stated in a news release detailing its second quarter.

“The plant has been running in a batch mode allowing for the optimization of each stage. Continued tuning of the process will be required to allow final polishing of oil production to meet sales specifications.”

According to jwnenergy.com, the company “is in a financing agreement where a second $2.5-million tranche of a secured loan facility will become available upon the project producing 500 bbls/d of oil for five consecutive days.”