Derrick Digest for Sept. 8, 2017: Feds stand by approval of Trans Mountain pipeline expansion

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'It's a good decision for Canada,' Carr says

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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SEPT. 8, 2017


As protesters escalate their fight against the expansion of the Kinder Morgan Trans Mountain pipeline, the federal government is standing by its approval of the $7.4-billion project that will carry crude oil from the Edmonton area to Burnaby, B.C.

Kinder Morgan has to meet 157 conditions imposed by the National Energy Board, but appeasing British Columbia Premier John Horgan isn’t one of them. The province’s NDP government recently won intervener status in a Federal Court of Appeal case by some First Nations along the pipeline’s route.

“The message [to Horgan] is that this is a federally approved pipeline that we believe is in the national interest. Those are the reasons we took the decision in the first place, and nothing that's happened since then has changed our mind that this is a good decision for Canada,” said Natural Resources Minister Jim Carr at the Liberal caucus retreat in Kelowna, B.C. on Wednesday.

“The decision was made with all of the facts, with all the scientific evidence, with all of the input, and we believe we made it for the right reasons and we stand by the decision.”

On Thursday, First Nations protesters announced they would take a page from the Dakota Access pipeline protests and build tiny houses in the path of the Trans Mountain expansion route. The Canadian Press reports that “members of the Secwepemc Nation and Greenpeace gathered at a site near Chase, B.C., on Thursday to build the first of 10 tiny homes that they say will be moved to Secwepemc traditional territory near Kamloops to block pipeline construction.” Fifty-one First Nations have signed mutual benefit agreements with Trans Mountain, including some bands that are part of the broader Secwepemc Nation.

In a statement, Trans Mountain said it supports the right of demonstrators to peacefully express their views.

“When it comes to our operating and construction sites, safety is our first priority — safety of our workers, communities and everyone near our worksites. And to that end, we will make every effort to ensure we can carry out our work safely,” it said.

Hearings to finalize the pipeline’s route will start in Alberta in November, before moving on to B.C. in 2018. The twinning of the pipeline will increase shipping capacity from 300,000 barrels a day to 890,000. The company announced this week that is has selected or signed memorandums of understanding with six contractors in anticipation of planned construction activities this month. “The pipeline construction and associated terminal expansions are expected to take approximately 28 months to complete, with the work distributed among several spreads, or sections, along the route between Edmonton, Alberta and Burnaby, B.C., the company said in a press release.

On Aug. 30, the NEB gave Trans Mountain the go-ahead to expand its Burnaby terminal, allowing three tankers to load, up from the current one, as well as increase the number of delivery lines.


Bitumen balls may revolutionize oil transport

A Calgary engineer thinks his discovery will revolutionize the way the oilsands gets its product to market.

Ian Gates, a professor at the University of Calgary, was trying to upgrade bitumen. Instead, he and his team degraded it, resulting in a self-sealing pellet that has a liquid centre surrounded by a sturdy skin.

"We've taken heavy oil, or bitumen, either one, and we've discovered a process to convert them rapidly and reproducibly into pellets," Gates told CBC News. "With this, we can put it in a standard rail car. It can go to any port where a rail car goes, which is an immense number of them, to get product out from North America."

Headlines to the contrary, Gates doesn’t think his invention will lead to the demise of pipelines. Rather, he sees it as a complimentary technology. The group has advanced the process to the point where it can be carried out at the wellhead, using roughly the same amount of energy it would take to add diluent to liquefy bitumen for shipping in pipelines.

And once the pellets have reached their destination, they are returned to their original form of bitumen by mixing them with a light oil that is produced in the initial transformation. The product can then be upgraded as usual.

“So, you'd have to transport the light oil with the solids if you want to reconstitute the heavy oil,” Gates said.

The U of C’s Innovate Calgary, a technology and business incubation centre, supported Gates’s research and push to evolve it into a commercially viable venture. The process has been patented and will soon be used in pilot-scale production.

“Through our energy technology incubator, we were able to not only protect technology through intellectual property management, but connect with potential industry partners and customers who might help advance the technology to a field trial, and ultimately, a full-scale solution,” says Stace Wills, vice-president of energy at Innovate Calgary.

Those initial bitumen balls will likely end up on roads, not rails. Gates says they are just the thing for road paving, just as they are.

“Folks are building roads all over this planet, and heavy oil and bitumen as a feedstock material for asphalt is better than conventional oil,” Gates says. “Our reliance has been on the idea of turning our oil into transportation fuels, and we need to refocus that. There’s a huge economic bonus to be had by Alberta, but it requires research and investment.”


Harvey reveals Mexico's dependence on U.S. natural gas

While the recovery from the crushing blow of Hurricane Harvey is now underway, the natural disaster has laid bare how dependent Mexico has become on natural gas imported from the U.S.

The storm caused the shutdown of cross-border gas pipelines and tankers couldn’t take on fuel. Imports dropped 16% in one day alone. Mexico’s state-owned petroleum company asked consumers to use 10% less gas to make up for the shortfall, according to a report by Bloomberg.

About 8.1% of natural gas output in the Gulf of Mexico was still offline as of Monday, reports Platts. Fourteen production platforms were still evacuated at that time. “The Bureau of Safety and Environmental Enforcement reported that, based on data from operator reports submitted as of 11:30 am local time, about 259.2 MMcf/d of Gulf gas production of 3.2 Bcf/d was shut in,” the update read.

Since its state-owned energy monopoly was ended four years ago, America’s southern neighbour has been boosting its dwindling gas production with shipments from the U.S.

“Mexico has become more dependent on U.S. natural gas as they now rely on the U.S. for more than half of their supply,” up from 25 percent in 2014, Jacob Fericy, analyst at Bloomberg New Energy Finance, said. 

Mexico’s demand for LNG is expected to grow by 20% by 2030. The country has plans to expand its energy infrastructure by 75% to keep up with that growth.


Cenovus tackles its debt with Pelican Lake deal

It’s a start, but Cenovus Energy still has a way to go to reach its divestiture target.

On Tuesday, the company announced it was selling its Pelican Lake heavy oil property to Canadian Natural Resources Ltd. for $975 million. The deal includes “other miscellaneous assets in norther Alberta” which produce 19,600 barrels of oil per day along with the Pelican Lake field.

The nearly $1-billion sale price will go towards Cenovus’s debt, which ballooned after the company acquired ConocoPhillips’ oilsands and Canadian natural gas assets in a $17.7-billion deal. The company used a $3.6-billion bridge loan to finance the acquisition.

Expect other properties to be labelled sold as Cenovus tries to hit its target of $4 billion to $5 billion in asset sales. The company’s Suffield, Palliser and Weyburn properties are on the block, with a Cenovus spokesperson saying that there’s interest in the latter two while the sales process on the Suffield shallow-gas assets is moving along.

Raymond James analyst Chris Cox doesn’t think Cenovus will hit its sales target.

“Given the relatively lower quality for the remaining packages, we continue to remain skeptical that the company can hit the mid-point of its $4-5 billion range, with our base forecasts expecting $3.8 billion of proceeds,” Cox said in a research note.