Infrastructure: More pipe needed

Much advancement over the years

The province's pipeline construction sector in general, and the large-diameter pipe part of the business, in particular, got a booster shot of optimism with the news in May that TransCanada Corp. had submitted a new application for the Keystone XL project to the U.S. Department of State.


TransCanada's new application seems virtually certain to get the necessary U.S. approvals, some observers say.

"The Keystone will go-as early as a year from now," says Wes Waschuk, president of Waschuk Pipeline Construction Ltd. "All the pipe is ready and stockpiled at sites for the Canadian section. It's bought [and] costed. It's at sites along the right-of-way."

Currently, in Alberta, the level of activity in the pipeline construction sector varies-depending on the region and whether it's mostly oil or mostly gas. If it's oil, at around $90 per barrel, it's busy; but with natural gas prices close to record lows, not so much.

For the large-diameter pipe sector, 2012 so far has been slower than expected, but an upswing in activity appears likely for 2013 because of continued oilsands growth.

"A lot of projects are on the table for 2013," Waschuk says. "The projects are almost all oil. Just about all the big pipeline operators have projects on the books for the next 12 months. There's a significant number of pipe projects [coming] from the Fort McMurray region. That's 90 per cent of the driver of [new] large-diameter pipe in the country."

He expects that most of the new large pipeline projects between now and 2015 will be built to accommodate increased oil shipping capacity requirements.

The Canadian Association of Petroleum Producers (CAPP), in its latest Crude Oil Forecast and Market Outlook released in June, points to factors in addition to oilsands development that could drive some of the new pipeline construction in the next few years.

"Growing conventional, oil shale and oilsands production has created an urgent need for additional transportation infrastructure. Steps are being taken to address this need through a number of project proposals including new pipelines, expansions or modifications of existing infrastructure and increased transportation by rail," states the CAPP forecast.

In the short term, it says, increased reliance on rail transport to ship crude will be necessary until new pipeline capacity is in place.

The oilsands is not the only game-changing development in the continent's oil industry that is creating a need for new pipelines and other infrastructure. Shale oil development is still in its infancy in Canada, but in the United States it is re-drawing the country's energy picture dramatically. For instance, less than a decade ago, shale oil production from the Bakken formation in North Dakota and the Texas Eagle Ford was negligible. Now, energy analysts are saying that production from the two regions will likely total around 2.5 million barrels per day by 2015. (That's around three per cent of current global oil daily production.) In Alberta, these technologies are giving new life to some old fields-and boosting the need for more pipe.


EXCEEDING EXPECTATIONS

As the CAPP forecast says, "Higher than expected production from Alberta and Saskatchewan conventional oil developments; the growth in North Dakota Bakken production, and new U.S. shale (Niobrara, Eagle Ford, etc.) production have added to the challenges to be resolved regarding the transportation of growing oilsands production."

The forecast says that oilsands production will rise from 1.61 million barrels per day in 2011 to 2.3 million barrels per day by 2015 with conventional production going from 1.13 million to 1.33 million barrels per day, bringing the total from 2.74 million in 2011 to 3.63 million barrels per day from western Canada by 2015. A CAPP analysis concludes that more pipeline capacity is required by 2014.

Besides Keystone, the two other most prominent oil pipeline proposals are for Enbridge Inc.'s Northern Gateway, which would ship oilsands crude from Bruderheim, Alta., to Kitimat, B.C., (500,00-plus barrels per day) and the Kinder Morgan expansion. The latter involves another pipe for additional capacity of up to 450,000 barrels per day on an existing right-of-way along which 300,000 barrels are currently shipped from Edmonton to Vancouver. Assuming environmental reviews and other permitting hurdles are cleared, both pipelines would likely be in operation by 2017, according to CAPP.

The Kinder Morgan expansion appears likely to go ahead. Gateway is another matter, as it appears to have the potential for sparking as much or even more controversy than there has yet been around the oilsands.

Other major pipeline projects include a proposed capacity expansion of Enbridge's Athabasca line to accommodate requirements of the Christina Lake oilsands project operated by Cenovus Energy Inc. The lion's share of the work on this, for which an application was filed in May, involves replacing pumps and boosting motor horsepower on existing stations and adding four new pump stations. The Athabasca Pipeline transports crude from various oilsands plants to the main terminal at Hardisty.

Some of the projects in the works are for shipping natural gas liquids, which are used for diluent when oilsands crude that has not been upgraded is sent down the pipe. Pembina Pipeline Corporation is developing a $200-million natural gas liquids¬-extraction facility in the Berland area, about 60 kilometres south of Fox Creek, Alta.

"Subject to regulatory and environmental approval, Pembina expects the Saturn facility and associated pipelines to be in service in the fourth quarter of 2013," said Jason Fydirchuk, a spokesman for Pembina, in an email.

The company is developing a similar project, known as the Resthaven facility, in west-central Alberta, which will pipe natural gas liquids to Edmonton. Plant site construction has begun, and, subject to provincial regulatory approvals, the company expects the $230-million facility and pipeline to be in service by the end of 2013.

Another oilsands-related pipeline will begin shipping up to 972 million cubic feet per day of natural gas by spring 2013 provided a TransCanada/Nova Gas Transmission Ltd. project meets the 22 conditions set out by the National Energy Board in late June. The Leismer to Kettle River Crossover project will ship the gas along a 77-kilometre pipe through sensitive caribou habitat to fuel thermal oil sands projects in the Kirby area near Cold Lake, Alta. The new line will replace older, smaller-diameter pipe.


UNDER SCRUTINY

Many of these, and other pipeline projects, are increasingly under the microscope amidst concerns about a spate of pipeline leaks and spills in Alberta. Also, the recent comparison by a senior U.S. regulator of Enbridge's handling of the spill in Michigan two years ago when 840,000 gallons of heavy crude spilled into the Kalamazoo River to the ‘Keystone Kops' was perhaps not reassuring. Another Enbridge pipeline spill, in Wisconsin, on July 27 this year, although smaller, could hardly have helped the company's image, either.

A coalition of 17 landowner and environmental groups launched a campaign in June calling on the province to begin a review of the way aging oil and gas pipelines are being managed and regulated, especially ones crossing rivers. In the five weeks prior, three oil spills had occurred in Alberta, including a break in a Plains Midstream line that poured about 450,000 litres of oil into the Red Deer River.

The energy minister and the Energy Resources Conservation Board (ERCB) responded by apparently defending industry, with an ERCB spokesman saying to a Calgary Herald reporter, "It's not like companies are actively trying to sidestep regulation." The premier was more conciliatory toward the coalition, hinting there could be a review.

Barely a month later, it was industry's turn to step up to the plate for the province.

"The Canadian Energy Pipeline Association (CEPA) strongly supports the announcement made by Alberta's minister of energy this morning regarding a comprehensive review of pipeline integrity programs, watercourse crossings and emergency-response plans," declared a July 20 CEPA new release.

Earlier that day, Alberta's Energy Minister Ken Hughes announced that an independent agency would begin a review of pipeline safety in the province.

Pipeline operators like Pembina point to various measures in place, but, in recent years, there have been no significant new rules for pipeline safety in the province. In his email, Pembina's Fydirchuk pointed to pipeline integrity monitoring and other safety systems in place, but said he was unable to provide specifics on what he described as "technical safety procedures."

The Canadian Standards Association (CSA) sets engineering and design criteria for pipelines in Canada. The CSA recently moved from a stress-based to a strain-based design approach for pipelines. But a challenge that pipeline operators face is ambiguity in the data-a factor that some believe had a role in Enbridge's Michigan debacle two years ago. "Monitoring can now use data that includes the ductility factor, not just its psi rating and strength," says Iain Weir-Jones, president of Weir-Jones Engineering Consultants Ltd.

In general, a wider range of data points, which includes hoop strain, product flow and pressure, he says, can remove some of the ambiguity, provided the monitoring of these potentially vital pieces of information is properly coordinated.



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