Challenging the Myths -...
Transcript of Challenging the Myths -...
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Pipeline On Rail
Challenging the Myths
Randy Meyer VP Corporate Development & Logistics Canadian Heavy Oil Conference, Calgary, AB November 4, 2014
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Transportation History
• 1863: First oil moved with horses and rail cars
• 1867: First Pipeline built
• 1869-1878: Rockefeller’s Standard Oil creates Union Tank Car (UTLX)
• Rockefeller controlled 80% of transportation by pipe and rail
• 1879: Independent oilmen built first trunk pipeline “Tidewater”
• 1906: Hepburn Act made interstate pipelines common carriers
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Rail Lost to Pipe
• Rail technology fell behind
– Tank cars were small ~ 100bbls
– Steam locomotives still in use until the 1960s
– Train lengths were short
• Rail was inefficient and highly labour intensive
– CN in the 1970’s had over 70,000 employees
– Railways were going broke at an alarming rate
• Pipelines were much cheaper
• Pipeline technology was advancing
• Rail could not compete in the oil transportation business
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THE CHANGING FACE OF RAIL
New Paradigm
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Reorganization & Performance Execution
• US Staggers Act of 1980 and Canada NTA 1987 and CTA 1995 Deregulated Rail Industry in North America
• Rationalization of the rail industry occurred
• Railways have become far more competitive
• Operating ratios down from the 90’s to mid 60’s
• Massive increases in productivity and profitability
Paul Tellier Lead CN’s Privatization in 1995
Hunter Harrison Revolutionized Railway Execution
Changing Face of the Rail Industry
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Information Technology
• Railways invested Billions in IT infrastructure
• Railways created EDI
• Preceded the internet in developing direct customer access
• Reduced Labour costs by about 30%
• Massive increases in employee productivity
Changing Face of the Rail Industry
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Rail Technology
• Powerful fuel efficient engines
• Distributed Power
• Train lengths to 12,000ft
• Track Weights to 286K lbs
• Robotic yard engines
• End of train units
• Reduced labour costs by about 30%
• Capacity to move massive volumes
Changing Face of the Rail Industry
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Rail Car Technology
• New modern designs
• Large capacity – 29,000 US gal
– 286K GWoR
• Safer – Head shields
– Valve shields
• Double hull, coiled, insulated
• Internal protective coating
Changing Face of the Rail Industry
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THE MYTHS AND THE TRUTHS The Differences
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(1) Total transportation cost of $16/bbl x 30 bbls of diluent / 70 bbls of bitumen; pipeline dilutes bitumen down from 1 barrel of pure bitumen to a 70% bitumen / 30% diluent blend (dilbit) (2) Diluent differential of $15/bbl x 30 bbls of diluent / 70 bbls of bitumen (3) Association of American Railroads average rail rate ($16.77/bbl) for 2,500 miles) + average terminal and rail lease cost ($5.64/bbl) See Altex website for more detail.
Bitumen/ Heavy Oil 100%
Large, long-term contracts
$9.50
Majority of producers
$4.50
$2.00
$6.86
$6.43
Long-Term Pipeline Toll
Interruptible Pipeline toll
Storage + Line Fill + Processing
Costs
Diluent Transportation (1)
Diluent Differential
Loss (2)
Total Pipeline Cost
$29.29
Interrupt-ible Rate
Generic Rail Cost (3)
Bitumen
$5.64 Terminal and tank car lease
costs
Dilbit by Rail Cost
The Differences
Pipeline & Rail Economics
$16.77
Diluent + Bitumen/ Heavy Oil 70%
30%
$6.43
$35.70
$6.86
Long-
Term
Rate
$24.79 $22.41
$5.64 Terminal and tank car lease
costs
$16.77
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Short term • Low capital Long term • Diluent • Production timing
Diverse • Flexible • Dispatchable Limited • Inflexible
High • Variable • Multidirectional High • Invariable • Unidirectional
Low • Millions • Majority sunk Very high • Billions • Majority new
Low entry barrier • Low market impact High entry barrier • High market impact
Low fixed, standby • High variable High fixed, standby • Low variable
Fast • USGC 8–10 days Very slow • USGC 50 days
Completely isolated Possible mixing • Specification limited
Almost limitless • Machinery, fuels, pipe Very limited • Only liquids
RAIL PIPELINE
Risk
Market access
Capacity
Capital
Scale
Cost
Speed
Segregation
Commodities
+ – BUSINESS EFFECT
Low emissions • Smaller incidents Higher GHG • Larger volume incidents Environment
Modal Comparison
The Differences
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Current Rail Shipments = Keystone XL
The Differences
Source: American Association of Railroads and Statistics Canada; assumes average rail car can transport 600 bbl/car
0
30,000
60,000
90,000
120,000
150,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2009 2010 2011 2012 2013YTD
Qua
rte
rly C
arl
oa
ds
0
200,000
400,000
600,000
800,000
1,000,000
Vo
lum
e (b
bl/d
)
US Canada bbl/d 12
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Condensate: Rail Opportunity
The Differences
• Which is the backhaul?
• Mass balance case
• Ship equal cars to load balance
• Value in condensate type
• Pool condensate unsuitable
Condensate Bitumen
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High Value Employment
Pipeline
Project Based
Few long term jobs
Short term economics
Rail
Operating based
Many long term jobs
Larger spin offs
Long term economics
The Differences
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Safety & Environment
• Pipe and rail are safe but have incidents
• Vast majority of rail incidents are smaller
• Aging pipelines versus new rail cars
• Rail has less impact on the environment
Quick Facts Rail Pipe
Leaks billion ton-miles (gal) (Source: Fraser Institute 2013)
3,504 13,707
GHG Emissions gCO2e /bbl bitumen – Kilometer (Source: CN independent study 2009)
2.9 7.7
The Differences
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Safety – Altex Differentiation
• Industry Leaders • Vapour Recovery • Flash Testing • H2S Testing • Safety Personnel • Safety Procedures • Training • 3rd Party Audits • Intranet site
The Differences
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Safety – On Site Lab
• Major component of our safety systems
• Every site equipped
• All trucks are sampled
The Altex Differences
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Safety – Flash Point
• Ensures proper shipment
placarding • Ensures rail cars meet spec • Low flash can cause
catastrophic tank failures • Meets new CTA Protective
Direction 31
The Altex Differences
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Safety – H2S Testing
• H2S is a deadly gas • Reject high H2S
truckloads • Ensures proper
placarding • Ensures community
safety along pipeline • Causes local trucking to
be safer • Reduces SO2 if VOCs
incinerated
The Altex Differences
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Safety – Unloading/Loading
• Computerized systems • Safety protocols • Prevent railcar overfilling • Prevents tank overfilling • Ensures truck and railcar
grounding • Mechanical failure
shutdown
The Altex Differences
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• Method depends on site • Direct truck to rail
• Closed loop • Tank to railcar
• Incineration • Scrubber
The Altex Differences
Environment - Vapour Capture
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Rail is Here to Stay
Conclusion
• Rail has become very efficient
• Rail technology has greatly improved
• Rail is economic for heavy oil
• Rail can be economic for condensate
• Rail is necessary part of portfolio
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Randy Meyer
Vice President, Corporate Development
1100, 700 – 9 Ave SW Calgary, AB T2P 3V4
Thank You www.altex-energy.com