EAI Regions and Petroleum Administration For Defense Districts (PADD s)

Transcription

1 4.0 SUPPLY, MARKETS AND THROUGHPUT 4.1 Overview The Express Pipeline System is a batch pipeline that meets Canadian producers' and marketers' requirements for segregated transportation of a number of differing crude types from Hardisty, Alberta to U.S. markets in PADD IV and PADD II. As the number of crude grades increases, it will become increasingly important to have sufficient pipeline capacity to supply U.S. markets. There will also be increasing demands for certain streams that will help refiners meet more regions' product specifications. The geographical regions referred to in these sections are shown on Figure 4.1 below. As shown, EAI's Rocky Mountain region is equivalent to the U.S. Energy Information Administration's (U.S. EIA) PADD IV. EAI's Northern Tier, Midcontinent and Midwest regions are collectively referred to as PADD II by the U.S. EIA. Casper, Wyoming is an established crude oil transportation hub in PADD IV. The interconnection of Express with Platte Pipe Line provides Canadian crude producers with access to PADD IV and PADD II markets. Through interconnection with other pipeline systems, Platte Pipe Line can access refinery markets in Wyoming, Utah, Colorado, Kansas, Oklahoma, Minnesota and Illinois. Figure 4.1 EAI Regions and Petroleum Administration For Defense Districts (PADD s) Pacific Northwest PADD IV Rocky Mountain Northern Tier PADD II Northeast Midwest Pacific Southwest Midcontinent Southeast PADD I PADD V also includes AK and HI Gulf Coast PADD III Note: AL, MS, TN in EAI Southeast Region Copyright Copyright : EAI, : EAI, Inc., Inc.,

2 4.2 Canadian Crude Oil Supply and Disposition Total WCSB crude oil and synthetic crude production was approximately m 3 /d (2,041 MBPD) in 2002 with m 3 /d (478 millions of barrels per day ("MBPD")) being refined locally (Alberta and Saskatchewan refineries), m 3 /d (107 MBPD) being shipped west into British Columbia and Puget Sound, and m 3 /d (1,456 MBPD) being delivered to Rocky Mountain, U.S. Central Corridor (USCC) and Canadian markets. Rocky Mountain refiners consumed m 3 /d (203 MBPD) of these exports. Demand in eastern Canada for WCSB crude was m 3 /d (364 MBPD) in 2002 and the USCC consumed the remaining m 3 /d (889 MBPD). Canadian demand and pipeline movements is estimated at m 3 /d (218 MBPD) of synthetic crude, out of a total m 3 /d (435 MBPD) synthetic crude supply, excluding NewGrade. The remaining m 3 /d (217 MBPD) was delivered to U.S. markets via Enbridge and Express during 2002 with a small volume of synthetic delivered by TransMountain to the U.S. West Coast. This represents a transition point in synthetic crude movement during startup of the Shell Scotford upgrader and the corresponding conversion at the Shell refinery in Edmonton to bitumen feedstock. The upgrader started producing synthetic crude in April 2003 and is rapidly ramping up to the plant's m 3 /d (150 MBPD) target throughput. Light crude liberated by the conversion is being routed to the Rocky Mountain, West Coast and USCC markets Development of the Forecast for Western Canadian Crude Oil Production To produce an overall crude supply outlook, EAI used field level production data for conventional crude and a combination of publicly available reserve estimates and announced or active project development plans to estimate future bitumen supply. The Alberta Energy and Utilities Board (AEUB) and National Energy Board (NEB) statistical data report in-situ bitumen production as "bitumen" or "oil sands" and post upgrader (shipped) volume as synthetic regardless of downstream grade. EAI tracks production of bitumen and then converts the blended product to heavy sour (bitumen blend) or synthetic crude, as appropriate for use in pipeline transfers. For this section, EAI refers to "raw" or "produced bitumen" when describing material at the bitumen extraction site. All other references to bitumen, particularly when describing pipeline and refinery volumes, should be considered the shipped blend (bitumen plus blending material such as diluent). Approximately 40 key bitumen and synthetic crude expansion projects are proposed for development in the near future. Because of the overwhelming volume of crude attributable to these projects, and the impact that excess supply would have on the heavy crude oil market, EAI believes that some of the announced in-situ projects may not be economically viable. Ultimately, the increases in bitumen production, plus fairly stable production of heavy crude, saturate the Canadian and U.S. export market. Therefore, EAI has preferentially advanced the integrated bitumen-to-synthetic crude project schedules when developing its forecast. 4-2

3 4.2.2 Crude Oil Pools and Established Reserves Remaining reserve estimates of Canadian conventional and bitumen resources, as shown in Table 4.1, have been taken from the NEB Annual Report to Parliament The NEB estimate for bitumen resources has increased fourfold since 1998 due to the recognition of in-situ reserves in Prior to 1999, only active bitumen development was considered in the NEB estimates. Table 4.1 NEB Reserve Estimates of Canadian Conventional and Bitumen Resources From the National Energy Board (NEB) Annual Report to Parliament 2002 Conventional Crude Oil Thousand Cubic Meters Thousand Barrels British Columbia 25, ,395 Alberta 278,400 1,751,136 Saskatchewan 182,000 1,144,780 Manitoba 3,800 23,902 Ontario 1,900 11,951 Mainland Territories 10,400 65,416 Total Conventional Crude Oil 502,000 3,157,580 FRONTIER AREAS Mackenzie Beaufort 53, ,345 East Coast Offshore 178,300 1,121,507 Total Frontier Areas 232,250 1,460,853 BITUMEN Oil Sands Upgraded Crude 5,195,000 32,958,000 Oil Sands - Bitumen 22,575, ,212,000 Total Bitumen 27,770, ,170,000 TOTAL REMAINING RESERVES 28,504, ,293,193 EAI's production outlook reflects the potential recovery of 13 percent of the established remaining light, medium and heavy conventional crude reserves and less than 1 percent of the established remaining bitumen reserves during the period 2000 through Forecast of Western Canadian Crude Oil Production The future trend for WCSB production (as shown in Figure 4.2) is for a rapid increase of bitumen and synthetic crude and a continued decrease in conventional crude production. Light and medium crude production declined at a rate of 8 to 9 percent per year from 1997 to 1999, and the rate of decline has stabilized at 4 to 5 percent per year since then. Light and medium crude production is forecast to decline from m 3 /d (562 MBPD) in 2002 to m 3 /d (528 MBPD) by The decline is distributed across the mature field areas of central and southern Alberta, however, EAI anticipates localized increases in light and medium crude production. Conventional heavy crude oil supply, including Saskatchewan medium grades, is forecast to decrease slightly from m 3 /d (553 MBPD) in 2002 to m 3 /d (546 MBPD) by 2005 and to m 3 /d (467 MBPD) by

4 Increased production of synthetic and bitumen blends during the same period will more than offset the loss of conventional heavy crude production. EAI's production forecast for synthetic crude is based primarily on Syncrude, Suncor and Shell expansion plans. Total production is forecast to increase from m 3 /d (435 MBPD) in 2002 to m 3 /d (771 MBPD) in 2005 and m 3 /d (1,027 MBPD) in Figure 4.2 Western Canada Crude Supply Outlook All Crude Types,Units: km 3 /d 400 km 3 /d AB LTMED BC LTMED MB LTMED NWT LTMED SK LTMED SYNTHETIC PENT PLUS WCSB HVY CONV WCSB BITUMEN Other ALL WCSB Supply before adjustment for CDN Refining Copyright : EAI, Inc., Markets for the Western Canadian Basin Market Fundamentals in Regions Served by Express Pipeline Figure 4.3 depicts the pipeline access to western Canadian crude markets and the Express Pipeline system in relation thereto. 4-4

5 Express EXPRESS CAPACITY EXPANSION Figure 4.3 Western Canada Crude Supply-Distribution Pipelines Vancouver Anacortes B C A B S K Trans Mountain Fort McMurray Edmonton Imperial Rangeland InterTrust Hardisty Regina Wascana Enbridge Primary Canadian Crude Export Pipelines Secondary Interconnecting Pipelines Refining Centers Junction QB ON WA Milk River Glacier Billings Salt Lake UT Cenex MT Frontier CO Shell Poplar ND Baker Casper Guernsey Denver Gretna Minnesota Pipeline Minneapolis MN Holdrege Express/Platte Midcontinent Wood River Superior Enbridge WI Enbridge Chicago IL MI Alma Enbridge IN Sarnia Toledo OH Montreal Toronto Enbridge Canton Buffalo Warren Catlettsburg Copyright : EAI, Inc., Rocky Mountain Region (PADD IV) Market EAI has divided PADD IV production into two major production areas: Core Production and Non-Core Production areas. The Core Production area includes all crude production that is accessible by PADD IV refiners, considering both logistical and economic constraints. The Non-Core Production includes production within PADD IV that is not generally accessible by PADD IV refiners. EAI's forecast for Rocky Mountain (RM) crude production, including Core Production and Non-Core Production areas is shown below in Figure 4.4. Total production in the Core Production area is forecast to decline from m 3 /d (259 MBPD) in 2002 to m 3 /d (242 MBPD) by the year 2005 and to m 3 /d (197 MBPD) by the year With the exception of the Williston Basin in Montana, and select enhanced oil recovery projects in the Powder River and Green River Basins of Wyoming, EAI projects that each of the individual basins will continue to decline near historical rates. Core Production areas in PADD IV have declined by an average annual rate of 4.3 percent over the 1991 through 2002 timeframe. EAI's forecast annual rate of decline for all Core Production in the PADD IV region is 3.3 percent per year over the 2002 through 2005 timeframe, returning to the 4 to 4.5% range after This translates to an annual average decline of to m 3 /d (8 to 10 MBPD) per year. The decline rate could be greater if crude oil prices decline below current levels. 4-5

6 80 Figure 4.4 Rocky Mountain Crude Production Trends and Outlook 2003, 000 m3/d 70 Production History Forecast 60 Production (km3/d) Core RM supply Non-Core RM supply Core Non-Core Core area=production that is accessed by RM refineries; non-core=s UT, S CO and ND Copyright : EAI, Inc., 2003 In Table 4.2 below, Rocky Mountain crude oil refinery runs are shown to have increased to m 3 /d (519 MBPD) in 2002 from m 3 /d (455 MBPD) in The average annual crude run growth has been approximately 0.3 percent per year, with the highest growth rates occurring in Colorado and Montana. Table 4.2 Rocky Mountain Refinery Runs in 1995 and 2002 (000 m 3 /d) STATE Runs, 95 Runs, 2002 Avg Growth,%/Yr Colorado % Montana % Utah % Wyoming % Total % In general, Rocky Mountain refineries tend to be seasonally constrained and their output is supplemented by product imports from surrounding regions to satisfy incremental product demand. "Refinery creep" refers to the gradual increase in a facility's capacity as a result of increasing operational or process efficiencies. This leads to small annual increases in PADD IV refinery output and crude runs. The Rocky Mountain region has responded to declining regional crude production by reducing exports and increasing imports. In general, the most significant trend in the Rocky Mountain region relates to imports from Canada to the Billings and Southern RM refinery markets. Imports have steadily increased as presented in Figure 4.5. The region has been a net importer of crude in

7 Imports (000 m3/d) Figure 4.5 Canadian Crude Import Trends Rocky Mountain Region Rocky Mountain Refinery Destinations Import Trends Cumulative Change since IMPORTS CUM_DELTA Canadian imports for RM refinery destinations Copyright : EAI, Inc., 2003 Canadian crude exports from the WCSB to the Rocky Mountain region for use by refineries in that area totalled m 3 /d (251 MBPD) in This represents approximately 47 percent of the Rocky Mountain crude runs in The Rocky Mountain market continues to increase its demand for Canadian crude supply to offset local crude production declines. While this demand has continued to grow, the resulting increase in movements of Canadian heavy crude to Billings, MT has been seasonally constrained by capacity of the Rangeland-Glacier pipeline system. This constraint was relieved with the expansion of the Cenex pipeline system and the Express Pipeline interconnection with Glacier Pipeline in The Rocky Mountain refinery market outlets for Western Canadian crude in calendar year 2002 are shown in Table 4.3. All but four of the refineries in the Rocky Mountain region can access Canadian crude production transported on the Express Pipeline system. The refineries accessible via the Express system had a total refinery capacity of m 3 /d (544 MBPD) in

8 Table 4.3 REFINERY MARKET ACCESSIBLE TO EXPRESS SYSTEM ROCKY MOUNTAIN REGION YEAR 2002 AREA REFINERY LOCATION STATE EXPRESS ACCESSIBLE? CRUDE TOWER CAPACITY, 000 m 3 /d ERM SUNCOR DENVER CO YES 9.5 ERM FRONTIER CHEYENNE WY YES 7.3 ERM VALERO DENVER CO YES 4.3 BLNG CENEX LAUREL MT YES 8.7 BLNG CONOCOPHILLIPS BILLINGS MT YES 9.5 BLNG EXXON MOBIL BILLINGS MT YES 9.2 NMT MRC GREAT FALLS MT NO 1.1 SLC TESORO SALT LAKE UT YES 9.2 SLC CHEVRONTEXACO SALT LAKE UT YES 7.2 SLC BIG WEST SALT LAKE UT YES 3.8 SLC HOLLY WOODS CROSS UT YES 4.0 SLC SILVER EAGLE EVANSTON WY NO 0.5 SLC SILVER EAGLE WOODS CROSS UT NO 1.7 ERM SINCLAIR RAWLINS WY YES 9.9 ERM LITTLE AMERICA CASPER WY YES 4.0 EWY WYOMING REFINING NEWCASTLE WY NO 2.1 TOTAL EXPRESS ACCESSIBLE 86.7 Canadian supply replaces U.S. Rocky Mountain domestic production, which continues to decline, as can be seen in Figure 4.6 below. PADD IV will continue to be an important growing market for WCSB crude production. In 2002, exports of WCSB crude to PADD IV totaled m 3 /d (251 MBPD) as compared to 1997 exports of m 3 /d (159 MBPD). This is expected to increase to m 3 /d (286 MBPD) in 2005 and to m 3 /d (349 MBPD) in

9 km3/d Figure 4.6 Crude Supply-Demand Outlook U.S. Rocky Mountain Region Total Crude, km3/d Refinery Runs and Exports RM Core Production Canadian Imports Cndn Imports Dmst Imports Core Prod Assumes no refinery closures and no major expansions Copyright : EAI, Inc., U.S. Central Corridor (PADD II) Refining capacity in PADD II is estimated to be m 3 /d (3,518 MBPD). Crude refined in PADD II has been summarised by origin in Figure 4.7, with the USCC production representing local domestic production in the area. Sweet crude comprises about 38 percent of the overall crude slate to PADD II refineries and is made up of West Texas Intermediate (WTI), Louisiana Sweet, Canadian sweet (synthetic and conventional), off-shore foreign sweet and other U.S. domestic sweet crude sources. Approximately 46 percent of the overall crude slate is composed of light sour and medium sour crude and the balance (16 percent) is heavy sour. Crude oil sourced from Western Canada represented approximately 28 percent of total U.S. Central Corridor crude runs in 2001 and approximately 27 percent in The Northern Tier refineries, consisting of the states of Minnesota, Wisconsin, North Dakota and South Dakota, have primarily used crude from western Canada and the Williston Basin. Other crude can reach this area by the proprietary Flint Hills pipeline from Wood River and the Enbridge North Dakota system, which extends from eastern Montana to Clearbrook, Minnesota. Total crude runs were m 3 /d (2,108 MBPD), m 3 /d (701 MBPD) and m 3 /d (400 MBPD) for the Midwest, Midcontinent and Northern Tier regions, respectively in The approximate split of crude runs is shown for each region in the graphic below. 4-9

10 Refinery Crude Runs by Source U.S. Central Corridor, m3/d Northern Tier Figure 4.7 Supply, km 3/d Midcontinent Supply, km3/d CNDN OFS_FRGN DMS_INL DMS_GOM CNDN OFS_FRGN DMS_INL DMS_GOM Supply, km3/d Midwest CNDN OFS_FRGN DMS_INL DMS_GOM CNDN= Canadian OFS_FRGN = Offshore foreign DMS_INL= Domestic Inland DMS_GOM = Domestic Offshore Copyright : EAI, Inc., 2003 Midwest Crude Market The Midwest region is the largest market outlet for WCSB crude followed by the Northern Tier and Midcontinent regions. The total refining capacity of the Midwest region is approximately m 3 /d (2,324 MBPD), of which m 3 /d (2,139 MBPD) is presently accessible to the Express system. The total crude runs in this region were m 3 /d (2,135 MBPD) in 2002 with roughly 29 percent supplied from Western Canadian sources. Table 4.4 details refineries that are and are not accessible by the Express system. 4-10

11 Table 4.4 REFINERY MARKETS ACCESSIBLE TO EXPRESS SYSTEM EXPRESS CAPACITY EXPANSION U.S. CENTRAL CORRIDOR REGION YEAR 2002 AREA REFINERY LOCATION STATE EXPRESS CAPACITY, 000 SYSTEM m3/d MC CONOCOPHILLIPS PONCA CITY OK YES 30.8 MC FARMLAND COFFEYVILLE KS NO 17.8 MC FRONTIER EL DORADO KS NO 16.4 MC GARY WILLIAMS WYNNEWOOD OK NO 8.4 MC NCRA MCPHERSON KS YES 12.9 MC SINCLAIR TULSA OK NO 10.5 MC SUN TULSA OK NO 13.5 MC VALERO ARDMORE OK NO 11.9 SUBTOTAL MC REGION MW BP TOLEDO OH YES 25.0 MW MAP CANTON OH YES 11.6 MW MAP CATLETTSBURG KY YES 35.3 MW MAP DETROIT MI YES 11.8 MW PREMCOR LIMA OH YES 25.8 MW MURPHY SOMERSET KY NO 1.0 MW SUN TOLEDO OH YES 22.3 MW BP WHITING IN YES 65.2 MW CITGO LEMONT IL YES 25.4 MW COUNTRYMARK MT VERNON IN YES 3.7 MW EXXON MOBIL JOLIET IL YES 37.8 MW MAP ROBINSON IL YES 30.5 MW CONOCOPHILLIPS WOOD RIVER IL YES 45.8 MW PREMCOR MEMPHIS TN NO 28.6 SUBTOTAL MW REGION NT TESORO MANDAN ND NO 9.2 NT KOCH PINE BEND MN YES 42.1 NT MAP SAINT PAUL PARK MN YES 11.1 NT MURPHY SUPERIOR WI NO 5.2 SUBTOTAL NT REGION 67.6 GRAND TOTAL EXPRESS ACCESSIBLE GRAND TOTAL REGION Midcontinent Crude Market The Midcontinent is a relatively new market outlet for western Canadian crude due to Platte's interconnection in 2001 at Holdrege, Nebraska to access Kansas refineries and ConocoPhillips' crude pipeline service from Wood River, Illinois to its refinery in Ponca City, Oklahoma. There are eight (8) refineries in the Midcontinent market with a total crude oil capacity of m 3 /d (767 MBPD), two of which the Express system has indirect access to with capacity of m 3 /d (275 MBPD). Total crude runs in the Midcontinent were m 3 /d (701 MBPD) in 2002 with crude supply from western Canada sources in the range of to m 3 /d (15 to 17 MBPD) which represents approximately 2 to 2.5 percent of total Midcontinent crude runs. The Midcontinent is expected to grow as a market outlet for Western Canadian crude supplies. Northern Tier Crude Market The Northern Tier region has a total refining capacity of m 3 /d (426 MBPD) with crude runs of approximately m 3 /d (375 MBPD) in Canadian crude supply 4-11

12 is expected to increase its role in this market. In 2002, supply from Canadian sources was m 3 /d (279 MBPD) representing approximately 75 percent of total runs. Without consideration of potential pipeline constraints on third party systems, Express has access to approximately m 3 /d (335 MBPD) of capacity in the Northern Tier region. Western Canadian crude supply replaces declining North Dakota crude production in this market as well as satisfying refinery creep. Decreasing Production from PADD II and Growing U.S. Demand The Midcontinent and West Texas-New Mexico regions are the traditional domestic sources for PADD II crude. The overall average annual decline rate for Midcontinent crude production is shown in the Figure 4.8. Figure 4.8 Crude Oil Production Forecast Midcontinent Region Production,000 m3/d Year 2002 km3/d Sweet 35.9 Sour 7.4 Total 43.3 OKLAHOMA_SWEET OKLAHOMA_SOUR KANSAS_SOUR KANSAS_SWEET OKLAHOM A_SWEET OKLAHOM A_SOUR KANSAS_SOUR KANSAS_SWEET Year Copyright : EAI, Inc., 2003 The average annual decline rate for Oklahoma and Kansas production (Midcontinent region) was 5.5 and 4.5 percent per year, respectively, from 1988 through Overall, EAI is forecasting production to decline at a rate of 4.1 percent per year for the overall Midcontinent region through EAI's production forecast addresses both long-term decline rates as well as observations made for more near term monthly production rates. Overall, Midcontinent crude production is expected to be m 3 /d 238 MBPD in 2005 and m 3 /d (209 MBPD) by the year This decline in crude production will need to be replaced by crude imports from other areas such as the WCSB. Most of the Midcontinent crude production is low sulphur or 4-12

13 sweet crude, which averaged approximately m 3 /d (242 MBPD) in 2002 with the balance of m 3 /d (31 MBPD) being high sulphur or sour crude, produced primarily in southern Oklahoma. In addition to crude production declines within the Midcontinent region, West Texas and North Texas crude sources are also undergoing significant downward trends, though with future declines projected to be less steep than those forecast for the various Midcontinent crude production streams. The combination of these crude declines will drive the need for additional imports of foreign crude for Midcontinent and Midwest area refiners. EAI's composite supply forecast for PADD II domestic crude oil supply originating in PADD II, West Texas, North Central Texas and New Mexico is presented in Figure 4.9 below. The overall crude deficit in PADD II due to the decline of inland production used within PADD II is expected to increase to m 3 /d (241 MBPD) by 2005, and to m 3 /d (561 MBPD) by These streams consist primarily of light sweet and light sour crude grades. Figure 4.9 Outlook for U.S. Central Corridor (PADD II) Domestic Supply West Texas-New Mexico-Midcontinent-Midwest Production Production, 000 m3/d MI DCONTINENT GULF COAST 7 GULF COAST 6 GULF COAST NORTHERN TIER MIDWEST NM PERMIAN SE COLO PARADOX SAN JUAN GULF COAST 5 GULF COAST 4 GULF COAST Year DEFICIT GC2 through GC7 represent EAI West Texas- New Mexico distribution areas Copyright : EAI, Inc., Markets Not Served by Express Pipeline Western Canada Total refining capacity in western Canada is m 3 /d (550 MBPD). The refineries in western Canada processed approximately m 3 /d (542 MBPD) of western Canadian crude in 2002, consisting primarily of light conventional and synthetic crude. This market is slowly shifting from light conventional supply to synthetic crude and bitumen feedstocks. 4-13

14 Ontario Western Canadian crude production also continues to supply the Ontario market. Total refining capacity and crude runs in Ontario were m 3 /d (545 MBPD) and m 3 /d (426 MBPD), respectively, in The WCSB sources of crude supply satisfied approximately 56 percent of the Ontario market based on EAI's estimates and NEB data. Recently, PetroCanada announced their plans to close a refinery in Oakville, Ontario. This plant has an atmospheric crude tower capacity of m 3 /d (83 MBPD). PetroCanada will expand their refinery in Montreal to replace some of the lost output from the Oakville plant and will reverse a product line to transport product from Montreal into Ontario. Canadian and U.S. Pacific Northwest Approximately m 3 /d (110 MBPD) of WCSB crude was shipped west to refineries located in British Columbia and Washington as well as to the Westridge marine facility for transport via water to refinery markets in California, the U.S. Gulf Coast and Asia. There are five (5) refineries in the Puget Sound, four (4) of which are linked to Terasen's Trans Mountain pipeline. Total capacity of the connected refineries is m 3 /d (608 MBPD). There are two refineries in British Columbia with a combined capacity of m 3 /d (62 MBPD). The Trans Mountain pipeline system provides one refinery with a capacity of m 3 /d (55 MBPD) with direct access to western Canadian crude oil supplies. In 2002, exports of western Canadian crude supply to the U.S. Pacific Northwest market averaged approximately m 3 /d (47 MBPD) of predominantly light sour crude, and represented a relatively small share of total refining capacity in that region. However, the demand for crude imports along the overall U.S. West Coast is expected to increase to replace declining heavy production and to potentially displace some unstable sources from the Middle East. PADD I In 2002, western Canadian crude exports to western Pennsylvania markets were m 3 /d (58 MBPD). There is one refinery in this area (United Refining), having a capacity of m 3 /d (67 MBPD). PADD I is also a major market outlet for Eastern Canadian crude production Pipelines that Serve Markets for Western Canadian Crude Oil and Equivalent Overall Distribution System The long haul crude supply-distribution network for Canada was shown in Figure 4.3. The primary crude distribution hubs in western Canada are Edmonton and Hardisty. The Trans Mountain pipeline system transports crude from Alberta and British Columbia to refineries in British Columbia and Puget Sound area in Washington. The Trans Mountain system is also used to transport petroleum products from Alberta refineries to markets in British Columbia. The Rangeland, Express, Bow River-Milk River-Cenex and Glacier pipelines transport crude to the U.S. Rocky Mountain area for use by 4-14

15 refineries located there or for transport via Platte Pipe Line to refineries located in the U.S. Midwest and Midcontinent regions. The Enbridge pipeline system originates in Edmonton and transports crude to eastern markets including the U.S. Northern Tier (accesses Minneapolis area refineries via Lakehead Pipe Line Company, the U.S. Midwest (direct access to markets in Wisconsin, Illinois, Ohio and Michigan) and Ontario. Approximately m 3 /d (54 MBPD) of heavy blend is taken from Enbridge at Regina for upgrading and then further processing into products by the Consumers Cooperative refinery. Outlets to U.S. markets are available at Regina, Clearbrook, Minnesota and Superior, Wisconsin. At Superior, Lakehead continues east across northern Michigan and into Sarnia. Lakehead also extends from Superior through Chicago and across southern Michigan and then north to Sarnia. The Enbridge system has been expanded to transport additional heavy crude between Hardisty and Kerrobert Pipeline Access to the U.S. Rocky Mountain Market An overview of the primary crude transportation systems operating in the U.S. Rocky Mountain region is shown in Figure 4.10 below. There are four primary pipeline corridors for transporting Western Canadian crude supply to RM refineries: Rangeland/Glacier, Bow River, Milk River/Cenex, Express and Wascana/Poplar/Butte (Eastern Corridor). Traditionally, most of the crude exported from Canada to the RM region was destined for the Billings refinery market. With the startup of the Express Pipeline system in 1997, crude exports into the RM area increased, driven primarily by the Wood River market and capacity constraints that were occurring on the Enbridge Pipeline system to supply the Midwest market. Figure 4.10 Major Crude Oil Pipelines Rocky Mountain Region Rangeland PL Milk River To Canada ID MT Cenex Billings ExxonMobil Conoco Silver Tip Cenex Glacier (15) Express connect Judith Gap Express (29.4) Big Horn Bear Tooth (7.95) Express Wascana PL Poplar Richey Reno Eighty-eight Oil Shell (4.5) Baker Enbridge Major crude oil gathering and distribution points Pipeline capacity (km 3 /d) RMP = Rocky Mountain Pl Salt Lake City Chevron (20.7) UT WY RMP (7.95) RMP (3.0) Frontier (9.5) Sinclair Iles Casper Express (Platte) (15) Big Horn) Conoco (6.8) Belle Fourche Butte PL (12.7) Belle Fourche (1.6) To Clearbrook Chevron (10.3) Wamsutter Rangely Sinclair RMP (2.9) Guernsey Cheyenne Refinery Commerce City Express (Platte) EOTT To Wood River Converted to Gas Service Aneth CO Carlton To Scott City, KS Valero PL (2.1) Copyright : EAI, Inc.,

16 Some of the major crude oil logistic changes that have occurred along this corridor are summarized below: The total effective capacity to transport crude into the RM region from Canada is in the range of to m 3 /d (356 to 365 MBPD). This includes Rangeland, Express, Milk River-Front Range and the Wascana Pipeline systems. The average annual utilization of the combined systems in 2002 is estimated to have been 91 percent. The average annual crude imports from Canada to RM and Midwest destinations were approximately m 3 /d (323 MBPD) in Of this total, approximately m 3 /d (72 MBPD) was transported to Midwest and Northern Tier refinery destinations. Cenex has made numerous changes to the Front Range Pipeline from the Canadian border to Laurel. The capacity of the system from the border to Santa Rita is currently m 3 /d (115 MBPD). The line capacity from Cut Bank to Laurel is approximately m 3 /d 70 MBPD. The Santa Rita to Cutbank segment is bi-directional and can supply either the Glacier system or the Cut Bank refinery. Since August 1, 2000, the Front Range Pipeline connection to Cut Bank has allowed Cenex to transport Rangeland crude either to the Laurel or Cut Bank refineries or to the Glacier Pipeline system. Prior to startup of the Beartooth and Express pipeline systems, the Wascana- Poplar-Butte corridor was the primary corridor for supply of Canadian crude to southern Rocky Mountain refiners. The Wascana system has operated intermittently since 1997 with the most recent transfers of approximately m 3 /d (13 MBPD) reported for calendar year The m 3 /d (35 MBPD) capacity system was acquired by Plains All American in March The Wascana system feeds the Poplar system in Montana. The ability to receive Canadian crude by Poplar is somewhat limited due to the receipt of crude supply from sources in eastern Montana and North Dakota. Local production sources utilize a large fraction of Poplar's capacity and effectively reduce the capacity of the Eastern Corridor to receive Canadian crude supply (EAI estimates that the effective capacity of this corridor to receive Canadian crude supply is approximately m 3 /d - 13 MBPD). This corridor has more limited market access than the Rangeland-Beartooth and Express systems, since its primary destination is Guernsey. Express pipeline current capacity is approximately m 3 /d (172 MBPD). In Casper, the Express system connects with several other carriers, including the Frontier and Platte systems. Express can also access the Billings area refiners through a connection that was completed in 2001 at Buffalo, MT. This connection of Express into the Glacier system at Buffalo station provides additional capacity for Canadian crude to access Billings since most of the other systems are either capacity or resource limited. 4-16

17 The Bow River system moves sour crude north and south out of Hays-Tilley, Alberta. One of the Hays to Hardisty segments was reversed to provide Bow River pipeline access to Hardisty area crude. The total capacity of this system to transport crude to the RM market is approximately m 3 /d (110 MBPD). Central Rocky Mountains Rocky Mountain Pipeline and ConocoPhillips have a joint venture in which ConocoPhillips and Rocky Mountain Pipeline jointly own one system encompassing the Conoco-Glacier system and Rocky Mountain Pipeline's system from Elk Basin to Guernsey. A number of years ago, the previous owners completed a project to construct a 75-mile, 12-inch pipeline from Billings to Elk Basin, WY. This system (Beartooth Pipeline) was built to transport light sweet crude using space on the Glacier system made available by shifting heavy crude movements to the Cenex Front Range Pipeline. The capacity of the Rocky Mountain Pipeline - ConocoPhillips system is in the range of to m 3 /d (40 to 60 MBPD). As the Rangeland-Glacier system utilization increases, it can reduce the effective capacity of the Beartooth system to transport south. Prior to the construction of the Express and Rocky Mountain Pipeline /ConocoPhillips systems, the routes from Baker to Alzada, Wyoming and to Guernsey were critical in supplying Canadian crude to the Casper and Guernsey distribution points. The Permian pipeline transports crude from Alzada to Reno, WY and, ultimately, ties into the Amoco system. The Belle Fourche system into Reno was shut down in The Butte pipeline transports Canadian, Williston Basin, and Powder River Basin crude into Guernsey. Frontier pipeline extends from Casper to Salt Lake City (SLC). The Frontier system was reversed in 1992 to satisfy the increasing demand of SLC refiners for replacement crude supply. The system is currently operating in the range of approximately to m 3 /d (40 to 50 MBPD) and has a capacity of approximately to m 3 /d (55 to 60 MBPD). With increasing crude imports required to replace declining local production, several of the key pipeline arteries supplying the SLC market have become seasonally constrained. The Anschutz system, which extends from Anschutz Ranch to Kimball Junction, has a capacity of approximately m 3 /d (50 MBPD) and has been at or near capacity during the summer months. The Chevron pipeline segment from Kimball Junction to Salt Lake City is also operating near capacity. The incremental crude being transported on these systems consists primarily of Canadian imports that are transported into the area via Express and Frontier pipelines. Rocky Mountain's U-line from Wamsutter to Salt Lake City has a capacity of m 3 /d (50 MBPD) and is operating in the range of to m 3 /d (40 to 50 MBPD) depending on the season. 4-17

18 4.4 Disposition Assumptions and Forecast of Western Canadian Crude Oil Supply and Distribution EAI has developed a detailed analysis and forecast for Western Canadian crude distribution using its proprietary Crude Network Balance Forecast (NBF) model. The NBF draws on EAI's Canadian crude production forecast, historical crude oil distribution patterns and likely shifts given changes in refinery demand, pipeline constraints and supply of competing crude sources. The forecast was developed to address the 2003 through 2010 timeframe Disposition Assumptions EAI's forecast of western Canadian crude distribution was developed with the following assumptions: Western Canadian refining demand is satisfied first and accounts for some refinery creep (approximately 1.5 percent per year). Potential closure of a refinery in British Columbia (Husky's plant in Prince George-capacity = m 3 /d or 10.2 MBPD) and expansion of the Shell refinery in Edmonton by m 3 /d (20 MBPD) occurred in Exports to the Pacific Northwest are maintained constant at year 2002 levels due to pipeline capacity limitations. The Rocky Mountain refinery market demand for replacement and incremental crude supply is satisfied with Canadian crude supply. Only Rocky Mountain core crude production is addressed as a U.S. based crude supply option for refineries in that area. Enbridge Line 9 continues to transport crude oil from Montreal to Ontario with increases in movements as the supply of Western Canadian crude increases over the forecast period. All western Canadian production in excess of the aforementioned markets is assigned to PADD II and the EAI regions that comprise that area (Northern Tier, Midwest and Midcontinent regions) Disposition Forecast of Western Canadian Crude Oil Supply Total western Canadian crude production was approximately m 3 /d (2,026 MBPD) in 2002 and is forecast to increase to m 3 /d (2,208 MBPD) in While conventional heavy crude supply is forecast to decrease slightly from m 3 /d (553 MBPD) in 2002 to m 3 /d (515 MBPD) by 2007, the increased production of synthetic and bitumen blends during the same period will more than offset this decline. Future increases in production are expected to exceed current pipeline capacity. 4-18

19 Table 4.5 illustrates the actual and forecast Canadian crude supply for the period 2001 to Table 4.5 FORECAST CANADIAN CRUDE SUPPLY LIGHT AND MEDIUM GRAVITY CRUDE, 000 m 3 /d PROVINCE Alberta B.C Manitoba N.W.T Newfoundland Nova Scotia Ontario Saskatchewan TOTAL TOTAL WESTERN EASTERN PROD Synthetic Crude Pentanes Plus Total Synthetic, Pentanes TOTAL LIGHT/MEDIUM HEAVY CRUDE, 000 m 3 /d CONVENTIONAL HEAVY Alberta Saskatchewan SUBTOTAL HEAVY-BITUMEN Saskatchewan Alberta SUBTOTAL DILUENT TOTAL HEAVY + DILUENT EAI's diluent outlook is comprised of both wellhead condensate and pentanes plus recovered from natural gas processing plants based on a stable to slightly increasing natural gas supply outlook. The diluent shown in the above table, when added to the pentanes plus material in the light/medium row, approximates the pentanes plus supply as ordinarily reported by the NEB in its statistical reports. Under this scenario there is a shortfall in the volume of diluent required to meet bitumen transportation requirements after Current operator plans indicate that a significant volume of synthetic crude will be blended with bitumen to make up this shortfall. 4-19

20 The outlook for "surplus" Western Canadian crude supply by major grade category is shown in Figure Figure 4.11 Western Canadian Incremental Crude Supply Midwest & Midcontinent Refining Markets Cumulative incremental supply relative to 2002 base year after satisfying s Canadian, Rocky Mountains and Northern Tier demands; crude movements to Pacific Northwest held constant at roughly 8 km 3 /d while shipments to Ontario (from the West) gradually increase m3/d HEAVY LGHT/MDM Copyright : EAI, Inc., 2003 The surplus consists of crude excess after satisfying Canadian refinery demand, Rocky Mountain refinery demand and Northern Tier (North Dakota and Minnesota) refinery demand while maintaining exports to the U.S. Pacific Northwest constant at 2002 levels. The surplus supply will have to be transported to Midwest markets or Western markets (Puget Sound, California or Asia refinery markets). This will likely require expanded pipeline capacity to the Rocky Mountains and Midwest in the 2005 to 2007 timeframe. Distribution forecasts for all grades of Western Canadian crude oil supply, by market destination, are shown in Figure 4.12 The surplus of light and medium crude grade supply can most likely be absorbed by the Midwest-Midcontinent market based on the decline of inland U.S. domestic crude supply. In order to process more bitumen-heavy crude in the Midwest, refiners will have to invest in expanding their residuum processing capability and/or Western Canadian bitumen blends will have to displace medium sour crudes from Midwest refinery markets. The medium sour crudes sources in the Midwest consist of U.S. Gulf of Mexico supply and Middle East sources. 4-20

21 km3/d Western Canada Crude Distribution Outlook All Crude Types,Units: km 3 /d 0 Figure 4.12 Western Canadian Crude Movements to West Coast, Rocky Mountains, U.S. Central Corridor, Ontario and Warren Pennsylvania Western Canada Refining Midwest Base plus surplus Canadian supply Western Canada Puget Sound Rocky Mountains Minneapolis Superior Chicago\Wood River Michigan Ohio Warren To Ontario Other Copyright : EAI, Inc., Disposition by Pipeline The outlook for Canadian crude distribution by major pipeline corridor is detailed in Appendix E. The primary export growth markets include the U.S. Rocky Mountains, Northern Tier and Midwest regions. Crude transportation requirements for refineries operating in the Rocky Mountain region via the Express, Rangeland, Milk-River-Cenex and Wascana (when in operation) pipelines are expected to increase from an approximate m 3 /d (177 MBPD) in 2000 to m 3 /d (247 MBPD) by The increasing crude movements to the Chicago-Wood River markets include the "overhang" of supply that will have to displace other crude sources in this market area. The total crude available for this market is forecast to increase from m 3 /d (481 MBPD) in 2000 to m 3 /d (809 MBPD) by EAI projects this surplus to taper off by 2008 unless additional heavy oil and synthetic crude oil projects advance. The outlook for pipeline throughput and utilization for those systems linking Western Canadian crude supply to Rocky Mountain and U.S. Central Corridor markets is presented in Appendix D. The basis behind these forecasts and some of the most critical observations are detailed below: Throughput projections are based on EAI's Western Canadian crude distribution forecasts presented previously The throughput and utilization projections address representative peak loading that were estimated using actual monthly delivery data and observing peak month movements relative to annual average throughputs (using year 2000 as the basis.) 4-21

22 With completion of the Enbridge Terrace II expansion, the light crude line capacity will be constrained on an average annual basis by 2004 and on a peak throughput basis in the 2002 to 2003 timeframe. The results are similar when considering the outlook for Enbridge's heavy crude line. On an average annual basis, the line is expected to be at capacity by Overall, additional pipeline capacity to transport Western Canadian surplus crude supply will be required in the 2003 to 2005 timeframe. The expansion of the Express System to Casper in addition to implementation of the Enbridge Terrace III project would add approximately m 3 /d (340 MBPD) of additional capacity to transport crude supply to either the Rocky Mountain or U.S. Central Corridor markets. This assumes that Express expands their line to Casper from m 3 /d (172 MBPD) to m 3 /d (280 MBPD) and the Terrace III capacity addition would all be incremental capacity. Both capacity additions may be subject to upstream and downstream capacity limitations. Without expansion, as Express movements to the Rocky Mountains increase, the effective capacity of the system to supply the Platte system from Guernsey to Wood River decreases. 4.5 Express Pipeline Delivery Forecast EAI's outlook for Express System movements are for increasing deliveries of Canadian crude oil to PADD IV and PADD II which is illustrated in Table 4.6. Table 4.6 FORECAST OF EXPRESS CANADIAN CRUDE DELIVERIES TO PADD IV AND PADD II 000 m 3 /d EXPANSION CASE Capacity on Express Pipeline Canadian barrels to PADD IV via Express Canadian barrels to PADD II via Express Total Canadian barrels on Express As shown, deliveries to the Rocky Mountains will continue to increase throughout the forecast period. Deliveries of Canadian supply to PADD II will peak in 2007 without expansion since the capacity to Casper on Express will be constrained. The Express system, from Hardisty to Casper, does not attain maximum capacity because Platte Pipe Line is constrained east of Casper. Platte, however, is examining a potential "debottlenecking" project which could eliminate any future constraints and allow a fully expanded Express System to reach capacity earlier. The combination of available and growing crude oil supply and growing market demand provides the Express system with the potential to generate significant benefits for both upstream and downstream industry participants. 4-22

23 4.6 U.S. Regulatory Authorizations The construction and operation of the existing Express Pipeline System across the international border is authorized in the U.S. by a presidential permit issued under the auspices of the U.S. Department of State. An affiliated company, Express Pipeline LLC will be filing an application with the Department of State seeking approval for the construction of six additional pump stations in that country. Express Pipeline LLC owns the portion of the Express Pipeline System located in the United States. The additional pipeline facilities to be built in the U.S. will complement the facilities herein applied for. The additional U.S. facilities consist of six (6) additional pump stations, four of which will be located on federally owned lands. The approval of the U.S. Bureau of Land Management has already been obtained for the construction of those stations. The application to the U.S. Department of State to amend the existing presidential permit will be filed contemporaneously with this application to the Board. Express Pipeline LLC anticipates that the presidential permit application will be approved in a timely manner, particularly as the Bureau of Land Management approval is already in hand. It is anticipated that the process for obtaining the presidential permit amendment will be complete in the second quarter of

24 APPENDICES 4-24

25 EXPRESS SYSTEM OUTLOOK Appendix A YEAR 2002 CRUDE OIL NETBACKS AT EDMONTON SWEET CRUDE - Light W. E. LOCATION REGION MIDWEST MIDWEST WOOD LOCATION REFINERY LIMA RIVER MID- CONTINENT MCPHERSON W. MIDWEST WOOD RIVER ROCKY MTN SALT LAKE PRICE BASIS WTI WTI WTI WTI Frontier Anschutz BASIS LOCATION MIDLAND MIDLAND MIDLAND MIDLAND Chevron BASIS PRICE BASIS ADJUSTMENTS TARIFFS BASIS PRICE NETBACK DEDUCTIONS EDMONTON TO HARDISTY HARDISTY TO WILD HORSE WILD HORSE TO SALT LAKE 1.78 HARDISTY TO BILLINGS WILD HORSE TO HOLDREDGE 1.13 WILD HORSE TO WOOD RIVER WOOD RIVER TO PATOKA 0.11 PATOKA TO LIMA 0.33 HOLDREDGE TO MCPHERSON 0.82 EDMONTON TO ANACORTES EDMONTON TO WOOD RIVER 2.00 TOTAL DEDUCTIONS NETBACK AT EDMONTON GRAVITY/SULFUR CORRECTED* PAR LIGHT * CORRECTED TO SPOT CANADIAN CRUDE GRAVITY 4-A