A combination of growing oil sands production and congested pipelines is creating new opportunities for midstream companies that have cavern or tank capacity to spare.
The waiting game for proposed pipeline projects such as Keystone XL or the Trans Mountain expansion, along with a new focus on rail transport, has resulted in growth of an industry segment many consider a sideline: Storage.
“As the industry continues to grow, and as the industry continues to look for different ways of accessing markets, whether it’s by pipeline or by rail, all of that growth requires additional storage – particularly when the pipelines start to become full,” said David Smith, chief executive of Keyera Corp., a midstream company that focuses on natural gas processing and natural gas liquids, but also has a significant storage business.
“When the pipelines start to become a constraint, then you can see you just can’t put more product down the pipeline. You need to be able to stage it through storage.”
Whether they use above-ground steel cylinders, or underground hallows that formerly contained salt but can now hold tens of thousands of barrels, there have always been companies that choose to keep oil, natural gas or natural gas liquids in storage while they wait for a better price or a different market.
However, some companies say demand for such storage is increasing due to the additional layers of logistics that now accompany shipping oil out of Western Canada.
The nearly 2 million barrels of bitumen a day produced by the oil sands industry is expected to increase to 3.8 million barrels a day by 2022, according to Alberta’s energy industry regulator.
At the same time that production is ramping up, shipping out of Edmonton or Hardisty, Alta. – two key takeoff points for Western Canadian oil – is not as easy as it used to be. Space on pipelines is more difficult to find and many companies are increasingly looking to rail transportation for at least a segment of their production. The industry is anxiously awaiting decisions on a number of proposed, but not approved, pipelines they hope will alleviate constraints on getting oil out of landlocked Alberta.
Reynold Tetzlaff, a Calgary partner at PricewaterhouseCoopers, said the east-central Alberta town of Hardisty – a jumping off point for shipments of crude south to United States markets – “is becoming a bit of a hub for tanks.”
For instance, Gibson Energy Inc., a large midstream company, has announced 1.7 million barrels of new storage tank capacity in the past seven months. Gibson operations vice-president Rick Wise said the main reason storage and tanking demand is going up is due to increasing oil production, and “the only thing new is the pipeline capacity isn’t enough to take away all the barrels that want to leave Western Canada to markets.”
Mr. Wise said companies are asking for more storage capacity because they believe new pipelines will be built, and they will eventually have the ability to ship even more. “There’s probably a pent-up demand for storage, for tankage, but as soon as pipelines are announced – whether it’s Gateway or Keystone XL – the demand for tanks is going to really increase.”
Keyera’s Mr. Smith says oil sands production growth is also fuelling a demand for storage space for condensate – an agent used to dilute highly viscous bitumen so it can be transported. Condensate has to be imported to Alberta, and oil companies want to ensure it’s on hand when they need it.
Mr. Smith said companies such as his are using rail to bring condensate north, and others are moving crude oil or diluted bitumen south. More storage is needed to facilitate the loading and the offloading of all these products.
`“The more you’re trying to put those products onto rail cars, the more storage you need in order to be able to operate those facilities efficiently. They’re not as steady a state as a pipeline is,” Mr. Smith said.Report Typo/Error