Midstream Infrastructure
Midstream Infrastructure North American Oil Infrastructure CSIS Conference Presented by: Harry Vidas Vice President, ICF International
February 26, 2015 © 2015 ICF International. All rights reserved.
icfi.com |
1
Disclaimer
Warranties and Representations. ICF endeavors to provide information and projections consistent with standard practices in a professional manner. ICF MAKES NO WARRANTIES, HOWEVER, EXPRESS OR IMPLIED (INCLUDING WITHOUT LIMITATION ANY WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE), AS TO THIS PRESENTATION. Specifically but without limitation, ICF makes no warranty or guarantee regarding the accuracy of any forecasts, estimates, or analyses, or that such work products will be accepted by any legal or regulatory body. Waivers. Those viewing this presentation hereby waive any claim at any time, whether now or in the future, against ICF, its officers, directors, employees or agents arising out of or in connection with this presentation. In no event whatsoever shall ICF, its officers, directors, employees, or agents be liable to those viewing this presentation.
© 2015 ICF International. All rights reserved.
icfi.com |
2
Market Transformation – 2010-2014
Source: EIA.
* Based on January-November average
Midstream parties have responded with rail infrastructure and multiple pipeline and storage investments to connect markets and move supply Next steps are more uncertain due to price issues and policy decisions © 2015 ICF International. All rights reserved.
icfi.com |
3
Recent Crude Oil Flow Projections
© 2015 ICF International. All rights reserved.
icfi.com |
4
Midstream Response – Bakken Investments Forecasted Bakken Production and Takeaway Capacity Total rail plus pipeline capacity exceeded forecast production by 60% in 2014.
Sources: North Dakota Pipeline Authority. “Oil Transportation Table.” North Dakota Pipeline Authority, October 1, 2014. Available at: http://northdakotapipelines.com/oil-transportationtable/. ICF International. “The Impacts of U.S. Crude Oil Exports on Domestic Crude Production, GDP, Employment, Trade, and Consumer Costs.” The American Petroleum Institute (API), 31 March 2014: Washington, D.C. Available at: http://www.api.org/~/media/Files/Policy/LNG-Exports/LNG-primer/API-Crude-Exports-Study-by-ICF-3-31-2014.pdf
© 2015 ICF International. All rights reserved.
icfi.com |
5
Midstream Response – East Coast Rail Destinations About 940,000 b/d rail receiving capacity on East Coast – over 80% of coastal refinery capacity – built by refiners and midstream players Value of investments related to value of Optionality to optimize imported versus domestic crude Company
City
State
Capacity
Started
Buckeye
Albany
NY
90,000*
2012
Global
Albany
NY
90,000*
2012
Sunoco
Westville
NJ
45,000
Q1 2012
PBF
Delaware City
DE
210,000
Feb-2013
Philadelphia Energy Solutions
Philadelphia
PA
210,000
Mid-2013
Plains All American
Yorktown
VA
140,000
Dec-2013
Enbridge
Eddystone
PA
80,000
May-2014
Phillips 66
Linden
NJ
75,000
Aug-2014
Total
Notes Rail to Albany; marine to EC and Canadian (Irving) refineries Rail to Albany; marine to EC refineries (Phillips 66) Expected to double Q4 2014; rail to Westville; marine to EC refineries Direct rail to Delaware City; barge to Paulsboro refinery; 130 light/80 heavy Direct rail to refinery; expanded to 210,000 b/d end 2014 Rail to Yorktown; marine to EC refineries Expandable to 160,000 b/d; supplies via barge along Delaware River Direct rail to refinery
940,000
* NY State restricts total crude throughput by rail at Albany to 180,000 b/d © 2015 ICF International. All rights reserved.
icfi.com |
6
Cushing Remains a Critical Midstream Junction Existing Pipelines into Cushing Keystone (590) Centurion Per (175) White Cliffs (75) Pony Express (230) Spearhead (193) PAA (175) Basin Per (450) Local
New Pipelines In Keystone XL (830) Saddlehorn (400) - ?? Flanagan South (600) White Cliffs expan. (75) Grand Mesa (130) Enterprise (340) - NO Current Crude Capacity (MBBLS) Owner Name
Cushing, OK
Operational
Construction
Maintenance
All
76,055
4,720
5,590
Blueknight
6,995
Centurion
480
Coffeyville
1,000
Deeprock
2,500
Enbridge
18,725
1315
Enterprise
3,174
150
Gavilon
4,126
JP Energy
1,500
633
2532
Magellan
11,124
753
PAA
19,188
Pacer Energy
Existing Pipelines out of Cushing Keystone XL (700) Houston / P. Arthur Seaway 1 & 2 (850) Houston / P. Arthur Local Refiners OK / KS / N Tx Ozark (215) Midwest Jayhawk (150) KS BP (180) Whiting
500
Phillips 66
655
SemCrude
7,000
Sunoco
270
250
80 90 700
375
TransCanada
2,250
Source: Genscape.
New Pipelines Out PAA (200) Memphis (Valero)
© 2014 ICF International. All rights reserved.
icfi.com |
7
Infrastructure Activity – Texas Gulf Coast – Domestic/Canadian In FROM CUSHING, TBD Seaway I and II – 850 to Houston/Freeport/PA Transcanada Gulf Coast – 700 to PA/Houston
• Port Arthur • Houston/Freeport
FROM PERMIAN, TBD SXL Permian Express I – 150 TBD SXL Permian Express II - 200 TBD (2015) Magellan Longhorn – 275 TBD Mag/PAA Bridgetex – 300 TBD PAA Cactus – 200 TBD via Eagle Ford (2016)
• • • •
FROM EAGLE FORD, TBD KinderMorgan – 300 TBD Koch - 200 TBD Devon – 100 TBD
• Corpus • Port Victoria • Houston
Houston Port Arthur Corpus (Cactus) Other
Other Ins and Outs
Hubs
IN - Imported Medium and Heavy Crudes Continue IN - Offshore GOM crudes via Cameron Highway IN – Trunkline Conversion to Port Arthur? OUT - Shell Ho-Ho moves Light crude to Louisiana OUT – Jones Act vessels from Corpus
Port Arthur/Sun Nederland Houston/Freeport Storage ???
© 2014 ICF International. All rights reserved.
icfi.com |
8
Infrastructure Activity – Louisiana Gulf Coast Only significant supply changes to date are 1) The Shell HoHo line with light crude from Houston; 2) Eagle Ford via Jones Act vessels from Corpus and 3) Rail movements into St. James and limited other locations New supply into the Eastern Gulf must overcome the following:
Imports of medium and heavy crudes Medium domestic offshore over 900 TBD and set to rise by 400 TBD plus HoHo and Eagle Ford volumes Venezuelan JV agreements and Saudi/Kuwait market share pressure Lack of direct connection market centers (not like Port Arthur and Houston) Under Study: ETP Trunkline Conversion from Patoka to St. James/Port Arthur for Bakken or Canadian Capline Reversal Will parties commit to space to make these projects go?
New Orleans/Miss: Import Mix Other 15% Canada 5% Venezuela 14%
Kuwait 14%
Saudi Arabia 35%
Mexico 17%
2014 6 months
© 2014 ICF International. All rights reserved.
icfi.com |
9
Optionality a Driver for Producers and Refiners Nigerian Crude Price into the U.S. East Coast
Source: Bloomberg © 2015 ICF International. All rights reserved.
icfi.com |
10
Rail Regulatory Issues Likely to Impact Midstream DOT Railcar Safety Standards are expected to be issued in May. The proposed standards included a timetable mandating use of new or retrofitted railcars commencing in 2017 and 2018 for crude oil, ethanol and other flammables.
Pre-Oil-Price-Drop Crude Oil by Rail Transportation Forecasts
The proposed timetable coupled with increasing demand for railcar movements from the U.S. and Canada (and more if KXL is not built) would have been very challenging with limited industry new car build and retrofit shop capacity Lower crude prices may impact the future drive to move crude by rail, but lack of pipeline options for East and West Coast refiners may still pull demand by rail Canadian rail movements in heated railcars could increase substantially with no other pipeline export options. Final regulations will impact the rail movements, but the timetable will determine the magnitude
Lease costs, currently depressed, may increase significantly for cars compliant with the new regulation Access to railcars may be a larger issue than cost if the timetable is similar to the proposal © 2015 ICF International. All rights reserved.
icfi.com |
Source: ICF. PHMSA. “Draft Regulatory Impact Analysis (RIA).” Docket No. PHMSA-2012-0082, HM-251. DOT, July 2014. P. 36.
11
Plummeting Rig Counts
-36%
-26% -35%
Source: Baker-Hughes © 2015 ICF International. All rights reserved.
icfi.com |
12
Historical Day Rate Response to Drop in Drilling Activity
Source: Land Rig Newsletter © 2015 ICF International. All rights reserved.
icfi.com |
13
2014-2025 U.S. and Canadian Oil Infrastructure Investment Expenditures as a Function of Oil Price
Oil infrastructure investment expenditures include oil lease equipment, oil mainline capacity with pumps, crude storage laterals, oil gathering lines, and crude oil storage. Source: ICF International
© 2015 ICF International. All rights reserved.
icfi.com |
14
Conclusions Midstream has rapidly responded to tight oil and oil sands growth to connect markets by pipeline and rail to move crude to refiners. Refiners have used that connectivity to modify crude slates to take advantage of market opportunities and export products. Both refiners and producers are focused on the optionality that Midstream flexibility brings – producers can seek the highest price markets and refiners the optimal crude sourcing But the optionality works against traditional Midstream needs – certainty!
Outlook with lower crude prices is even less certain….. Production impacts with lower price may mitigate need for increasing pipeline capacity Rail demand may be sustained if Bakken/Brent spreads favor, but final DOT regs may influence cost or availability of railcars Open crude export policy may provide an off-ramp for crude production growth; otherwise there may be a crude logjam in the Gulf Coast © 2015 ICF International. All rights reserved.
icfi.com |
15
Contact Information
Harry Vidas Vice President [email protected] +1.703.218.2745
© 2015 ICF International. All rights reserved.
icfi.com |
16
February 26, 2015 © 2015 ICF International. All rights reserved.
icfi.com |
1
Disclaimer
Warranties and Representations. ICF endeavors to provide information and projections consistent with standard practices in a professional manner. ICF MAKES NO WARRANTIES, HOWEVER, EXPRESS OR IMPLIED (INCLUDING WITHOUT LIMITATION ANY WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE), AS TO THIS PRESENTATION. Specifically but without limitation, ICF makes no warranty or guarantee regarding the accuracy of any forecasts, estimates, or analyses, or that such work products will be accepted by any legal or regulatory body. Waivers. Those viewing this presentation hereby waive any claim at any time, whether now or in the future, against ICF, its officers, directors, employees or agents arising out of or in connection with this presentation. In no event whatsoever shall ICF, its officers, directors, employees, or agents be liable to those viewing this presentation.
© 2015 ICF International. All rights reserved.
icfi.com |
2
Market Transformation – 2010-2014
Source: EIA.
* Based on January-November average
Midstream parties have responded with rail infrastructure and multiple pipeline and storage investments to connect markets and move supply Next steps are more uncertain due to price issues and policy decisions © 2015 ICF International. All rights reserved.
icfi.com |
3
Recent Crude Oil Flow Projections
© 2015 ICF International. All rights reserved.
icfi.com |
4
Midstream Response – Bakken Investments Forecasted Bakken Production and Takeaway Capacity Total rail plus pipeline capacity exceeded forecast production by 60% in 2014.
Sources: North Dakota Pipeline Authority. “Oil Transportation Table.” North Dakota Pipeline Authority, October 1, 2014. Available at: http://northdakotapipelines.com/oil-transportationtable/. ICF International. “The Impacts of U.S. Crude Oil Exports on Domestic Crude Production, GDP, Employment, Trade, and Consumer Costs.” The American Petroleum Institute (API), 31 March 2014: Washington, D.C. Available at: http://www.api.org/~/media/Files/Policy/LNG-Exports/LNG-primer/API-Crude-Exports-Study-by-ICF-3-31-2014.pdf
© 2015 ICF International. All rights reserved.
icfi.com |
5
Midstream Response – East Coast Rail Destinations About 940,000 b/d rail receiving capacity on East Coast – over 80% of coastal refinery capacity – built by refiners and midstream players Value of investments related to value of Optionality to optimize imported versus domestic crude Company
City
State
Capacity
Started
Buckeye
Albany
NY
90,000*
2012
Global
Albany
NY
90,000*
2012
Sunoco
Westville
NJ
45,000
Q1 2012
PBF
Delaware City
DE
210,000
Feb-2013
Philadelphia Energy Solutions
Philadelphia
PA
210,000
Mid-2013
Plains All American
Yorktown
VA
140,000
Dec-2013
Enbridge
Eddystone
PA
80,000
May-2014
Phillips 66
Linden
NJ
75,000
Aug-2014
Total
Notes Rail to Albany; marine to EC and Canadian (Irving) refineries Rail to Albany; marine to EC refineries (Phillips 66) Expected to double Q4 2014; rail to Westville; marine to EC refineries Direct rail to Delaware City; barge to Paulsboro refinery; 130 light/80 heavy Direct rail to refinery; expanded to 210,000 b/d end 2014 Rail to Yorktown; marine to EC refineries Expandable to 160,000 b/d; supplies via barge along Delaware River Direct rail to refinery
940,000
* NY State restricts total crude throughput by rail at Albany to 180,000 b/d © 2015 ICF International. All rights reserved.
icfi.com |
6
Cushing Remains a Critical Midstream Junction Existing Pipelines into Cushing Keystone (590) Centurion Per (175) White Cliffs (75) Pony Express (230) Spearhead (193) PAA (175) Basin Per (450) Local
New Pipelines In Keystone XL (830) Saddlehorn (400) - ?? Flanagan South (600) White Cliffs expan. (75) Grand Mesa (130) Enterprise (340) - NO Current Crude Capacity (MBBLS) Owner Name
Cushing, OK
Operational
Construction
Maintenance
All
76,055
4,720
5,590
Blueknight
6,995
Centurion
480
Coffeyville
1,000
Deeprock
2,500
Enbridge
18,725
1315
Enterprise
3,174
150
Gavilon
4,126
JP Energy
1,500
633
2532
Magellan
11,124
753
PAA
19,188
Pacer Energy
Existing Pipelines out of Cushing Keystone XL (700) Houston / P. Arthur Seaway 1 & 2 (850) Houston / P. Arthur Local Refiners OK / KS / N Tx Ozark (215) Midwest Jayhawk (150) KS BP (180) Whiting
500
Phillips 66
655
SemCrude
7,000
Sunoco
270
250
80 90 700
375
TransCanada
2,250
Source: Genscape.
New Pipelines Out PAA (200) Memphis (Valero)
© 2014 ICF International. All rights reserved.
icfi.com |
7
Infrastructure Activity – Texas Gulf Coast – Domestic/Canadian In FROM CUSHING, TBD Seaway I and II – 850 to Houston/Freeport/PA Transcanada Gulf Coast – 700 to PA/Houston
• Port Arthur • Houston/Freeport
FROM PERMIAN, TBD SXL Permian Express I – 150 TBD SXL Permian Express II - 200 TBD (2015) Magellan Longhorn – 275 TBD Mag/PAA Bridgetex – 300 TBD PAA Cactus – 200 TBD via Eagle Ford (2016)
• • • •
FROM EAGLE FORD, TBD KinderMorgan – 300 TBD Koch - 200 TBD Devon – 100 TBD
• Corpus • Port Victoria • Houston
Houston Port Arthur Corpus (Cactus) Other
Other Ins and Outs
Hubs
IN - Imported Medium and Heavy Crudes Continue IN - Offshore GOM crudes via Cameron Highway IN – Trunkline Conversion to Port Arthur? OUT - Shell Ho-Ho moves Light crude to Louisiana OUT – Jones Act vessels from Corpus
Port Arthur/Sun Nederland Houston/Freeport Storage ???
© 2014 ICF International. All rights reserved.
icfi.com |
8
Infrastructure Activity – Louisiana Gulf Coast Only significant supply changes to date are 1) The Shell HoHo line with light crude from Houston; 2) Eagle Ford via Jones Act vessels from Corpus and 3) Rail movements into St. James and limited other locations New supply into the Eastern Gulf must overcome the following:
Imports of medium and heavy crudes Medium domestic offshore over 900 TBD and set to rise by 400 TBD plus HoHo and Eagle Ford volumes Venezuelan JV agreements and Saudi/Kuwait market share pressure Lack of direct connection market centers (not like Port Arthur and Houston) Under Study: ETP Trunkline Conversion from Patoka to St. James/Port Arthur for Bakken or Canadian Capline Reversal Will parties commit to space to make these projects go?
New Orleans/Miss: Import Mix Other 15% Canada 5% Venezuela 14%
Kuwait 14%
Saudi Arabia 35%
Mexico 17%
2014 6 months
© 2014 ICF International. All rights reserved.
icfi.com |
9
Optionality a Driver for Producers and Refiners Nigerian Crude Price into the U.S. East Coast
Source: Bloomberg © 2015 ICF International. All rights reserved.
icfi.com |
10
Rail Regulatory Issues Likely to Impact Midstream DOT Railcar Safety Standards are expected to be issued in May. The proposed standards included a timetable mandating use of new or retrofitted railcars commencing in 2017 and 2018 for crude oil, ethanol and other flammables.
Pre-Oil-Price-Drop Crude Oil by Rail Transportation Forecasts
The proposed timetable coupled with increasing demand for railcar movements from the U.S. and Canada (and more if KXL is not built) would have been very challenging with limited industry new car build and retrofit shop capacity Lower crude prices may impact the future drive to move crude by rail, but lack of pipeline options for East and West Coast refiners may still pull demand by rail Canadian rail movements in heated railcars could increase substantially with no other pipeline export options. Final regulations will impact the rail movements, but the timetable will determine the magnitude
Lease costs, currently depressed, may increase significantly for cars compliant with the new regulation Access to railcars may be a larger issue than cost if the timetable is similar to the proposal © 2015 ICF International. All rights reserved.
icfi.com |
Source: ICF. PHMSA. “Draft Regulatory Impact Analysis (RIA).” Docket No. PHMSA-2012-0082, HM-251. DOT, July 2014. P. 36.
11
Plummeting Rig Counts
-36%
-26% -35%
Source: Baker-Hughes © 2015 ICF International. All rights reserved.
icfi.com |
12
Historical Day Rate Response to Drop in Drilling Activity
Source: Land Rig Newsletter © 2015 ICF International. All rights reserved.
icfi.com |
13
2014-2025 U.S. and Canadian Oil Infrastructure Investment Expenditures as a Function of Oil Price
Oil infrastructure investment expenditures include oil lease equipment, oil mainline capacity with pumps, crude storage laterals, oil gathering lines, and crude oil storage. Source: ICF International
© 2015 ICF International. All rights reserved.
icfi.com |
14
Conclusions Midstream has rapidly responded to tight oil and oil sands growth to connect markets by pipeline and rail to move crude to refiners. Refiners have used that connectivity to modify crude slates to take advantage of market opportunities and export products. Both refiners and producers are focused on the optionality that Midstream flexibility brings – producers can seek the highest price markets and refiners the optimal crude sourcing But the optionality works against traditional Midstream needs – certainty!
Outlook with lower crude prices is even less certain….. Production impacts with lower price may mitigate need for increasing pipeline capacity Rail demand may be sustained if Bakken/Brent spreads favor, but final DOT regs may influence cost or availability of railcars Open crude export policy may provide an off-ramp for crude production growth; otherwise there may be a crude logjam in the Gulf Coast © 2015 ICF International. All rights reserved.
icfi.com |
15
Contact Information
Harry Vidas Vice President [email protected] +1.703.218.2745
© 2015 ICF International. All rights reserved.
icfi.com |
16
