Future of Mitsubishi Hitachi plant uncertain after sale to U.S. financial company

Future of Mitsubishi Hitachi plant uncertain after sale to U.S. financial company

ALEX MACPHERSON, SASKATOON STARPHOENIX

Published on: February 18, 2017 | Last Updated: February 18, 2017 5:00 AM CST

 

Four months after shuttering its Saskatoon-based manufacturing division and laying off most of its employees in the city, Mitsubishi Hitachi Power Systems Canada Ltd. (MHPSC) has sold its sprawling 58th Street East facility — but the plant’s future remains uncertain.

Illinois-based Hilco Global, which specializes in valuing and “monetizing” assets in more than 60 countries, paid an undisclosed price for the 21-acre complex, which was listed for $19.95 million, and now has several options, according to its executive vice president.

“If we can find a going concern company that wants to buy it and run it, that looks at the facility and feels like they can turn it into something … we’ll sell it,” Gary Epstein said in an interview from the company’s Northbrook, Illinois offices.

“We’re also looking for various ways to monetize this asset now, and that could frankly be a few different things,” Epstein added, noting the property could be divided and sold in pieces, or it could be emptied of its industrial equipment and sold as land.

Hilco Global is working in tandem on the project with the Melville, New York-based Prestige Equipment Corp.

MHPSC opened its Saskatoon plant in 1988 and spent the next 28 years developing and manufacturing equipment for the power, energy and industrial sectors. Last summer, it announced plans to shutter one of its divisions, at the cost of around 150 jobs, as it restructures.

The company laid off the employees and moved its 40-person power division to a different location in the city late last year, leading North Saskatoon Business Association executive director Keith Moen to bemoan the “terrible loss of jobs.”

Although the plant’s equipment is extremely specialized, the space could eventually house one or more local or regional companies working in several different sectors, according to CBRE Ltd. vice president Michael Bratvold, who brokered the sale to Hilco Global.

“We’ve got a tremendously skilled workforce (in Saskatoon),” Bratvold said. “Having access to those workers that were there, I think it’s a great asset for anyone coming in but it’s also important for the city to find a place for those workers.”

Moen said Thursday that while the best-case scenario is for skilled jobs to remain in Saskatoon, which would help with the city’s current economic situation, economic development of any kind at the site would be beneficial.

 

 

Canadian Mining Report for 2016 Released

A return to optimism in mining puts Canada at a crossroads

February 16, 2017

The Canadian Mining Association

http://mining.ca/news-events/press-releases/return-optimism-mining-puts-canada-crossroads

To download a copy of Facts & Figures 2016, go HERE

 

Action needed for Canada to capitalize on potential rebound 

 

Cautious optimism is returning to the global mining industry, which could spur mining companies to make new and significant investments. However, a new report from the Mining Association of Canada (MAC) shows evidence of declining Canadian competitiveness and the prospect for major exploration and mining investments to flow offshore.

“Very simply, Canada is not as attractive as it used to be for mineral investment, and competition for those dollars is growing globally. The recent elimination of federal mining tax incentives, regulatory delays and uncertainty, combined with major infrastructure deficits in northern Canada are all contributing factors that can explain Canada’s declining attractiveness. The time is now to put the right policy pieces in place to better compete for those investments and regain our leadership in mining,” stated Pierre Gratton, President and CEO, MAC.

MAC’s Facts & Figures 2016 report notes several indicators that reveal that Canada is not as competitive as it once was. Foreign direct investment into Canada’s mining sector dropped by more than 50 percent year-over-year in 2015. This is disproportionate to Canadian mining direct investment abroad, which only experienced a 6 percent decline. This imbalance indicates that companies are investing in project development, but may be less interested in doing so in Canada. Canada also no longer attracts the single-largest share of total global mineral exploration spending, having conceded first place to Australia in 2015. Further, no new mining projects entered the federal environmental assessment stage in 2016. If these trends continue, there will be fewer discoveries made and fewer projects that become operational mines in Canada.

“The policy landscape in Canada is full of uncertainty as we await the outcomes of major government decisions. The federal government is reviewing federal environmental legislation, is implementing a pan-Canadian climate change policy, and is working to address long-standing transportation and infrastructure issues. These are all necessary and positive steps, but they must result in boosting Canada’s attractiveness as a place to do business. At risk is a key sector of our economy, and one that leads the world in sustainable mining practices,” stated Gratton.

MAC’s report also revealed the mining industry remained a strong contributor to the Canadian economy despite the downturn in 2015. The industry directly employed more than 370,000 people across Canada and remained the largest private sector employer of Aboriginal people on a proportional basis. An additional 190,000 worked indirectly in mining, with more than 3,700 companies supplying goods and services to the Canadian mining industry. In 2015, the mining industry accounted for $56 billion of Canada’s GDP and minerals and metals accounted for 19% of Canadian goods exports.

Policies that improve Canada’s mining competitiveness:

1)   Improve the federal project review process –  the process should be effective and timely, from pre-environmental assessment (EA) to post-EA permitting, with meaningful consultation with Aboriginal communities.

2)   Invest in critical infrastructure in remote and northern regions – introduce strategic tax measures and ensure the new Canada Infrastructure Bank has a strong economic development focus for northern Canada.

3)   Improve access to trade – ensure trade policies provide access to new and important markets, including China, and improve Canada’s transportation network to more efficiently move mineral and metal products to market.

4)   Address climate change while protecting Canadian businesses – adopt policies that lead to meaningful greenhouse gas emissions while protecting emissions intensive and trade-exposed industries (EITI), like the mining industry. Failing to protect EITI sectors will result in “carbon leakage”—the shifting of production and the associated economic benefits from countries that are taking action on climate to those that are not.

5)   Help expedite industry innovation – The Canada Mining Innovation Council is seeking a $50 million investment for the Towards Zero Waste Mining innovation strategy from the Government of Canada to accelerate the adoption of disruptive technologies that will support the transition to a lower carbon future.

ff-1

To download a copy of Facts & Figures 2016, go HERE

-30-

About MAC

The Mining Association of Canada is the national organization for the Canadian mining industry.  Its members account for most of Canada’s production of base and precious metals, uranium, diamonds, metallurgical coal, mined oil sands and industrial minerals and are actively engaged in mineral exploration, mining, smelting, refining and semi-fabrication. Please visit www.mining.ca.

 

Canada losing ground as mining investment destination

Canada losing ground as mining investment destination

Cecilia Jamasmie

Feb 16, 2017

Mining.com

ff-1

Source: MAC’s Facts & Figures 2016.

While optimism is slowly but steadily returning to the global mining industry, Canada doesn’t seem to be in a good position to benefit from the increasing number of companies ready to make new and significant investments.

At least that is the conclusion from a report released Thursday by the Mining Association of Canada (MAC), which also warns of the possibility of seeing major exploration and mining investments flow offshore.

“Very simply, Canada is not as attractive as it used to be for mineral investment, and competition for those dollars is growing globally,” MAC President and CEO Pierre Gratton said.

Elimination of federal mining tax incentives, regulatory delays, uncertainty and major infrastructure deficits in northern Canada are all contributing to the country’s declining appeal.

The recent elimination of federal mining tax incentives, regulatory delays and uncertainty, combined with major infrastructure deficits in northern Canada are all contributing factors that can explain Canada’s declining attractiveness, Gratton noted.

The report also highlights the policy areas that Canada needs to pay attention to in order to seize future growth opportunities and re-gain its leadership in mining.

Some of the figures included in the report are quite telling. In 2015, foreign direct investment into Canada’s mining industry dropped by more than 50% from the previous year. In contrast, the country’s resources sector direct investment abroad only experienced a 6% decline.

According the industry body, such imbalance proves that Canada no longer attracts the single-largest share of total global mineral exploration spending, a top place it lost to Australia in 2015. Further, MAC says, no new mining projects entered the federal environmental assessment stage in 2016.

If these trends continue, the association warns, there will be fewer discoveries made and fewer projects to become operational mines in Canada.

Despite the challenges, the sector remains a key contributor to the Canadian economy, employing more than 370,000 people across the country and being the largest private sector employer of Aboriginal people on a proportional basis.

In 2015, the mining industry accounted for $56 billion of Canada’s GDP and minerals and metals accounted for 19% of Canadian goods exports.

 

 

 

Wary shippers back Keystone XL but favour alternatives on Trump ‘tweak’ fears

Wary shippers back Keystone XL but favour alternatives on Trump ‘tweak’ fears

 

Geoffrey Morgan | February 15, 2017 3:51 PM ET

http://business.financialpost.com/news/energy/wary-shippers-back-keystone-xl-but-favour-alternatives-on-trump-tweak-fears

CALGARY – Canadian oil companies are recommitting to TransCanada Corp.’s Keystone XL pipeline, though some producers are concerned about threats of  “tweaks” to the North American Free Trade Agreement and a border adjustment tax by the U.S. government.

TransCanada has been canvassing support for its long-delayed but recently revived pipeline between Alberta and the U.S. Gulf Coast at a time when many domestic oil producers are concerned U.S. President Donald Trump could impose new trade taxes on exports to the States.

Trump did soothe Canadian nerves by stating he is only looking for ‘tweaks’ to the Canadian portion of the NAFTA agreement, but it’s unclear whether the minor changes could turn into major implications for Canadian businesses.

In the meantime, other pipeline proposals such as the Alberta-to-New-Brunswick Energy East pipeline and Kinder Morgan Canada’s Trans Mountain expansion project, are looking increasingly attractive as they connect Alberta to new overseas markets and also serve as a hedge against the oilpatch’s utter dependence on the U.S. and its political risk.

Trent Stangl, Crescent Point Energy Corp. senior vice-president, investor relations and communications, said forecasts show Asian and Indian markets to be key growth drivers for oil products over the next 20 years, and the company “is excited to have multiple opportunities to get to different markets.”

He said export pipelines to the East and West Coasts “gives us more diversity and helps protect us against regulatory and fiscal issues.”

Some producers have reaffirmed their support for Keystone XL project, which was rejected by former president Barack Obama but recently revived by Trump and now needs shippers to re-sign transportation agreements.

“We are, and we remain, a committed shipper on both pipelines,” Suncor Energy Inc. spokesperson Sneh Seetal said of Keystone XL and Energy East pipeline, adding that Suncor’s chief executive Steve Williams downplayed concerns over a border adjustment tax last week.

Privately, however, other energy executives have expressed concerns to the Financial Post about a border adjustment tax and about committing to more U.S.-bound oil shipments on Keystone XL given the uncertainty.

“The last several years, starting with the inability to get Keystone XL across the finish line, and now with border taxes and things like that, it really highlights the need to have a diverse market,” one Alberta executive said, asking not to be named.

Neither producer, nor transporter, nor consumer likes uncertainty, ARC Energy Research Institute executive director Peter Tertzakian said. “The propensity to commit to long-term, big-ticket projects goes down dramatically anytime there’s regulatory or policy uncertainty.”

Trump’s invitation to TransCanada to re-apply for a presidential permit for the pipeline comes at a difficult time for the company, given the president has sought “tweaks” to NAFTA without offering much details.

When asked whether a possible border adjustment tax has made it difficult to secure commitments on the U.S.-bound pipeline, TransCanada spokesperson Terry Cunha would only say, “discussions with our customers on Keystone XL continue.”

Martin Pelletier, TriVest Wealth Management co-founder and industry analyst says shippers are right to be wary. “Why would anybody sign on anything right now, provide any kind of commitment, before we get clarification? That’s like putting the cart before the horse.””

”Why would anybody sign on anything right now”

Similarly, Calgary-based Canadian Energy Research Institute vice-president, research Dinara Millington said an import tax could change the economics of sending oil barrels to the U.S. “The shippers will need to evaluate what their project economics are and whether it makes any sense to them in terms of their netback.”

Millington recently published a study that showed domestic oil companies will need both Energy East and the Trans Mountain expansion pipeline, given oil production forecasts over the next 20 years. At the time of the study, Keystone XL had been shelved, she said, but added that shippers could eventually fill all three pipelines.

“There will still likely be considerable support for the Keystone XL option,” Gary Leach, the Calgary-based president of Explorers and Producers Association of Canada said in an interview. The project would likely be prioritized within TransCanada’s portfolio of projects because the company has already completed the southern leg of the pipeline, he said.

“More options are always better, but somebody’s got to pay for it and the pipeline company needs some assurance they’ve got volume commitments,” Leach said.

 

 

 

Clear signs of recovery for oil service companies

Clear signs of recovery for oil service companies: Yager

If your definition of success is a return to 2014, you’ll be disappointed. But if you’re still in business after the past two years, this is a measurable and meaningful improvement for the part of the industry that’s chasing rigs.

By David Yager

Feb. 15, 2017, 2:56 p.m.

http://www.jwnenergy.com/article/2017/2/clear-signs-oil-service-recovery-yager/

The most frequently referenced barometer of oil service prosperity is the number of active drilling rigs. But this is only part of the story. There are multiple ways to measure progress or success.

The oil service recovery currently underway is not evenly distributed or positive for all participants. But after two years of contraction and misery, the outlook has improved sufficiently to justify optimism for most.

On January 20, JWN’s Rig Locator reported 340 rigs moving or making hole. This is the highest number in nearly two years since Feb. 10, 2015. Utilization is reported to be over 52 per cent, but that’s because the available rig fleet has shrunk to 653 from over 800.

At an average cost of $5 million per machine, nearly $750-million worth of drilling iron from two years ago is parked or obsolete. That’s a huge price for contractors to absorb for a modest mathematical increase in rig utilization.

Service rig utilization is a broader measure because activities involving production workovers and abandonments, not just new well completions. The Canadian Association of Oilwell Drilling Contractors reported in November that 32 per cent of the 1,003 available service rigs were working, the highest rate in 2016 and the past year. In the dark days of early 2016, when wells went down, operators often couldn’t justify spending the cash to fix them.

That all changed with higher oil prices in mid-2016.

Oil prices are higher, but many don’t appreciate how much. On January 20, the Petroleum Services Association of Canada and GMP FirstEnergy commodity pricing report had synthetic crude at C$71.92 and Edmonton mixed sweet at C$65.92. Western Canadian Select, the perpetually depressed blend of bitumen, synthetic and condensate (mixed for easier transportation), fetched C$52.18.

Noteworthy is all three averaged more than $30/bbl higher than a year ago. For an industry producing 4.5 million bbls/d of these three crude types plus natural gas liquids (which have enjoyed a similar increase), this is $135 million/day more than a year ago. These are big numbers.

The ARC Energy Research Institute, a unit of ARC Financial, publishes a weekly macroeconomic report on the upstream petroleum industry. On January 16, ARC estimated 2017 revenue from all oil and gas production could be $110 billion, a whopping $32 billion (or 41 per cent) higher than 2016. Higher oil prices are aided by natural gas being expected to benefit from a 50 per cent boost this year. Revenue from existing production remains the number one source of cash flow for reinvestment. This explains why most operators have announced increased spending.

ARC estimates after-tax cash flow to more than double in 2017 to $45 billion from only $20 billion last year. This supports an estimated 40 per cent increase in capital spending on conventional oil gas from last year, to $28.8 billion compared to only $20.5 billion. While this is still lower than historical levels, the estimate does not anticipate improvements from capital inflows from new equity issues. As for debt, oil companies will be dedicating a meaningful portion of their improved financial fortunes to balance sheet repair.

If your definition of success is a return to 2014, you’ll be disappointed. But if you’re still in business after the past two years, this is a measurable and meaningful improvement for the part of the industry that’s chasing rigs.

The recovery is not even. ARC estimates oilsands investment will decline yet again to only $13.2 billion this year, the lowest level since 2009. It was $16.2 billion last year and $22.9 billion in 2015. For major processing projects, the $8.5-million North West Redwater Sturgeon Refinery construction is winding down. The workforce has been reduced by 2,000 in the past year and further reductions will follow. Start-up is anticipated for the latter half of the year. Two new projects totaling $7 billion from Pembina Pipeline and Inter Pipeline to build plastic feedstock plants have been announced, but they aren’t going to materially move the employment and trades needle for most of 2017.

The oilpatch is not yet firing on all cylinders. The macroeconomic uncertainty ranges from Donald Trump to pipelines to carbon taxes. Activity may never return to the go-go years of 2012 through 2014.

But it is much better than 2016.

 

 

 

India may cut potash subsidy in potential blow to demand

Thu Feb 16, 2017 | 8:50am EST

Exclusive: India may cut potash subsidy in potential blow to demand

By Rajendra Jadhav | MUMBAI

REUTERS

An Indian ministry has proposed slashing potash subsidies by 17 percent in the next financial year to reduce the fiscal deficit, officials said, a move that would hit demand in one of the world’s largest importers of the fertilizer.

Although global prices have been falling, a reduction in government support in India – which alongside China is the world’s biggest bulk potash importer – will make potash relatively expensive for the companies that import it.

Some officials at those companies said that were the proposal to be adopted, they would seek lower prices when negotiating annual contracts with global suppliers and also raise retail prices charged to farmers, dampening demand.

Global producers including Uralkali, Potash Corp of Saskatchewan, Agrium Inc, Mosaic, K+S, Arab Potash and Israel Chemicals have been hoping for robust demand to help counter weak prices.

Asian import prices have fallen around 10 percent in the last 12 months.

India’s fertilizer ministry has proposed fixing the potash subsidy at 7,669 rupees ($114.61) a tonne for the 2017/18 fiscal year beginning in April, down from 9,280 rupees per tonne this year, said a senior government official.

He did not wish to be identified, because he was not authorized to talk to the media.

Prime Minister Narendra Modi’s cabinet has to decide on the proposal, said the official, who is directly involved in the decision making process.

If India were to import 4 million tonnes of potash in 2017/18, the savings from the proposed subsidy cut would equate to almost $100 million.

Two other industry officials confirmed the plan.

The Ministry of Chemicals and Fertilisers spokesman declined to comment on the proposed changes.

NOT SO ROSY OUTLOOK

India relies on imports to meet its annual potash demand of about 4 million tonnes, but higher prices are expected to limit how much its 263 million thrifty farmers use.

India buys potash from global miners in annual contracts that the south Asian country usually signs before the start of the fiscal year.

Contracts signed by India and China are considered benchmarks globally, and are closely watched by other potash buyers such as Malaysia and Indonesia.

“The subsidy reduction will weigh on the new contract negotiations. We cannot offer higher prices in new contracts due to the proposed subsidy reduction,” said an official who takes part in the negotiation process with overseas miners.

Leading producer Potash Corp last month expressed hopes for a pick-up in demand from India in 2017, while Agrium earlier this month forecast a 5 percent rise in global potash shipments this year.

Some industry officials in India say the demand outlook is not so rosy, and doubted imports of the crop nutrient would exceed 4 million tonnes if the subsidy cut went through.

Last year suppliers had to sell potash to India at $227 per tonne, down from $332 previously and the lowest in a decade, after India delayed purchases due to sluggish demand.

That allowed importing companies to reduce retail prices, but that could be reversed in 2017/18.

“If the subsidy goes down, then we have no choice but to raise retail prices,” said an official with a state-run fertilizer company. The official declined to be named.

In his budget for the 2017/18 fiscal year, Finance Minister Arun Jaitley in fact kept the overall fertilizer subsidy unchanged at 700 billion rupees.

But fertilizer importers said that almost half of the amount would be spent on settling arrears accumulated from 2016/17, necessitating savings.

(Editing by Mike Collett-White and Mayank Bhardwaj)

 

 

 

Saskatchewan Has Highest Manufacturing Sales Growth in Canada

Highest Manufacturing Sales Growth in Canada

Released on February 15, 2017

Manufacturing sales in Saskatchewan rose 5.4 per cent (seasonally adjusted) between November 2016 and December 2016, the highest percentage increase among the provinces.  Nationally, sales were up 2.3 per cent.

manu-sales

“This marks the second straight month of increases in manufacturing sales,” Economy Minister Jeremy Harrison said.  “It is one of the most diverse sectors of the economy that exports products to clients all over the world.”

On a year-over-year basis, sales were up 11.9 per cent (seasonally adjusted) in Saskatchewan, the second highest among the provinces and well ahead of the 4.1 per cent posted nationally.

In December, manufacturing sales totalled $1.3 billion.  Major gains on an annual basis were recorded year-over-year for machinery manufacturing (up 4.5 per cent), wood products (up 21.6 per cent), and food manufacturing (up 26.0 per cent) on a seasonally unadjusted basis.

-30-

For more information, contact:

Deb Young
Economy
Regina
Phone: 306-787-4765
Email: deb.young@gov.sk.ca

 

 

 

Tepco invokes ‘Act of God’ clause on Cameco deal, but it seems more like a Hail Mary

Tepco invokes ‘Act of God’ clause on Cameco deal, but it seems more like a Hail Mary

Drew Hasselback | February 14, 2017 1:37 PM ET

http://business.financialpost.com/legal-post/tepco-invokes-act-of-god-clause-on-cameco-deal-but-it-seems-more-like-a-hail-mary

heston

Charlton Heston as Moses in The Ten CommandmentsThink twice before blaming God for something that might not be God’s fault

 

Tokyo Electric Power’s move to pull the plug on an agreement with Canadian uranium miner Cameco Corp. is the latest example of a company arguably stretching the traditional use of a force majeure or “Act of God” clause to suspend a contract.

Tokyo Electric Power Co. Holdings Inc. argues that it has been unable to operate its nuclear power plants in Japan because of government regulations enacted after the 2011 Fukushima nuclear disaster. The accident was caused by an earthquake and resulting tsunami. Centuries of legal tradition should easily place those natural disasters within anyone’s definition of Acts of God.

You probably can’t say that for government-made regulation, though Tepco’s obvious point is there wouldn’t be regulation but for those preceding Acts of God. Maybe it is legally possible to say those natural disasters started a chain reaction of unforeseeable events, including more government regulation. It depends on the wording of the force majeure clause in the contract between Tepco and Cameco.

For now at least, Cameco won’t disclose the wording used in the clause. “It does contain provisions when force majeure and other defences can be taken advantage of, but I don’t think we’ll get into any more detail right now,” said Sean Quinn, senior vice-president and chief legal officer of Cameco, during a conference call earlier this month. “We don’t think this is a situation that falls into any of the categories that would excuse Tepco.”

A force majeure clause is supposed to absolve a party from executing on an agreement due to circumstances beyond the control of the parties.

A typical clause covers Acts of God. I am a proud alumni of the Sunday School at Zion Lutheran Church in Dashwood, Ont. Pastor Mellecke took us through quite a catalog of God’s wrath – things like floods, pestilence, storms, famines, and earthquakes. But you probably don’t need bible school training to know an Act of God when you see it. For a quick primer, watch Charlton Heston’s Moses open a few cans of biblical whoop-ass in Cecil B. DeMille’s 1956 classic, The Ten Commandments.

Over the years, lawyers have decided the Old Testament alone doesn’t cover enough contract risk. They’ve added several man-made events to force majeure clauses, such as labour disputes, wars, and blackouts.

Here’s the legal problem. If an event isn’t already built into a force majeur list, it can be very difficult to argue that a court or arbitrator should read it in. Commodity prices, market conditions and changes to government policy are examples of risks that can be reasonably foreseen by business people. If those risks should allow a party to cease or suspend execution of the agreement, the parties need to include them in the deal, either as part of the force majeure clause or in some other termination provision.

This doesn’t always happen.

Donald Trump, whom you might have heard of, once argued in court that he should be able to delay monthly payments on a real estate loan because the financial crisis of 2008-2009 was an “Act of God.” The case was settled out of court in 2010.

In a Canadian example, a company called Univar Canada Ltd. tried to invoke force majeure to get out of an agreement to supply Domtar Inc. with caustic soda at a fixed price. Market conditions changed and the price shot above the contract price. Univar claimed force majeure, but a B.C. judge disagreed in 2011.

For its part, Cameco has publicly said the Tepco dispute is likely more about the prices written into the contract than Acts of God or government regulation. We likely won’t know until the dispute is resolved.

The contract first requires Cameco and Tepco to engage in a 90-day “good faith” negotiation period.

According to a 2014 Supreme Court of Canada case called Bhasin v. Hrynew, “good faith” requires parties to perform their contractual obligations honestly. In other words, Cameco and Tepco can’t cross their fingers and fake their way through negotiations. And there’s little reason to expect anything less. Tepco holds a five per cent stake in Cameco’s Cigar Lake mine in Saskatchewan and has continued to contribute its share to capital costs.

If good faith talks can’t resolve the dispute, the contract calls for binding arbitration. The parties would take the dispute to a private court, where an arbitrator would interpret the contract behind closed doors. Cameco says it won a force majeure contract dispute in 2014, though confidentiality terms prevent it from providing further details.

Things do happen that make it impossible to execute on deals, but not every one of those things is an Act of God.

Oil firms resume rail shipments as crude oil pipelines fill up again

Oil firms resume rail shipments as crude oil pipelines fill up again

Jesse Snyder | February 13, 2017 4:08 PM ET

http://business.financialpost.com/news/energy/oil-firms-resume-rail-shipments-as-pipelines-fill-up-again

 

CALGARY — A looming pipeline shortage could force more barrels of Canadian oil onto rail cars over the next few years, as oilsands companies look for alternative shipping options amid a gradual rise in production.

The oil industry’s pipeline woes have eased in recent months after Prime Minister Justin Trudeau approved two major pipeline proposals, and after U.S. President Donald Trump invited TransCanada Corp. to resubmit the  Keystone XL pipeline permit.

However, the earliest date of completion for any new pipeline project is around the end of 2019 — if there are no delays. With oilsands production expected to rise over the next five years, and with Canada’s pipeline system near capacity, oil firms are tapping crude-by rail once again.

“The reality is, without additional physical steel being put in the ground there will come a point where that pipeline system will be overtaken,” said Kevin Birn, an analyst with IHS Cera in Calgary.

oil-by-rail

Volumes of crude moving by rail are already on the rise. Canadian crude oil exports by rail surpassed 120,000 bpd in November 2016, the highest in 13 months.

Recent volumes are nearing their peak of 172,000 bpd in March 2014, when several deadly accidents involving crude-laden trains turned oil-by-rail transportation into a contentious topic, according to the National Energy Board.

The prominence of oil-by-rail transportation came as oil prices were riding high, causing pipelines to reach their capacity. Producers began expanding their rail capabilities at great expense, but oil production tapered off after oil prices crashed in late-2014. Pipeline operators also began finding ways to more efficiently move liquids through their systems, which further dampened demand for rail shipments.

Today, rising oilsands output is setting the scene for a modest oil-by-rail resurgence.

GMP FirstEnergy analyst Martin King wrote in a recent research note that higher oilsands production was raising the “potential for (rail) activity to return to previous highs set in 2014.”

That is partly because analysts expect that much of the efficiencies wrung out of the Canadian pipeline system in recent years have reached their maximum.

Midstream companies like TransCanada and Enbridge Inc. have begun moving higher volumes of liquids by replacing older pumps along their pipelines; blending various types of crude together to better utilize space; or adding chemicals and lubricants that allow for better flow.

“Midstream companies’ ability to optimize that system has been very good in recent years, but it’s going to get increasingly tight,” Birn said.

The looming pipeline crunch caused several oilsands companies to buy into rail capacity as a way to diversify their customer base.

Oilsands operator Cenovus Energy Inc. moved an average 15,000 barrels per day by rail in the third quarter of 2016, up from 6,600 barrels in the third quarter of 2015.

“It does allow us to move barrels to refiners that otherwise wouldn’t be able to receive them,” said Cenovus spokesperson Reg Curren.

The company owns roughly 100,000 bpd in rail capacity, including the roughly 70,000 bpd rail terminal in Bruderheim, Alta., that it purchased from Canexus Corp. in 2015.

Imperial Oil Ltd., another oilsands operator, and its joint-venture partner Kinder Morgan, own roughly 210,000 barrels per day of rail capacity out of a terminal based in Edmonton, Alta. The companies did not divulge recent shipping volumes.

With oilsands production set to rise between 600,000 bpd and 800,000 bpd in the next five years, according to some estimates, producers have begun to show more interest in rail options.
Canadian oil production averaged 3.7 million bpd in 2015, according to the Canadian Association of Petroleum Producers. But that number could reach as high as 5.2 million bpd by 2021, according to projections from the International Energy Agency.

“People have been calling us, hedging their bets,” said John Zahary, the CEO of Altex Energy Ltd., an oil-by-rail logistics firm.

The company today moves around 20,000 bpd of crude through its three main rail offloading facilities. That is lower than the 30,000 bpd it moved when oil-by-rail shipments were at their peak, but Zahary says current volumes could rise as more supply comes on stream.

However most analysts don’t see foresee a similar boom in rail shipments as the rapid build out of rail terminals in 2013-2014 led to an oversupply of capacity.

That undersupply, coupled with low pipeline availability, sent costs skyrocketing for Canadian producers.

“We don’t expect to see the blowouts we’ve seen in the past because of all the infrastructure we’ve seen built out in recent years,” Birn said.

Industry estimates that, on average, rail shipments can cost between $15 and $18 per barrel, compared to $7 to $10 per barrel to ship via pipeline.

 

 

 

 

Trudeau, Trump vow to tighten energy ties, starting with Keystone

Trudeau, Trump vow to tighten energy ties, starting with Keystone

SHAWN MCCARTHY

OTTAWA — The Globe and Mail

Published Monday, Feb. 13, 2017 6:31PM EST

Last updated Tuesday, Feb. 14, 2017 7:17AM EST

 

After meeting with Prime Minister Justin Trudeau, U.S. President Donald Trump signalled his desire to strengthen the bilateral-trading relationship, as the two leaders committed to improved energy trade and singled out the Keystone XL pipeline as an important infrastructure project.

Mr. Trudeau visited Washington on Monday with a cadre of cabinet ministers and several female business executives who participated in a roundtable on women entrepreneurs and business leaders. At every opportunity, the Canadians stressed the highly integrated nature of the two economies and the need for an open border.

In their joint statement, Mr. Trump and Mr. Trudeau noted that U.S.-Canadian energy and the environment are “inextricably linked” and that they are committed to “further improving our ties” in those areas.

“We have built the world’s largest energy trading relationship,” the statement said. “We share the goals of energy security, a robust and secure energy grid, and a strong and resilient energy infrastructure that contributes to energy efficiency in both countries. …

“As the process continues for the Keystone XL pipeline, we remain committed to moving forward on energy-infrastructure projects that will create jobs while respecting the environment,” it added. Neither Mr. Trump nor Mr. Trudeau mentioned climate-change policies, though their statement did speak of co-operating on “clean energy.”

Like other exporters, Canadian oil and gas producers have worried about protectionist rhetoric employed by Mr. Trump, and a border adjustment proposal in Congress that could effectively place an import tax on goods entering the U.S. market.

In a joint news conference, Mr. Trump indicated that Canada is not the target when he complains about the unfairness of the North American free-trade agreement and that he is aiming for a “stronger trading relationship between the United States and Canada.”

However, he did suggest there would be some “tweaking” of the deal as it relates to Canada-U.S. trade, and he did not address the threat of a border adjustment levy or Buy America policies that can discriminate against Canadian exporters. When Mr. Trump revived the Keystone XL project last month, he also said he wanted American steel to be used for the pipeline and directed his Commerce Secretary nominee Wilbur Ross to prepare a plan to maximize the use of U.S.-sourced steel in all pipeline projects.

After having the project rejected by former president Barack Obama, TransCanada Corp. has re-applied for approval of the Keystone XL line, which would deliver Alberta oil sands crude to refineries in the U.S. Gulf Coast. The President ordered the review to be expedited.

The Alberta-based companies fear they could face new market-access problems in what is currently virtually their sole export market. Several analysts have warned of a dire impact on the oil and gas sector if the proposed border adjustment levy was enacted.

“Such fears were wildly overblown in the first place, at least from the oil-industry perspective,” said Robert Johnston, president of Eurasia Group, a political-risk firm in Washington. Eurasia Group has argued that the U.S. government was unlikely to impose any measures that would drive up energy costs or impede imports from Canada.

Still, the industry welcomed Mr. Trump’s reassuring statements, said Terry Abel, executive vice-president of the Canadian Association of Petroleum Producers. “They tend to echo the long history we’ve had with a very strong, mutually beneficial trade relationship,” he said.

Mr. Trudeau had one key message for the President: that liberalized, crossborder U.S. trade benefits American middle-class workers as much as it does Canadian. One statistic was used to tell that story: that Canada is the most important export market for 35 states. It is a figure that was repeated by Mr. Trump at the news conference and even by CNN anchors covering the visit.

“Millions of good middle-class jobs on both sides of the border depend on this partnership,” Mr. Trudeau said.

In addition to oil and gas producers, manufacturers worry about maintaining their access to the American market, and whether they’ll be hit by new Republican protectionism – arising from the White House or Congress.

“It’s early days but [the meeting] was very encouraging,” said Dennis Darby, president of the Canadian Manufacturers & Exporters Association. He said the two sides appeared to make progress in a some specific areas, including expedited customs clearings for goods moving across the border, and harmonizing regulations.

“We’ll have our work cut out for us [in beating back protectionist measures] but this is a way better start than many predicted,” he said.

 

 

 

%d bloggers like this: