technological breakthroughs in hydrocarbon transportation · (80-100% of the amount of heavy...

Technological Breakthroughsin Hydrocarbon Transportation

Hydrocarbon Transportation 2018 Conference – Infonex

April 10-11, 2018

Innovation and Technology

▪ Innovation is crucial to the continuing success of any organization

▪ Innovation is an ongoing process

▪ Not good enough to innovate once

▪ Need to continue to innovate to stay competitive

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Innovation

▪ Changes call for innovation, and innovation leads to progress. Li Keqiang

▪ Innovation is the specific instrument of entrepreneurship. The act that endows

resources with a new capacity to create wealth. Peter Drucker

▪ The only way you survive is you continuously transform into something else. It's

this idea of continuous transformation that makes you an innovation company.Ginni Rometty

▪ Innovation is taking two things that already exist and putting them together in a

new way. Tom Freston

▪ I think frugality drives innovation, just like other constraints do. One of the only

ways to get out of a tight box is to invent your way out. Jeff Bezos

▪ Every once in a while, a new technology, an old problem, and a big idea turn into

an innovation. Dean Kamen

▪ Desperation sometimes drives innovation. Dara Khosrowshahi

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Innovation

▪ Unless you stay focused on innovation, you can be disintermediated. Ruth Porat

▪ Innovation in an existing company is not just the sum of great technology, key

acquisitions, or smart people. Corporate innovation needs a culture that matches

and supports it. Steve Blank

▪ Innovation happens because there are people out there doing and trying a lot of

different things. Edward Felten

▪ The heart and soul of the company is creativity and innovation. Bob Iger

▪ Ultimately, progress and innovation win. Travis Kalanick

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Technology

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Technology

▪ Every once in a while, a new technology, an old problem, and a big idea turn into

an innovation. Dean Kamen

▪ I'm interested in things that change the world or that affect the future and

wondrous, new technology where you see it, and you're like, 'Wow, how did that

even happen? How is that possible?' Elon Musk

▪ Study hard so that you can master technology, which allows us to master nature.Che Guevara

▪ Our business is about technology, yes. But it's also about operations and customer

relationships. Michael Dell

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So Let’s Innovate▪ We can do things different (optimize, innovate, disrupt, transform, etc etc)

▪ Blessed with the resource base in Western Canada – need to think off opportunitieseverywhere to make it more economic/profitable so it continues to attract capital

▪ Increase revenue (volume, per unit prices,…)

▪ Decrease costs (capex, opex,….)

▪ Confident that that can be done

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Problems/Opportunities and Innovation

▪ Case Study: Altex

▪ Innovate to solve problems

1. Diluent Value Loss

2. Egress for Western Canadian Oil

3. Safety/Environmental Performance

4. Forehaul/Backhaul

5. New Markets

6. Solidifying

7. Logistics System to Improve Performance

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#1 - Diluent Value Loss

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▪ Canada produces mostly heavy oil (10-19 API) or bitumen (5-10 API) – 3.5mmbpd

▪ Some oil is upgraded in western Canada (1mmbpd) but most is moved to market inother areas

▪ This oil is too viscous for conventional pipelines – needs to be diluted with lighterhydrocarbons (typically condensate) to be pumped through pipeline

▪ Condensate worth more as a diluent in western Canada than it is as a refineryfeedstock – lose $10/bbl moving it to “market” and it costs $10/bbl to move it

▪ Western Canada “invented” a way turn $70 in to $50 and we do it one million timesper day

▪ What if we could move heavy oil without adding the diluent?

Diluent Value Loss

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▪ Heavy oil production requires diluentto be pipelined (reduce viscosity/density)

▪ Substantial quantity of diluent needed(80-100% of the amount of heavyoil/bitumen being moved)

▪ C5+ more valuable as diluent forheavy oil than refinery feedstock

▪ Growing heavy production in Canadato require more diluent

▪ Lower C5+ value at tidewater withgrowth in very light oil production(shale)

▪ Economic driver to transport heavyoil without diluent

Source: CAPP, June 2016

Western Canadian oil production

$70/bbl

$60/bbl

C5+

C5+

$60/bbl$60/bbl

C5+C5+

Cost of Diluting Heavy Oil

Transportation Cost ~$10/bbl

Market Value Loss ~$10/bbl

Diluent Penalty ~$20/bbl

Diluent Value Loss

▪ Condensate sells at a premium tolight oil when it should sell at adiscount (based on refinery value)

▪ Various options considered tomove heavy oil to market withoutadding diluent

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Source: GMP FirstEnergy March 2018

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▪ Railcars move rocks, coal,tv sets, grain, wood, …

▪ Could easily move heavyoil without diluent

Diluent Value Loss

Moving Oil on Railcars

▪ Wasn’t even that new an idea

▪ In 1858, retired railway man Colonel Edwin Drake devised the idea ofthe drive pipe pioneering a new way to produce oil which is still usedtoday in Titusville, Pennsylvania

▪ Techniques were imitated by others, production boomed (~85% ofworld oil was coming from PA wells in 1880’s)

▪ John Rockefeller started his career at age 16 (in 1855) as assistantbookkeeper working for a small produce commission firm called Hewitt& Tuttle in Cleveland, OH. He was particularly adept at calculatingtransportation costs, which served him well later in his career.

▪ In early 1860’s, he entered the oil business on the distribution/refiningside moving oil and refined products from production site to refinery tomarket by rail (only method possible)

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Titusville, PA

Edwin Laurentine Drake

1819-1880

John Davison Rockefeller

1839-1937

Diluent Value Loss

▪ Altex and Canadian National Railway worked together to introduce (re-introduce?) crude movement on rail to Canada as a way of moving heavy oilwithout adding the diluent

▪ Needed to develop technology which would allow heavy oil to be loaded onrailcars

▪ CDN Patent #2829003 – Transload Process

▪ Patent was originally filed in 2013 just before significant crude by rail growthin Canada

▪ Published by the Canadian Patent Office on September 18, 2014▪ Subject to a thorough examination, the patent was issued in November

2015▪ Patent covers the process of moving crude oil from trucks to storage tanks

to railcars▪ Features are designed to move bitumen as well as lighter dilbit grade

material▪ Features also include the reverse flow (from railcars to trucks)

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CDN Patent #2,829,003 – Transload Process

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#2 – Egress Problems for Western Canadian Oil Production

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▪ Western Canadian crude oil production continues to increase driven by long-leadoilsands and heavy oil projects that are ramping up after completion

▪ Oil needs to move to markets

▪ Egress restrictions means Western Canada confronting real apportionment for firsttime in five decades (not apportioning ghost barrels – production will have to berestricted as oil can not be moved to market)

▪ Rail provides an opportunity to solve the egress problems (as it did a few years ago)

▪ Rail also provides a solution to the challenges faced by coastal refineries that can notaccess the heavily discounted western Canadian barrels by pipeline

Egress Problems

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Source: Canadian Association of Petroleum Producers


Western Canadian oil production

All the people, refineries, consumers

that we sell to….

▪ The oil production is in the west andconsumers are in the east (and south)

▪ Infrastructure built to move product tomarkets in Ontario and Illinois areas

▪ Things change – with US productionincreasing, less demand for Canadianoil in those markets but historicpipeline infrastructure largely onlyservices those markets

▪ USGC and East Coast and WestCoast markets not well accessed

▪ Offshore markets not readilyaccessible

Source: BP Statistical Review of World Oil Energy June 2017

Egress Problems

▪ Canada is blessed with massive deposit of oils but need to be able to get to markets

▪ Production increases driven by oilsands projects coming on-stream and ramping upwhich started development years ago

▪ Supply competing for egress options creating large regional discounts

▪ Projects still cover opcosts (variable opcosts) so incented to produce despite price

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Source: CAPP, June 2017Source: GMP FirstEnergy March 2018

Egress Problems

▪ Established rail system across North America allows access to “new” refineries

▪ Allows access to tidewater on east, south and west coasts

▪ Already built and available

▪ Opportunity to move oil safely and environmentally

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Altex terminals

CN Railway

BNSF Railway

UP Railway

CSX

NS

CP

Heavy Oil/Bitumen Producing Areas

#3 – Safety and Environmental Performance

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▪ Society demanding higher performance from our crude oil (and natural gas)transportation problems

▪ Statistically pipelines are safe but have had failures over time (eg recent Keystoneproblems but also others)

▪ Statistically railways are very safe (25k railcars per day shipped in Canada –15mmbpd of oil if they were all filled by oil) but strive for safer and moreenvironmentally friendly (and want to accommodate heavy oil service)

CDN Patent #2643893 – Railcar Design

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▪ Patent was filed in 2008 prior to significant growth in crude by rail

▪ Published in 2010 prior to DOT111 – CPC 1232 railcar improvements

▪ Subject to a thorough examination, the patent was issued in January 2016

▪ Patent covers a railcar that is coiled and insulated▪ Designed to move bitumen as well as lighter grade material▪ Consistent with safety features set by regulators for enhanced safety on railcars


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▪ Prior to establishing the DOT/TC-117 standard, Transport Canada conducted animpact study

▪ Based on the continued growth of Canadian production and lack of pipelinedevelopment they anticipated 10,000 coil and insulated cars would have to be addedby 2034

▪ In addition they anticipated a further $500mm in retrofits would be required.

▪ Timing of Canadian regulations are harmonized with US regulations


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▪ Technology improves safety and environmental performance of railcars

▪ Have licensed technology to a North American railcar manufacturer

▪ Working with other railcar manufacturers (and/or railcar owners/lessors) who seevalue in technology on licensing arrangements

▪ Similar approach with terminal owners on process patent

Operating & Safety Standards

▪ Pipeline and rail represent relatively safe energy transportation solutions with long operational track records

▪ Rail infrastructure is already in place, minimizing surface and environmental footprint of a growing industry

▪ Rail has been shown by independent parties to have lower spilled volume and greater energy efficiency than other alternatives

▪ Permitting is straightforward and in place

▪ Altex has developed rigorous safety standards and is an industry leader in health and safety policies

▪ Type of crude oil typically moved by Altex is safer than other crude oils and other products often moved on rail or by pipeline

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-200-150-100-50050100150200

Propane

Butane

Gasoline

Pentane

DilBit

Bakken

WTI

Typical Cdn Light Oil

Iranian Light

Basrah

Urals

Jet Fuel

Diesel

#6 Fuel Oil

Typical Altex Oil

Typical Bitumen

Flash Point (Degrees Celsius)

Increasing Fire Hazard / Explosive Potential

#4 – Forehaul / Backhaul

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▪ Railcars often travel full in one direction only

▪ Return empty

▪ Given higher price for oil at market/tidewater and lower price for condensate atmarket/tidewater, can we be full in both directions

▪ Economic driver for producers/refiners and railways

▪ Also better environmental performance

Forehaul / Backhaul

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▪ Patented the forehaul/backhaul process

▪ CDN Patent #2643893

▪ US Patent #8393359

▪ Haven’t realized the full value of this opportunity but continue to look for opportunities

#5 - New and Emerging Markets for Canadian Crude Oil

▪ Western Canadian crude oil production continues to increase driven by long-leadoilsands and heavy oil projects that are ramping up after completion

▪ Oil needs to move to markets - egress restrictions means Western Canadaconfronting real apportionment for first time in five decades (not apportioning ghostbarrels – production will have to be restricted as oil can not be moved to market)

▪ Rail provides an opportunity to solve the egress problems (as it did a few years ago)

▪ Rail also provides a solution to the challenges faced by coastal refineries that can notaccess the heavily discounted western Canadian barrels by pipeline

▪ But even after this is done, the bigger challenge remains where to move Canadianbarrels to as US production increases in the face of stagnant North American demand

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World Oil Supply / Demand

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7.9

3.9

19.323.8

17.

718.8

7.5 7.0

31.8

9.4


8.0

33.6

Asia is the major global importer of oil – needs

more supply and supply diversification

ProdCons

mmbpd

North America Oil Supply / Demand

29Source: BP Statistical Review of World Oil Energy June 2017

Canada

U.S.A.

Mexico

Anchorage

Prince Rupert

Vancouver

Fort McMurray

Edmonton

CalgaryRegina

WinnipegThunder Bay

Toronto

Ottawa

Montreal Halifax

New York

St Louis

Miami

San Francisco

Los Angeles

Phoenix

HoustonNew Orleans

Mexico City

Minneapolis/St Paul

4.52.3

12.4

19.6

2.5 1.9

North America is an oil importer led by USA demand

Canada is a net oil exporter with significant exports out of Western Canada

Significant growth in USA production has reduced imports and reduced need for Canadian imports

Growing Canadian production highlights need to establish other markets

ProdCons

mmbpd

Diversifying Markets for Canadian Oil Production

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Asia continues to be the obvious location for diversification of Canada’s oil exportsWest coast of Canada/USA are preferential location for exports (closest, cheapest…)

Canada’s oil


Meanwhile….▪ Canadian production expected to continue

to grow - major projects coming on streamand rapidly increasing production

▪ Bitumen and heavy oil requireconsiderable diluent for movement onpipeline exacerbating pipeline capacitychallenges

▪ Low oil prices moderate growth in futureyears (not immediate) for major projectsand has some impact earlier forconventional production - overall impact isslowing growth rather than decline

▪ Still need to deal with takeaway (out oflocal area) and to right consuming market

▪ And pipelines are full

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We eed to fi d ways to access ew a kets a d uickly…..

But rail exists across the continent and to tidewater….

▪ Established rail system across North America allows access to “new” refineries

▪ Allows access to tidewater on east, south and west coasts

▪ Already built and available

▪ Opportunity to move oil safely and environmentally

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Altex terminals

CN Railway

BNSF Railway

UP Railway

CSX

NS

CP

Heavy Oil/Bitumen Producing Areas

West Coast Project

▪ Established Canadian rail system across Western Canada connects to west coast (Lower Mainland and Prince Rupert/Kitimat)

▪ Rail system is connected across North America through other carriers

▪ Terminals and rail capacity available

▪ Opportunity to move oil safely and environmentally by rail and export

▪ Opportunity to tailor oil quality to buyer needs

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Altex terminals

CN Railway

BNSF Railway

UP Railway

Heavy Oil/Bitumen Producing

Areas

#6 – Solidifying Heavy Oil Further

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▪ The vast majority of undiluted and under-diluted heavy oil moving out of Canada areloaded at an Altex terminal

▪ Continues to be effort to further solidify or package heavy oil so it can be moved lessexpensively

▪ Altex collaborating with most or all of these 5-10 technologies currently underdevelopment

Canadian National Railway’s Canapux

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▪ Canadian National is developing its Canapux technology with Toyo Engineering andInnoTech Alberta

▪ Convert liquid bitumen into a solid pellet capable of being transported by rail as a drybulk good

▪ CanaPux™ pellets are created by blending bitumen with polymer – resulting solid isthen shaped and encapsulated with an additional layer polymer to enable efficienttransportation

#7 –Logistics/SCADA System

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▪ Spent significant money, time and effort to develop a new and improved proprietarySCADA/logistics/accounting system

▪ Improves performance for customers

▪ Has significantly improved performance and reduced cost for Altex

▪ Also applicable to other commodities which employ rail

Logistics System

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WellheadNominationsContracts

Customs and

Regulatory Reporting

Database

• Rail Production Accounting

• Logistics Management

• Compliance Management

ED

I Inte

rface

Offloading

Terminal

Loading

Terminal

Information Users

Product and Railcar

Inventory Management

Client Reporting

and Analysis

Terminal Mgt.

Controls and Interlocks

Fleet Information, BOLs

SCADA

System

Product Information

Truck

tickets

Testing Inspections

Enterprise Management System

ED

I Inte

rface

Accounting

and Invoicing

Management

Decisions

We

b

Inte

rface

HSE

Co

mp

lian

c

e

Railways

Oil Supply Chain—Physical Components

Database

Railcar Inspections

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INSPECTIONS

• Standardizes Process for Operations

• Create Standardized Electronic Paperless Inspections

• Helps to Prevent Overloading of Railcars and Identifying out of date railcars

• Helps to Prevent FRA Fines and Infringements

Railcar Inventory

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RAILCAR SCANNING

• Inventory railcars electronically

• Plan yard movements for train crew

RAILCAR PIPELINE

• Locate railcars in real time

• Create custom trip plans to

accurately predict destination

ETA

YARD INVENTORY

• Realtime railcar Yard Inventory

• Locate every railcar instantly

Production Accounting and EDI

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BILLS OF LADING (BOLS)

• Generated BOLs with the press of one button

• Prevent costly errors shipping cars to the

wrong destination

EDI TRANSFERS

Data and EDI ANSI X12 transfers simplify data

sharing, ensure confidentiality, reduce staff

time, and eliminate manual errors.

• Petrinex submissions to regulators

• BOLs and fleet information to railroads

and fleet owners

• Customs information to customs brokers

Customer

Product Oil Specs

Storage

Allowance

Contract

Product

Transfer

Nomination

Fleet Owner

BOL Pattern

BOL

Customs

EDI to external organizations

SCADA Integration

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OUTBOUND PRODUCT TRANSFER CONTROLS

• Oil from a customer’s tank can only be transferred into railcars in that customer’s fleet.

• UMLER car data prevents overloading of railcars

• Heel information prevents overloads, excessive carry back

INBOUND PRODUCT TRANSFER CONTROLS

• Once a trucker has logged into the terminal, an electronic truck ticket created

• Truckers cannot deliver for a producer unless a corresponding nomination for that producer exists in iGORAIL

• Truckers are directed to a specific truck unloading station depending on customer nominations for the month

• Unloading is only possible at the approved truck slot so the delivered oil can only be transferred to the appropriate customer tank.

• As the oil is metered in, density, volume, and water cut are measured and recorded

DATA TRANSFER / EDI:

• Data collection occurs during inbound transfers, storage, and outbound transfers

• All data is automatically uploaded to iGORAIL

Innovation and Technology

▪ Innovation is crucial to the continuing success of any organization

▪ Innovation is an ongoing process

▪ Not good enough to innovate once

▪ Need to continue to innovate to stay competitive

▪ Rail industry and Altex and its partners Canadian National Railwayand others have continued to innovate to improve industry conditionsand performance for all parties

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technological breakthroughs in hydrocarbon transportation · (80-100% of the amount of heavy...

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