Rail, Road or Pipe, Get Ready for Canadian Crude
With Keystone XL in limbo, our rapidly changing energy supply chain needs a new risk management strategy.
in the NewsState of Logistics 2016: Pursue mutual benefit Don’t sleep on the truckload spot market AAR reports mixed U.S. carload and intermodal volumes for week ending November 26 Global motion control shipments increase 5% in first nine months of 2016 Orbis welcomes new manufacturing vice president More News
With Congress continuing to wrangle over any decision regarding the Keystone XL pipeline, the United States energy industry is taking matters into its own hands.
Oil-starved markets are primed for an influx of Canadian crude oil, but with pipeline transport off the table for the foreseeable future, producers are starting to develop an alternative supply chain infrastructure to meet the demand. The problem is, recent disasters have soured legislators and environmentalists on road and rail for moving oil, drawing intense scrutiny and calls for increased regulation.
Alongside political uncertainties are other wild cards like extreme weather and an emerging logistical infrastructure, which can all impact the flow of goods. That makes the proposition of a non-pipeline solution particularly thorny. How should supply chain decision makers position to connect with premium energy markets, manage the attendant risks, while also addressing the strong likelihood of an increased regulatory burden?
From the source of the commodity to the end consumer, the ability to track energy assets in real-time is set to become more important than ever.
BOOM TIMES FOR NORTH AMERICAN ENERGY PRODUCERS
Production from Canada’s oil sands is on the rise, with output expected to nearly double by 2030 to 6.7 million barrels per day. That accounts for about 98% of the country’s oil reserves.
Primary market opportunities exist in both Canada and the U.S., where replacements for offshore imports are desired. Getting the oil to premium and secondary markets however is another matter.
Considering the dense consistency of Canada’s pure bitumen, rail makes sense as the main pipeline alternative. Rail transport doesn’t require dilution prior to shipping, as it does in pipeline transport; so shipping bitumen in its pure form would require fewer barrels. That creates an incremental netback on rail transport of about $6 per barrel, compared to pipeline processing.
Recent disasters such as the derailment in Lac-Megantic, Quebec, however, have attracted public outcry in both countries for tighter controls. That means more regulation is likely, with stiffer compliance for all parties participating in the energy commodity supply chain.
Despite those concerns, the Keystone delay has spurred producers to start shipping Canadian crude by truck, rail or barge. TransCanada, a major energy company based in Calgary, Alberta, has plans to build rail terminals in Alberta and Oklahoma. Exxon Mobil is also planning a new Canadian rail terminal, set for operation in 2015 at a cost of about $250 million. Its completion would accommodate shipments of nearly 100,000 barrels per day.
HOW SUPPLY CHAIN EXECUTIVES SHOULD RESPOND
With Canadian crude assets traversing a complex, closely watched and shifting supply chain, what can the industry do to effectively manage risk? Any process based on spreadsheets is unlikely to be up to the task. Even integrated with a data management system, spreadsheets are technically cumbersome and cannot keep up with the moment-to-moment churn of data required to adequately manage activity and make good decisions.
How much inventory is at risk, where energy assets stand at any given time and the associated capital commitments, all need to traceable down to the carload––this is literally where the rubber meets the road. Unless your systems and business processes embrace the real-time, buy-sell-trade environment in energy, you will be hard pressed to react quickly enough when the real risks of Canadian crude positions raise their head.
Supply chain executives need to build a robust capability that can handle risk data efficiently. That should entail display in a dashboard format for quick evaluation, and integration of all the necessary partner and reporting data points. Maps, schematics, and trending data need to be presented graphically, with quick summaries of all active positions, assets and related histories.
Given the shift to mobile working and BYOD, all the better if information can be accessed across
the full range of devices and operating systems today’s supply chain managers use to conduct business.
Here are a few key questions to help evaluate whether your current systems and processes are
ready for the challenges that Canadian crude assets could throw up:
-How long does it take to pinpoint your energy positions? As a benchmark, does it take longer than 10 seconds?
-Do you have reliable inventory numbers at the end of each day?
-Are your invoices often delayed?
-Do you have difficulty determining the market value of your energy portfolio at the close of business?
If the answer to most of these is ‘yes’, it may be time to revisit your IT investments. There are solid energy trading and risk management options to choose from, solutions designed specifically for risk managing the physical and financial aspects of moving Canadian crude through the energy supply chain; from contracts, physical logistics, and transactions; to accounting and reporting.
America’s appetite for energy is not diminishing. As supply lines for Canadian crude stretch across modalities, borders, time zones, weather patterns, regulatory regimes and market conditions, the ability to monitor assets from the wellhead to the marketplace is critical. Successful energy supply chain risk management will help managers capture the details of every Canadian crude purchase down to the penny, from the front office to the back.
Alaina Fraser is Senior Energy Consultant, Americas for Allegro Development Corporation. http://www.allegrodev.com. She is based in Calgary, Alberta.
About the AuthorJeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman
Subscribe to Logistics Management Magazine!Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!
Warehouse & DC Operations Survey: Ready to confront complexity 2016 Quest for Quality Awards Dinner View More From this Issue