Crude awakening

Crude awakening.
Keystone Pipeline captures new opportunity
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Chapter 8 Keystone pipeline captures new opportunity
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chapter 8
Keystone pipeline captures new opportunity
Convert an old pipeline. Build a new one.
Turn the tap on.
What might have seemed like a lucky, right-time, right-place
They began considering crude oil as a business development
opportunity was, in fact, the result of thorough preparation and
opportunity, in particular looking at carrying Alberta’s oil sands
good planning.
production out of the province to U.S. Midwest markets and beyond.
In the fall of 2003, TransCanada’s restructuring was complete,
Over seven years, thousands of workers brought to life, across
the balance sheet was restored, and the company was ready to
borders, and against the odds, the Keystone Pipeline.
build more aggressively on its core businesses. Steve Becker,
a vice-president in the Pipeline Development Group, and Robert
Jones, now Vice-President, Keystone Pipelines, joined forces
to look at new project possibilities for the company.
“Our mandate was to develop new commercially-viable pipeline
projects that built on our traditional strengths and expertise,” says
Steve, now Vice-President, Business Development and President,
TC PipeLines, LP. “We also had to come up with something new that
TransCanada and our competitors had not already tried.”
Lat 52ºN, Long 111ºW
Billed as the largest construction project
in North America in 2009 and 2010,
Keystone will provide TransCanada with
an almost one-third share of Canada’s
oil pipeline business. It epitomizes the
company’s disciplined, low-risk, yet
innovative approach to growth.
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Chapter 8 Keystone pipeline captures new opportunity
101
Lat 38ºN, Long 90ºW: June 30, 2010
Nicole Aitken at
our relationships with
Keystone’s Hartford
communities have only
Pump Station in Wood
just begun,” says Nicole.
River, Illinois. She was
“We’re here for many,
on-site to celebrate the
many years to come.”
official opening of the
pipeline. “With phase
1 now operational,
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We Are Here The Transcanada JOurney 1998–2010
STAKEHOLDER RELATIONS
“In Yankton, South Dakota, the Chamber of Commerce
had a local pipeline welcoming committee.”
Nicole Aitken, Keystone stakeholder relations, Calgary
—
Keystone traverses three provinces and nine states—a vast area—much of which was new
territory for TransCanada. So the company began consulting with community leaders across the
proposed route in 2004, before the project was announced.
“At that time, the war in Iraq was on people’s minds,” says Nicole Aitken, who leads the
stakeholder relations team for Keystone. “The overwhelming majority of feedback was that
America needs a new source of oil, and if we can get it from our friends north of the border
instead of overseas, then we’re all for it.”
In the U.S. Midwest, they were also interested in the potential impact on farming and the
environment—they naturally questioned how it would be constructed, how it could impact
the soil, the groundwater, the crops, and the river crossings.
Keystone used a variety of tactics to share information. “We proactively sent invitations
to media to come to our open houses. Literally hundreds of people came to TransCanada’s open
houses to learn about the pipeline, and company representatives became local celebrities
overnight. We were the news, not just in the local community, but in the entire state,” recalls
Nicole. “We also used TV and radio campaigns to help deliver information about the project
when we encountered very vocal localized opposition, and that was very successful.”
In the end, the 15,000 landowners and other key stakeholders along the U.S. route were largely
supportive. “There were a handful of landowners opposed in the state of North Dakota and a handful
in South Dakota. Ten to twenty people out of 15,000. That’s a small percentage,” reflects Nicole.
Many communities welcomed the economic benefits of the project. “There’s one particular
individual in North Dakota I will probably remember forever and that’s Senator Curtis Olafson.
He had enthusiasm for projects that would make his community better and had foresight in
understanding how these types of projects play into the local community. He also helped ensure
we did the job right, including restoring the land.”
Now the spotlight is on the next phases of the project and times have evolved. “You can see
how social media has started to play into things and the shift in the political agenda. The news
coverage is less focused on war and Iraq and more focused on environment, looking at green
energy,” says Nicole. “It’s difficult to be talking about issues that are much bigger than just a
project. So we’re working with other organizations and key stakeholders to try to raise awareness
about facts versus fiction, particularly as it relates to energy security and supply. We try to
continue to raise awareness, correct misinformation and keep the dialogue going.”
Chapter 8 Keystone pipeline captures new opportunity
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What’s in a name?
“The keystone is a critical component in an
arch bridge; it’s what holds the bridge together
from bank to bank.”
—ROBERT JONES, Vice-President, Keystone Pipelines
“So in our case, if you think about the producers being one side of
the bank and the refiners being the other side of the bank on a river,
the Keystone Pipeline really represents the bridge to connect the
producers to the market, and the most critical part of that bridge is
the keystone, and that’s how Keystone got its name,” says Robert.
“In order to make a project like Keystone viable, we had to be
competitive in new markets, and early on it looked like the original
pipeline was going through Iowa. If you Google Iowa, you get
pictures of a lot of nice bridges, like in the movie The Bridges
of Madison County, which had beautiful covered arch bridges from
that area. The ironic part today, of course, is that Keystone doesn’t go
through Iowa, because in order to serve all the markets we needed
to, we had to move the pipeline into North Dakota, ­South Dakota,
and Nebraska.”
Robert Jones
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Approx. lat 47°N, Long 97°W: Summer 2009
The Keystone Pipeline right-of-way
and nearby farmlands in North Dakota.
Chapter 8 Keystone pipeline captures new opportunity
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A MEGA-PROJECT IS BORN
Our business development team had already begun exploring the idea
when a fortuitous phone call kick-started the Keystone Pipeline.
“A gentleman from the Canadian Association of Petroleum
Producers (CAPP) subcommittee phoned our 1-800 number and left
a message asking if we would be interested in getting into the
oil pipeline business,” remembers Robert Jones, now Vice-President,
Keystone Pipelines.“ He represented a number of CAPP members
[oil companies]. It trickled through the organization to me, because
I was the only person in business development who had any crude
oil experience. I called him back and we discussed the concept
of using pipelines already built to move crude oil being developed
in the oil sands. That’s how it all began.”
There was a clear demand from the marketplace. The company could
make the project viable by converting some of its existing natural
gas pipeline to oil operations, making use of related facilities and
landowner agreements on the Canadian portion of the route.
“Somebody way back in 1957 had the vision to have the easement
agreement say we can move all hydrocarbons—not just natural gas,
not just oil,” says Robert. “That was really very fortunate, because it
would have been very challenging to renegotiate a lease agreement
with every single landowner.”
Next began the job of selling the idea both internally and externally.
“We had a hearing in Canada—it was called a Section 74 hearing,
and there were people lined up on both sides of the fence, both
supporting and opposing the project,” says Robert.
Keystone was cham-
Vice-President, Keystone
pioned by a leadership
Pipelines; Paul Miller,
team including (left
Vice-President, Oil
to right) Don Wishart,
Pipelines; and Hal Kvisle,
Executive Vice-President,
former CEO.
Operations and Major
Projects; Robert Jones,
In the end, shippers were enticed by an innovative bullet line design
that brought the crude oil non-stop from storage to refining hubs
in the U.S. Midwest as well as novel long-term contracts with fixed
tolls—previously uncommon in the oil industry.
Feat of engineering
Hundreds of engineers,
world-class engineering
2nd Row: Ken Murchie,
Back Row: Maxime
both internal and
team. Left to right:
Brando Barreto, Sandra
Beaulieu, Victor Cabrejo,
Front Row: Mauricio
Gigovic.
Peter Staszelis, Brian
Beltran, Yin Qu, Susan
3rd Row: Bill Joerissen,
Spackman, Doug
Parker, Suman Basak,
Harold Yarn, Brian
Rene Baillargeon.
Richter, Bob Lewis, Ron
external, contributed
to the design of the
Keystone Pipeline System.
Here are just a few
representatives of the
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Knopp, Jordan Nicholson.
Brunning, Randy Wight,
Tim Johnson.
Chapter 8 Keystone oil pipeline captures new opportunity
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Construction began in May 2008. The company’s industry-renowned
expertise in large-scale project management brought the Keystone
Pipeline home years earlier than many thought possible, with first oil
flowing through the line by June 2010.
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KEYSTONE – by the numbers
Number of workers at peak construction of phase 1: Approximately
Pump stations: 39 pump stations built in phase 1, 29 of which were
8,000 workers in the summer of 2009.
used in the initial start-up in June 2010.
Hours worked: 23 million. That’s equivalent to one person working
Pipeline length: 6,134 km (3,812 mi.) for all phases when complete—
for 12,777 years.
about the same distance as from Calgary, Alberta to Reykjavik, Iceland,
Distance driven (by construction workers): 147 million km (more than
91 million mi.), the equivalent to driving 3,668 times around the earth.
Weight of pipe: More than 1.2 million metric tonnes (2.65 billion
or about half-way to Antarctica from Houston, Texas.
Speed of oil: About 8 km/h (5 mph)—about the same as a brisk
walking pace.
pounds, about 1.32 million tons US). That weight is equal to the steel
Commodities shipped on the line: 45 different and distinct grades of
required to build 266 Eiffel Towers in Paris, France.
crude oil can be shipped, moving in carefully separated batches along
Expected volume of oil filling the Keystone Pipeline (phase 1): 9.1
million barrels. That’s enough oil in the pipeline to theoretically fill
580 Olympic size swimming pools. After completing all Keystone
the line. Each commodity has specific yields and specific properties
for creating various oil-based products—ranging from gasoline, to
polyethylene, to roofing tar, and everything in between.
phases, there’ll be enough oil to theoretically fill 790 Olympic size
Average batch: 100,000 barrels, or 30 km (18 mi.) long; 1.1 million
swimming pools.
barrels per day upon completion.
Crude oil storage tanks at Hardisty, Alberta: 3 storage tanks, each
65 metres (215 feet) in diameter and 18 metres (60 feet) high.
Total capacity: Over 1 million barrels per day.
2
1
3
Collaborating with Aboriginal Communities
Aboriginal relations
to corral buffalo. A
with Aboriginal
stone,” used by buffalo
have been integral to
reroute was planned,
community members,
and other animals more
our operations for more
however additional
one of the sites was
than 1,400 years ago.
than 30 years. In the
archaeological sites were
excavated and artefacts
Excavation in progress
case of Keystone, the
discovered along the
preserved. Appropriate
(2, 3) and arrowheads (4)
original proposed route
reroute. TransCanada
ceremonial practices
recovered from site.
for the Hardisty West
worked closely with
were incorporated
interconnection crossed
Aboriginal communities
into the excavation
an important Aboriginal
to better understand the
process. (above, left
archaeological site,
impacts of the project
to right) Aboriginal
and an area that
on their traditional
environmental workers
traditionally was used
lands. Collaborating
(1) beside a “rubbing
4
Chapter 8 Keystone pipeline captures new opportunity
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1
2
Keystone commercial operations
Start-up: Commissioning
that are commissioning
Matthew Ulmer (1) and
a line from scratch is
pump stations, valves,
Mark Malinowski (2)
Building a business from a “clean sheet of paper” was a once-
“not a trivial task” says
electronics, and that all
monitor the flow of oil
in-a-lifetime opportunity for the people who developed
Erik Tatarchuk. “There
has to be synchronized
in the pipeline from the
TransCanada’s new crude oil pipeline project in record-setting
are literally hundreds
as oil moves down
new control centre in
fashion. While it could have taken anywhere from three to
of people in the field
the pipe.”
Calgary.
four years to establish commercial processes and business systems
for Keystone, TransCanada’s motivated employees did it in an
unprecedented 12 months, developing business processes
while simultaneously building commercial and control room
software from scratch.
In Calgary, oil control centre operators rely on sophisticated
systems to monitor the pipeline and pump stations along
3
the route. With an advanced leak detection system, operators
are alerted electronically to even the smallest of leaks in remote
locations and ready to respond instantly to any emergency.
“From both a physical and commercial operations perspective,
execution of the daily business of an oil pipeline is significantly
different than gas,” explains Erik Tatarchuk, who is responsible
for all aspects of daily Keystone commercial operations.
“Oil moves in batches, which is analogous to a rail car system.
In each rail car, there’ll be a different commodity, and each
commodity has to be kept separate and distinct from each other
via the hydraulic operation of the pipe. Then you have to deliver it
to the right refinery at the right time when the customers expect
Hartford Pump Station
in Illinois (3). From
it, because there is very little storage at the tail end—refineries
here, oil is directed to
usually have about two to three days of storage given their run
refineries in Illinois,
rate. We have to take oil in at a specific time to deliver it
Indiana and Michigan.
out plus or minus two days for that specific batch.” In addition,
oil is non-compressible, unlike gas, which poses different
physical operating challenges.
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Linking secure crude oil supply with
refining markets in the U.S.
Athabasca
Oilsands
Alberta
Other Oil Pipelines
Edmonton
Manitoba
Saskatchewan
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Vancouver
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Tacoma
Olympia
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Washington
Saskatoon
Converted Gas Pipeline 860 km (534 mi)
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(In Development Proposed Completion
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Pierre
Wyoming
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Salt Lake City
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Utah
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Saint Louis
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Nashville
Tennessee
Chattanooga
Arkansas
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Little Rock
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Keystone Expansion
(In Development Proposed Construction
Completion in 2012)
Dallas
Alabama
Mississippi
TA
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Texas
KE
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500 Miles
500
Austin
Houston
Houston
1,000 Kilometers
San Antonio
Y
ER
LIV
N
GA
I
RR
250
Georgia
Montgomery
Jackson
Louisiana
N
KI
F
LU
CO
Atlanta
Jackson
IN
W
South Ca
Huntsville
Oklahoma
EL
W
OM
CR
Co
Memphis
S
Oklahoma
City
IV
Chihuahua
Frankfort
West Virginia
Charleston
Louisville
Wood River
N
YA
BR
Sonora
Cincinnati
CK
Y
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CU
El Paso
Indianapolis
L
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NC
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N
AI
AU
TP
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Lubbock
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MI
Springfield
Dayton
RN
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0
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Indiana
Missouri
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Baja California Norte
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New Mexico
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SA
Jefferson City
Kansas City
Wichita
Santa Fe
Albuquerque
NA
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Keystone
Cushing Extension
(Under Construction Expected In-service
in 2011)
Las Vegas
EY
RN
TU
Topeka
Y
LE
RI
Kansas
Colorado Springs
ornia
Mexicali
Y
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NC
RA
VE
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San Diego
ER
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Colorado
Arizona
TY
CI
Lincoln
LE
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CA
ST
NE
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Ohio
Columbus
Illinois
ILB
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Penns
Toledo
Fort Wayne
Omaha
ER
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Cleveland
Des Moines
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Detroit
Chicago
AN
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KI
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Sarnia
Lansing
Madison
N
TO
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Grand Rapids
Milwaukee
Keystone Pipeline
F
N
TO (Construction Completed
NG
I
RT
HA
in 2010)
Iowa
O
RD
MU
Cheyenne
Flint
Wisconsin
N
MA
W
Reno
Carson City
o
L
RO
Roch
Buffalo
Minneapolis
-Saint Paul
EL
SW
Toronto
Green Bay
CA
O
AK
HA
ER
NT
South Dakota
O
AL
FF
N
Idaho
Minnesota
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IN
RD
HA
EN
DD
LU
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LO
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FA
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SO
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AI
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BU
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Oregon
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Winnipeg
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Mobile
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Tallahassee
Baton Rouge
ER
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New Orleans
Nederland
We Are
Here The Transcanada JOurney 1998–2010
Port Arthur
Beaumont
Flo
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Tampa
Clearwater
Saint
Petersbur
CHAPTER 8 Where we’ve been
Keystone Pipeline captures new opportunity
February 2005
September 2007 March 2008
Project first proposed
NEB provided approval to construct
U.S. Presidential Permit received
To link Canadian crude oil with U.S.
and operate
demand (3,461 km/2,151 mi.).
The NEB also approved the toll
May 2008
methodology and tariff.
Construction began
July 2008
November 2005
MOU signed with ConocoPhillips
October 2007
Commits ConocoPhillips to ship crude
Contracts worth US$3.0 billion
Expansion announced
oil on the proposed pipeline and
awarded
To serve the U.S. Gulf Coast—additional
gives them the right to acquire up to
For major materials and pipeline
capacity of 500,000 barrels per day
50% ownership.
construction contractors. Work
(2,673 km / 1.661 mi.).
continued to secure land access
January 2006
agreements.
June 2009
January 2008
TransCanada purchased ConocoPhillips’
Firm, long-term contracts of 340,000
Final Environmental Impact
share in the project.
barrels per day (18-year average
Statement
Long-term commitments secured
from shippers
duration).
Sole ownership announced
From the U.S. Department of State.
After nearly two years of detailed
FebrUary 2007
analysis of the project proposal by
June 2010
Oil starts flowing
“Tap turning” ceremony marked arrival
National Energy Board (NEB)
more than a dozen U.S. federal agencies
of first crude oil at Wood River and
approved gas pipeline conversion
and other interested stakeholders,
Patoka, Illinois.
to oil
the impact statement indicated the
Involved conversion of approximately
pipeline would result in limited adverse
860 km (530 mi.) of existing Canadian
environmental impacts.
Mainline pipeline facilities from natural
gas to crude oil transmission service and
January 2008
construction of approximately 370 km
ConocoPhillips
(230 mi.) of new oil pipeline, terminal
Acquired 50% ownership interest in
facilities at Hardisty, Alberta, and
the project.
pump stations.
“People wanted to work for TransCanada because we have a tremendous
reputation attracting and retaining highly qualified people and providing
a very enriching workplace.”
—Paul Miller, Keystone Pipelines
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