career opportunities in Saskatchewan s energy sector... and we know what training you need to get started

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1 PIPELINE NEWS April 2014 FREE Volume 6 Issue 11 There are many career opportunities in Saskatchewan s energy sector... and we know what training you need to get started Contact us to find out more: Toll-free , or visit southeastcollege.org

2 If only Northgate s rail hub were open already By Brian Zinchuk Northgate, Toronto With farmers fuming at the railways for lack of action in moving the largest crop in history to port, any alternative is being considered. With a surge in crude-by-rail, some people are pointing figures at the oil industry for taking up capacity they feel could otherwise be used for grain shipments. Premier Brad Wall on Feb. 26 suggested that the Northgate Commodity Logistics Hub, currently under construction on the U.S. border, might be a future option. The $90 million project connects to the BNSF railway, not Canadian Pacific or Canadian National, providing a direct path into the American heartland and points beyond. Construction on the 1,300 acre site began on June 3, It s principle purpose it to ship out crude oil and grain, and bring in frac sand and pipe for drilling. At full-build out, it should be able to ship out 70,000 barrels per day of oil, a number very close to all of Saskatchewan s current Bakken oil production. However, it turns out that natural gas liquids, or NGLs, are also being added to the mix. Pipeline News spoke to Ceres Global Ag Corp. president and CEO Michael Detlefsen in Toronto via phone on March 12. Pipeline News: The premier has been spending a lot of time talking up your Northgate Hub, specifically, both for grain transportation and for oil. What do you think of that? Michael Detlefsen: It s always nice when someone speaks highly Photo courtesy Ceres Global Ag Corp. of your project. I think we bought the land, and designed this project, to be a debottlenecking design for Saskatchewan commodities. We just didn t think the logistics situation in Saskatchewan was going to be as dire as quickly as it has become. So there is something to being at the right place at the right time. We wish we were completely built and open today, but we re not. That said, I think we foresaw, given the huge growth Saskatchewan, across all sectors, that there would be this logistics bottleneck. We thought we could provide an outlet into the United States that maybe hadn t been tapped before, that we would be uniquely positioned to contribute to the solution. We don t think we re the solution; we re just part of the solution. P.N.: Are you feeling pretty good about your decision to go with a BNSF-connected facility? Detlefsen: Yes, yes we are. We ve always held the BNSF in high regard, not that we don t hold the Canadian railways in high regard. We re partners with them in a number of our businesses. The BNSF provided a particularly unique access to the U.S. market. They have a different way of running their railway, very much focused on unit trains and efficiency, and they have access to the Gulf of Mexico, Pacific Northwest, California and Mexico itself that not all the existing transportation corridors can provide. Page A23

3 Page A22 P.N.: In regards to the grain portion, and given the backlog will take quite a while, are you are looking at accelerating your plans on the grain side at all? Detlefsen: We re still finalizing the design and construction plans. Obviously the logistics bottleneck has given us a bit of an impetus to look at if we could accelerate the project, or do it in different stages or different ways. We re looking at those options, but we haven t come to any decision yet. P.N.: So you couldn t do a temporary loading facility for grain loading, say with augers instead of a full facility? Detlefsen: We potentially could, the question is whether that s really efficient in terms of debottlenecking the system, and whether it s efficient for the BNSF. You have to remember, the BNSF wants to do unit trains. They want to do 120 cars in, load it in 8 to 12 hours, and pull them out again. If you do the mobile grain concept, with augers and bins, that s not unit trains, that s manifest. You might get a reasonable throughput out of it, but we don t know if that will work yet. Could we do it? Potentially, but no decisions at the moment. P.N.: Some people seem to be thinking they see an awful lot of black trains going across the prairie with tanker cars, and that s why their grain is not going to market. Is there anything to that, or is that just hyperbole? Detlefsen: I think that a lot of people gravitate to the easy solution. This is highly complicated problem. There s not enough port capacity. There s bottlenecks in Vancouver and Prince Rupert. We ve got 50 or 60 boats sitting off the coast of Vancouver, waiting to load up with grain. The railways don t have enough grain cars. The winter has been absolutely brutal so (Canadian Pacific CEO) Hunter Harrison is absolutely right in saying when it goes below -25 C, you have to have shorter trains. All of these constrictions on capacity have contributed to the problem. It s not just other commodities displacing grain. It s a whole bunch of factors, not to mention a large carry-over from the 2012 crop and a bumper crop in P.N.: Don t we have winter every year? Minus 25 temperatures are nothing new. Detlefsen: But we ve had more of that this year. That s not the only problem, that s just one of the contributing factors. I heard the other day it s been the coldest winter in Winnipeg in, like, 80 years. Page A24

4 NGL exports are now part of Ceres Northgate plan Page A23 P.N.: How does this affect your oil plans? Does the grain affect the oil at all? Detlefsen: No, it doesn t. We had always planned to have a high-efficiency grain terminal at Northgate, and a high-efficiency oil terminal at Northgate. We have almost 1,300 acres on which to build these facilities, and the plan has dedicated loop track for oil and a dedicated loop track for grain. We can add two more dedicated loop tracks if needed. I think there s lots of capacity at Northgate to handle both commodities, and in fact we re looking at natural gas liquids and drilling supplies like frac sand and pipe and stuff. There s lots to room, and lots of capacity for all of that in our plan. P.N.: That s the first time I ve heard you mention NGLs. Is this a new development? Detlefsen: It is. As you probably know, the Saskatchewan government has placed a ban on flaring effective mid That s causing a lot of the E&P companies to think about what are they going to do? They have to capture the gas and process it, which is creating surplus natural gas, but also surplus propane, butane, etc., all of which have to go somewhere. Saskatchewan, with its growth, has some use for these products, but the demand is far less than the supply, so these products have to go somewhere. We re looking at potentially capturing some of that excess supply and moving File photo Sharing the Energy Crescent Point is proud to be part of the community. crescentpointenergy.com it to market in the United States and beyond. P.N.: You have four gas plants within 40 miles of your facility. That puts you really close to those gas facilities. Is that what you are factoring in here? Detlefsen: Yes, and there s other gas plants on the drawing boards as well. P.N.: Is there any else you ve added to your plans? Detlefsen: We re starting to explore fertilizer, but we haven t got very far yet. We re in the early stages on that. P.N.: Are you talking liquids, anhydrous ammonia, or granular? Detlefsen: We haven t gotten that far. We re in the very early stages. We ve got a concept that we think we should be doing fertilizer. What forms, what types, what partners, we don t know yet. P.N.: Where are you at this point in regards to construction? Detlefsen: We re about 75 per cent of the way through our site preparation. We still have some grading to do and ballast to put in. We ve laid a little over a kilometre of track north of the border into the site. We have to finish laying the other pieces of track. In the new construction season we have to put in the Y. We have to put in the two-and-a-half loops, we have to put in the ladder tracks; we have to put in the inspection side-out. All of that, we expect to start as soon as the construction season lets us. Page A25

5 Page A24 Last year, as you know, we were delayed. We thought we could start in April. It ended up being June, then we had 40 days and 40 nights of summer, where it rained all the time, and we had effectively a mud bath on the site. This year we re hopeful we will get into the construction season a little earlier than June. How much earlier, we can t say. We can always be surprised. Those are the pieces we have to complete around the site. As one of our directors says, it s the creation of a Monopoly board. Then we would start construction of the oil loading area, the NGL loading area, and associated infrastructure, as well as the grain elevator. That would all, for the most part, occur in the summer. The grain elevator will take a little longer, I would think. We re still finalizing the design and timeline for that. We re pretty confident we can be moving oil and NGLs by the fourth quarter of this year. Grain may take a little longer. We re still in the process of analyzing the build-out. I m not sure if oil and NGLs will be at the same time, but we think we can get them by the fourth quarter. We re still doing planning and design on that, so we ll know a little more on that in six weeks. Grain, we expect to be running in a year. It s just a question of can we be faster than that? P.N.: Is there anything you would like to add? Detlefsen: We ve received permission from U.S. Borders and Customs to connect to the BN, that 40 foot piece that was sitting on the BN side, we can now connect as soon as the weather clears. It means we don t have to truck anymore. It means we can rail in the construction materials. It s a huge savings for us. It makes it more efficient. The key thing is we ve got the connection of the track. It s not like it s a new border crossing. It s been there for 100 years. It s a rejuvenated border crossing, and we re pretty excited about that. The BN connected to the CN at Northgate, and had been since You ve have to ask the CN this, but they ripped up the track to wherever it was. I think it went into the west side of Regina. P.N.: Too bad you didn t have that track now. Detlefsen: The CN obviously dug it up for a reason. What I ve heard, you d have to ask them, is that they wanted to run down the longer haul into the U.S. instead of handing it off to the BN, which would make sense to me. If you could do 4,000 miles instead of 180 miles, of course you would do that. P.N.: Is there anything about Stewart Southern Rail we should know about? Detlefsen: We re continuing to see good growth. We re expecting to do about 17,000 to 18,000 cars this year, of which 80 per cent would be oil and 20 per cent would be grain. We re constrained by this logistics thing. We re working as hard as we can. We were surprised in November and December, because the pipeline closed for a period of a couple weeks, and there was a lot of extra volume going through. But that s the current forecast, and that s up from last year. We re looking at incremental business opportunities. Hopefully we ll see more growth as a result. P.N.: You own 25 per cent (of Stewart Southern Rail)? Detlefsen: Yes we do. P.N.: No one has built new rail, other than sidings and loading facilities, in Western Canada in decades. Have you ever thought about connecting from Stoughton to Northgate? Detlefsen: The thought has crossed our minds, but the magnitude of the Northgate challenge is we need to get this logistics hub built. That is the number one priority for Ceres at the moment. P.N.: Do you have any other projects? Detlefsen: We do have stuff in the pipeline, but it s more concept than anything else. Unified under one brand. We are pleased to announce that Carson Energy Services is now conducting business under the URS banner. Although our brand has changed, our commitment to safety excellence, backed by our solid reputation of supporting oil and gas development, remains the same. At URS, we believe that success is ultimately determined by what we help our customers achieve. So whether it s pipelines, horizontal directional drilling, fabrication, maintenance, or field facility construction, you can continue to rely on us to provide solutions across the entire energy life cycle. We are URS LAMPMAN, SK - Highway 361 W - (306)