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Proceedings Crude Oil Quality Association Meeting

Cushing, OK, 26 October, and Tulsa, OK, 27 October 2011

On October 26th, COQA arranged a tour of five crude oil related facilities in Cushing, OK. The attached booklet provides information on the tour, on which 83 people participated. At Enbridge, Maury Wilmoth gave a presentation on their facility as well as an overview of overall Cushing operations. A copy of Mr. Wilmoth’s presentation is also attached. The association is grateful to each of the five participating facilities for providing tours, and to Intertek for hosting a lunch and for providing for the bus transportation between Tulsa and Cushing.

►Cushing tour booklet (document).

►Wilmoth presentation (document).

On October 27th, COQA convened its general meeting in Tulsa, OK. This meeting set a record for attendance with at least 115 people present.

 

The Association gratefully acknowledges the following for their financial support:

  hosted a continental breakfast;

 

   hosted lunch;

 

HollyFrontier provided general support;

 

  hosted the refreshment breaks; and

 

                                                                                   co-hosted the reception

 

Their generosity is greatly appreciated.

Morning Session

Domestic Trading Center Subcommittee (DTC)

“Domestic Sweet / WTI Specifications”, Dennis Sutton, Marathon Petroleum.  Dennis provided a brief review of the Subcommittee’s activities to date. At least two major terminal operators at Cushing are routinely testing WTI/Domestic Sweet for the complete (Nymex and COQA recommended) specifications. Data from one of the two indicate all of the recommended specifications are routinely being met. Data from the second on batches destined for Marathon indicate all specifications are being met except those for HTSD. These latter are being investigated.

In closing, Dennis noted that the recommended specifications have been developed on proven, established practices and that industry responses have generally been favorable. Considerable data show that the specifications recommended by COQA will not limit liquidity of the stream.

►Mr. Sutton’s presentation (document).

“Nymex WTI Futures: Overview of Quality Issues”, Daniel Brusstar, Director, Energy Research & Product Development, CME Group. In his presentation, Dan first discussed the history, liquidity, and quality specifications’ of WTI / Domestic Sweet.            Nymex has consulted with industry on the COQA recommended additional specifications and feedback has been favorable.  Dan commented “We haven’t finished some of the work that has got to go before we can make an announcement … but we are hoping to wrap it up in the next couple of months. Then we will give (terminals) four or five months to implement it.” He continued “At this point we don’t see any impact on the value of the contract” and  Dan indicated the additional specifications should be in place by mid-2012.

►Mr. Brusstar’s presentation (document).

“COQA Executive Director”, Dennis Sutton, Marathon Petroleum. As first reported at the June 2011 meeting in Salt Lake City, Harry Giles has announced that he will be resigning as Executive Director at the end of 2012. A search committee has been formed to find a successor. Dennis discussed the responsibilities of the position and the attributes of the “ideal” candidate.

►Executive Director Vacancy presentation (document).

“CCQTA Update”, Randy Segato, CCQTA Vice-president.  In opening his presentation, Randy provided background on the association and the five technical areas in which it has projects, namely:

 

·         Refinery & Upgrader Processing;

·         Environmental & Safety;

·         Analytical Methods;

·         Specialized Research; and

·         Open Industry Reference.

For each he listed the projects that are ongoing or have been completed. CCQTA currently has 57 member companies. These were shown on a matrix together with the projects in which they are involved.

Bill Lywood then provided an update on progress made in the H2S in Crude since the COQA meeting in Salt Lake City in June 2011. Tests will begin soon on a modified instrument, and Bill requested samples for use in these.

In closing, Randy discussed plans for the CCQTA/COQA joint meeting scheduled for the week of June 18, 2012. It will be held at the Kananaskis Resort, located 90 km west of Calgary, Alberta. Randy is going to look into possibly arranging a trip to Fort McMurray to view some of the oil sands mine operations. This will be a full day trip involving flying between Calgary and Fort McMurray. Details will be sent out once they are available.

►CCQTA update (document).

“KAM® ML Measurement Loop”, Mustafa Khan, Kam Controls, Inc. Accurate oil/water measurement is a function of velocity. In production, insufficient or inconsistent velocity leads to inaccurate oil/water measurements. Other factors such as viscosity, inconsistent droplet ratio, and temperature can make it difficult to achieve a homogeneous mixture for accurate measurement.

The KAM ML Measurement Loop creates a consistent measurement environment at velocities above 7 fps and regardless of viscosity and temperature of the stream. The system can be used in both horizontal and vertical installations. It is suitable for automated well tests (AWT), separators, production management and automation, and custody transfer applications. Mustafa illustrated his presentation with data from an AWT installation at a field in Colombia.

►Mr. Khan’s presentation (document).

“Lonestar™ Analyzer. Rapid Analysis of H2S Scavengers, Methanol and VOCs in Crude Oil”, Steve Freshman, Owlstone, Inc. Owlstone manufactures, sells, and supports high performance chemical analyzers. They have developed a propriety variant of Field Asymmetric Ion Mobility Spectrometry (FAIMS) that combines sub-parts per million sensitivity with high selectivity. This has been incorporated into their Lonestar analyzer for rapidly detecting a range of analytes in crude oil, including H2S scavengers, methanol, and organic chlorides. These are measured in the headspace above a sample rather than in the liquid phase. Analyses can be performed at-line, by any operator, and without time consuming sample preparation. Application of the instrument to determination of several analytes in crude oil was illustrated, as well as a water quality analyzer for detection of a range of common taste and odor compounds and pesticides.

►Mr. Freshman’s presentation  http://portal.sliderocket.com/AEFAV/COQA-presentation

“HollyFrontier Corporation”, Tom Shetina, HollyFrontier. The $7 billion combination of Holly and Frontier created the most profitable independent refiner on a per barrel basis in the U.S. The merger resulted in a company with over 440,000 bpd of crude capacity across five complex refineries. Tom summarized the assets of the two newly-formed companies:

  • HollyFrontier has five refineries operating in the Southwest, Rockies and Mid-continent / Plains states markets.
  • Holly Energy Partners (HEP) has over 2500 mi of product and crude oil pipelines; 11 terminals and 8 loading rack facilities in 7 Western and Mid-continent states; over 6 million barrels of product & crude oil storage; and 25% interest in Salt Lake Pipeline – a joint venture with Plains delivering crude oil into Salt Lake Valley.

Tom provided a detailed overview of each of the five refineries, and closed by discussing investment highlights of the two companies.

►Mr. Shetina’s presentation (document).

“Magellan  Midstream Partners, LP”, Scott Devers, Magellan Midstream Partners. Magellan’s asset portfolio includes the longest U.S. refined petroleum products pipeline system. This provides access to over 40% of refining capacity in the continental U.S. as well as imports. More than 80 petroleum terminals with over 75 million barrels storage are available. Magellan’s crude oil asset profile is growing and, today, includes, but not limited to:

 

·       12 million barrels of storage at Cushing, 7.8 million barrels of which were acquired from BP in 2010, and the remainder constructed in 2011. This makes it one of the largest owners of crude oil storage there;

·        Two million barrels of storage at East Houston terminal;

·         Cushing-to-Tulsa and El Dorado-to-Cushing pipeline segments; and

             Houston-to-Texas City pipeline segment.

Magellan is proceeding with reversal and conversion of the eastern leg of the former Longhorn pipeline to provide for 135,000 bpd of crude oil capacity – expandable to 225,000 bpd. This is expected to be operational by mid-2013. Its Houston area distribution system includes nearly 40 mi of crude oil pipelines running between Houston and the Texas City refining area. This is strategically positioned to be the “last leg” in the distribution conduit to the refinery gate for growing domestic and Canadian crude oil production. Magellan is a truly independent storage provider, and does not have a crude oil trading group or take ownership of the crude oil in its possession. 

►Mr. Devers’ presentation (document).

Lunch Presentation

“North American Renaissance: The outlook for oil production in the US and Canada”, Barbara Shook, Houston Bureau Chief, Energy Intelligence Group. For more than 30 years expectations have been that the US would become increasingly dependent on oil and gas imports. Federal legislation has mandated ethanol for environmental reasons and to reduce dependence on foreign sources. Numerous LNG import terminals were proposed in anticipation of growing reliance on foreign sources of natural gas.  All were wrong!

The U.S. renaissance began with development of the Barnett Shale in North-Central Texas. This has become the largest gas field in the U.S. with production at 5.2 Bcf/d. Shale gas production has since spread to other areas including the Haynesville in Louisiana, the Marcellus in Pennsylvania, New York, and West Virginia, and the Utica in Ohio among others. Shale deposits exist in Canada and in Alaska and, although largely unexplored or undeveloped, are likely to hold recoverable gas reserves.

Now, liquids are being produced from shale deposits including the Bakken in North Dakota and neighboring Canada, the Niobrara in Colorado and Wyoming, and the Eagle Ford in Texas. Bakken production has doubled in the last two years to 425,000 b/d, and forecasts call for 2015 production to reach 1.3 million b/d.

Let’s not forget about oil sands. Western Canadian production is now at 1.8 million b/d, and by 2020, could reach 3 million b/d. Most of this will likely come to the U.S. And, conventional production will remain an important source well into the future, despite some setbacks such as Macondo.  Added to all these are Sasol’s natural gas Fischer-Tropsch (F-T) project in North America, biofuels from algae, and hybrid synthetic fuels from F-T and other coal-to-liquids projects.

We are not running out of either gas or oil in the U.S. or Canada. There are challenges ahead, such as GHGs, but the petroleum industry is possessed with ingenuity and continues to successfully overcome adversity and the challenges it faces.

The comments expressed by Ms. Shook are solely hers and do not necessarily reflect the views of EIG’s ownership or management.

►Ms. Shook’s presentation (document).

Afternoon Session

“U.S. Midcontinent Crude Oil Outlook”, Geoff Houlton, Purvin & Gertz. In June 2011, Purvin & Gertz released a “U.S. Midcontinent Crude Oil Market Analysis.” Based on this, Geoff’s presentation focused mainly on:

  • North American Crude Oil Supply; and
  • Regional Refining Balances / Logistics.

Strong activity continues in both shale plays, such as Bakken and Eagle Ford, and in conventional and oil sands production. With the lifting of the Federal moratorium on drilling in deep waters, Gulf of Mexico production will revive, but may be flat through this decade. Rig activity in shale plays is steadily increasing. But, well completions will be a limiting factor because of shortages in qualified personnel, equipment, and supplies. Despite this, output is forecast to increase and reach 900,000 b/d by 2015. Western Canadian supply also will continue to increase and may reach 3 million b/d by 2015. On balance, crude oil runs will continue at about 15 million b/d through this decade, with North American crude oil production remaining at less than 9 million b/d until perhaps 2020.

A number of midcontinent refineries have begun investment programs designed to process increasing volumes of Canadian heavy crude oils. If completed, these will add 95 mb/d of crude capacity, 186 mb/d of coker capacity, and 27 mb/d of FCCU capacity. Increased flows of Canadian crude oils are currently constrained by a lack of outbound pipeline capacity from hubs such as Cushing. A number of pipeline projects and proposals would ease this constraint.

► Mr. Houlton’s presentation (document).

“Cushing Canadian Congestion & Keystone XL: A review of logistics options”, Martin Tallett, EnSys Energy.  In 2010, EnSys prepared an assessment of Keystone XL (KXL) for the U.S. Departments of Energy and State in which it evaluated alternative pipeline outlooks through 2030. In this study, EnSys studies various options of KXL and no KXL among others, and against two U.S. petroleum demand outlooks. EnSys updated its assessment in 2011. Cushing congestion has become “structural” with

 

Ø  Line capacity into the hub well in excess of output capacity;

Ø  Midcontinent, Bakken, and WCSB supply growth exacerbating broad inland imbalances: and

Ø  Both resulting in major crude oil discounts.

Pipeline capacity into Cushing is approximately 1.6 million b/d, but output capacity is just less than 1 million b/d. Storage companies at Cushing are literally racing to add new capacity, and it is estimated that by yearend 2011, capacity will total 65 million barrels.

Midwest refining projects will help relieve some of the pressure on WCSB heavy crude oils, but startup of some of these projects will not be before 2013 at the earliest. Meanwhile, production of these streams continues to grow. The Keystone Mainline and Keystone XL projects would help alleviate some of the in/out imbalance, but the latter has become the focal point for considerable political debate resulting in uncertainty about its future.

Several options exist for moving WCSB crude oils to market if KXL and other major pipeline projects are delayed or cancelled. These include modifying existing pipelines, using existing pipeline rights of way for new lines, and transporting crude oil by rail and by barge. Both of the latter are being used, and a number of unit train projects are in existence or under development.

► Mr. Tallett’s presentation (document).

“Rangeland Energy LLC, COLT (Crude Oil Loading Terminal) Introduction”, Brian Freed, Rangeland Energy.  Rangeland Energy, founded in 2009, focuses on developing, acquiring, and operating midstream crude oil and natural gas assets. Its initial focus has been on crude oil infrastructure in North Dakota’s Bakken Shale play. The COLT project is being developed as a merchant / 3rd party, fee-for-service facility that will provide a combination of rail, pipeline, and truck options including:

  • Truck gathering services with both unloading and loading facilities;
  • Pipeline gathering services;
  • Terminal services for custody transfer measurement and sampling, dedicated tankage, and fungible tankage options; and
  • Connectivity to multiple markets.

The COLT HUB will include 8 truck bays, 4-120 MB tanks, 2-8,600 ft unit train loops, and pipeline connectivity. The facility is expected to be in operation in 1Q2012.

► Mr. Freed’s presentation (document).

”TU Fluid Flow Research and Technology Development”, Prof. Cem Sarica, TheUniversity of Tulsa. Flow assurance in pipeline systems is governed by four main factors:

 

·         Restrictors and blockers, including organic deposits, hydrates & ice, and mineral deposits

·         System integrity, affected by sand management and erosion / corrosion;

·         Rheology, influenced by gellation, viscosity, and dispersions

·         Hydrodynamics involving impaired and natural transients and steady state conditions.

The University of Tulsa has been investigating many of these through a number of joint projects with industry, three of which were discussed by Prof. Sarica:

  • TU Fluid Flow for investigating solutions for multiphase production and transportation problems and developing software for different multiphase flow applications;
  • TU Paraffin Deposition to enhance understanding of paraffin deposition in single and multiphase flows; and
  • TU High Viscosity Oil to conduct experiments and model various multiphase flow combinations of high viscosity oil, water, and gas for heavy oil production and transportation.

► Prof. Sarica’s presentation (document).

“Opportunity Crudes: To process or not to process?”, Claire Weber and Serena Yeung, Hydrocarbon Publishing Co. Hydrocarbon Publishing Company recently published results of a survey of oil companies worldwide on their experience with opportunity crude oils (opcrudes). The majority of responses indicated heavy, sour crude oil was the dominant opcrude being processed, followed by high-TAN, Brazilian, and several Canadian “syncrude” streams. For approximately one-third of the respondents, opcrudes comprised 5 – 20% of the crude slate. Only 8% of the respondents were processing >50% of opcrudes in their runs. The primary driver was price discount, followed by crude access and security of supply. A number of barriers were cited to processing opcrudes, among them corrosion, fouling, and compatibility.

A number of technologies are available for upgrading the additional resid associated with heavy, sour crude oils, but many of these are high cost. Approximately 70% of the respondents indicated that they had performed a major revamp to process opcrudes.

Opcrudes will be an important part of refinery crude oil slates going forward. Keys to successful processing include:

  • Reduce fouling and corrosion;
  • Maximize diesel production; and
  • Minimize HSFO production.

► Weber and Yeung presentation (document).

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

This concluded the October 27, 2011 meeting of the COQA.  The next meeting of the association will be in late February or early March 2012, in Houston, TX. At that meeting, COQA hopes to arrange a meeting to a crude oil trading floor the day before the general meeting. Details will be posted to the COQA Website as they become available.

Harry N. Giles

Director, COQA

dir.COQA@verizon.net