New Kerrobert train loading facility for Plains Midstream

50 people to be hired for 24/7 operations

KerrobertPlains Midstream Canada (PMC) is putting the finishing touches on a new crude-by-rail terminal at Kerrobert as well as an expansion of its storage canvern facility. Mike Mikuska, vice-president, crude supply and pipelines, Plains Midstream Canada, responded to our questions about the project by email on Oct. 26. Here are his responses:

Pipeline News:We understand Plains Midstream Canada is working on a crude-by-rail project at Kerrobert, as well as expanding its storage cavern capacity. Can you elaborate on these projects?

Mikuska: Plains is building the Kerrobert Train Loading Facility to utilize our assets in the area and give our producers shipping options.

Plains is improving the access of Saskatchewan crude oil for local producers to markets in the United States. This should result in fewer restrictions of pipeline volumes (apportionment) and therefore higher profits for Saskatchewan producers. The facility will be located close to the Enbridge Mainline, which transports large volumes of product from Western Canada to the United States’ Midwest.

The facility will be built approximately four kilometres from the existing Plains Kerrobert Storage Facility, on Section 23-33-22-W3.

The crude oil products will reach the terminal via a pipeline from the Kerrobert Storage Facility. The Plains Kerrobert Storage Facility holds crude oil product received from our truck terminal and the Manito, Bodo and Cactus Lake pipeline systems, as well as the Enbridge Mainline.

We will be hiring approximately 50 new employees for the rail terminal to operate the facility 24/7.

Plains is also the operator of four salt caverns at the Kerrobert Storage facility. We are working on a project to develop two new caverns and retire three existing caverns developed in the early 1970s that have reached the end of their life cycle.

The project includes the development of salt caverns 5 and 6 that will be used for storing natural gas liquids (NGL). Cavern 2 and Cavern 3 are currently not operating and Cavern 1 will be taken out of service when Cavern 5 is in-service.

The new caverns being developed will function identically to the retired caverns, helping store natural gas liquids (NGL) and assisting in moving product to market to meet customer demand.

P.N.: What is the capacity of this new rail facility? What lines can it ship on?

Mikuska: The loading facility will be able to handle one unit train per day of crude oil. A unit train consists of up to 120 rail cars specifically designed for safe transportation of petroleum and up to 80,000 barrels can be loaded onto one unit train daily.

P.N.: Can you describe the facilities? Did you build a loop track? Will you have tank storage and loading racks? Or will you transload from trucks?

Mikuska: The facility will be a loop track designed to load fifteen cars at a time. Major equipment for a typical crude loading facility, similar to the one being proposed, will include the following:

• Main control center with office

• Electrical and mechanical buildings

• Onsite storage tanks

• Vapor handling system (incinerator)

• Rail car loading spill containment system

• Drain tank (for pig receiver barrel and for drains in loading area)

• Instrument and utility air compressor/dryer packages

• Track mobile garage

• An enclosed loading area under full canopy housing the crude loading racks and pump systems.

Plains is committed to meeting all applicable regulatory requirements set out by Saskatchewan Ministry of Economy and Saskatchewan Upstream Flaring and Incineration Specifications, Directive S-20 as well as the Clean Air Act.

P.N.: Is this a phased approach, i.e. transload first, then tank storage and loading rack, or is it a one-time shot?

Mikuska: No future phases are currently planned beyond the initial construction which includes two 150,000 barrel tanks. If demand warrants expansion, Plains is able to add additional function or capacity. Future phases could include additional storage tank capacity at the tank terminal site, or additional rail loading spots.

P.N.: Can you tell us how much Plains has invested in this project?

Mikuska: The project was approved for US$140 million.

P.N.: When will it be operational?

Mikuska: The Kerrobert Train Loading Facility is scheduled to be commissioned by November, 2015. The additional tanks will take longer to construct and will be commissioned at a later date.

P.N.: Where will this oil end up – U.S. Gulf Coast, Canadian Pacific Coast, Canadian East Coast or U.S Atlantic seaboard? Or will it be somewhere else?

Mikuska:Our parent company, Plains All American Pipeline, has constructed two unit train offload facilities at St. James, Louisiana, and Bakersfield, California. These markets currently do not have access to Canadian heavy crude.

The Kerrobert train loading facility has the ability to ship a heavy barrel of crude with much less diluent added than is required to ship via pipeline; providing higher netbacks for heavy oil producers. In addition to this, there is also new demand for Canadian heavy volumes that are currently inaccessible by export pipelines or rail.

P.N.: In a world where oil has been floating around US$45/bbl WTI (It’s US$50 today), and crude-by-rail can cost as much as $12-$15/bbl, does crude-by-rail still make sense? What can you tell us about the business case?

Mikuska:The lower WTI price has narrowed price differentials on Canadian heavy crude which, in some instances, is making pipeline economics better than rail economics. However, there is still not enough pipeline export capacity out of the Canadian basin which is creating demand for crude export by rail.

Only if production in Canada declines to a point where export pipelines have the ability to ship all the volumes being produced in Western Canada, will we have to adjust our strategy. However, this is unlikely to affect the Kerrobert facility which will be able to deliver Canadian crude to markets such as the Los Angeles basin and the eastern U.S. Gulf Coast.

P.N.: Is this Plains Midstream’s first crude-by-rail facility, or have you built others? Why have you decided to take this path?

Mikuska:Specific to rail loading facilities, this is the first one being constructed in Canada by the Plains organization but (we) have built numerous, similarly sized Liquid Petroleum Gases (LPG) and crude oil rail facilities in the U.S.

Plains is pursuing crude oil rail terminals based upon our expertise in transportation services. We operate numerous train loading/unloading facilities across North America and, as of June 30, operates a fleet of approximately 5,400 rail cars, making Plains an integral part of the energy-by-rail midstream market.

P.N.: If and when major pipelines like Keystone XL and Northern Gateway get built, will there still be a business case for crude-by-rail, or while rail’s flexibility to ship anywhere on the continent continue to make it an important marketing option?

Mikuska:As part of Plains’ six-year plan for growth, we are building rail terminals in key production areas. There are a number of factors for this, including, pipeline capacity constraints, the increased approval timeline from regulators, and an increased demand for crude oil rail transportation. It could take five years to build a new pipeline, whereas a rail terminal can be built in a fraction of that time.

P.N.: A legal settlement in the Lac-Mégantic disaster is in the news this month. That tragedy made crude-by-rail unpalatable to many people across the continent. How do you address this concern?

Mikuska:The safety of our employees, contractors and the public, as well as the protection of the environment, are our top priorities for Plains.

Plains will ensure all regulatory and safety requirements will achieve compliance with all regulatory bodies. Compliance includes the development of a rail safety management plan prior to operations and a specific spill management procedure. A site-specific emergency response plan will also be developed for the Kerrobert rail terminal.

The new facility will include an onsite laboratory to test the chemical composition of crude oil being loaded into a rail car. The crude will be tested twice: once when it enters the storage facility and once when it leaves to the rail loading facilities. The testing is to ensure proper classification for meeting both Canadian and U.S. Transportation of Dangerous Goods regulations.

Plains uses the safest standard of rail car for the transportation of our products. The new rail cars (CPC 1232) are made with thicker steel, full or half head shields and come with rollover protection for the valves. As well, the primary car to be used at Kerrobert are double-walled and will have a layer of fire-resistant insulation between the walls.

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