No apportionment here: TEML, now Kingston Midstream, has room on its pipeline

Coastal export pipelines benefit producers, which then benefits local pipeline company

Weyburn – At the Saskatchewan Oil and Gas Show, Tundra Energy Marketing Ltd. (TEML) staff were handing out chocolate bars implying a rebranding of their company would be coming soon. That came two weeks later, on June 17, when the company was renamed Kingston Midstream.

The company has made it a practice of having their president and CEO attend the oil show in recent years, and this year was no different. Jim Hand, who recently took over the reigns of the top job, spoke to Pipeline Newson June 5. He was joined by Peter Forrester, vice-president, commercial, corporate and regulatory.

Hand said it was a fantastic show. “To get two premiers, to talk over lunch, who are that supportive, of our industry? Frankly, it energizes me,” he said.

“For me, this is my first time at the show. Kevin Armstrong (vice-president, operations) has been showing me around, introducing me to a lot of folks, because I’ve only been with TEML for a little over half a year now. This was really my first opportunity to meet a lot of our suppliers and some of our customers.”

“It’s going great,” Hand said, when asked how things are going.

He noted they’ve made some changes, with Armstrong now as vice president of operations in Estevan. “He knows everyone, and has been around for decades.”

“We’re finishing some of the integration with some of the Enbridge folks with some of the Tundra folks, and getting our team where we want it, to position us for future success.”

“We’re adding some positions, like our supply chain and HSE, trying to centralize those to basically manage our business and leverage it across shared services. But for the most part, people in the Estevan area are still in the Estevan area.”

The national discourse has often referred to a shortage of pipeline capacity. But in southeast Saskatchewan, where currently all oil is shipped on the now-Kingston Midstream system and none is going by rail, there is no shortage.

“That’s right,” Hand said. “If you’re downstream of Kerrobert, you’re not typically getting apportioned on the Enbridge Mainline.”

Apportionment is the practice of pipeline companies limiting how much can be shipped on their system, as the demand outstrips the shipping capacity. The Kingston Midstream system ties into the Enbridge Mainiline at Cromer, Man. 

“Most of the bottleneck is upstream of us, which is a big advantage to the producers of southeast Saskatchewan and southwest Manitoba. They’re not dealing with the same apportionment issues as the people upstream, in Alberta.”

There has been short-term apportionment on their system in the past, typically when a refinery goes into turnaround downstream, but not the long-term apportionment of what has been going on recently.

“We have room on our Westspur pipeline, and the Enbridge Mainline has room from Cromer, downstream. So we’re encouraging producers to drill more wells and bring on more production, and we need to help connect them to the system.”

Enbridge noted in an email on June 26, "The space on the Enbridge Mainline system past Cromer varies and is dependent on pricing and market dynamics."

Forrester said, “Just recognize, from a commercial perspective for producers in Saskatchewan, it’s not pipeline capacity on TEML which is an issue, it’s the takeaway capacity from Canada which is depressing prices. So every single day we don’t have pipeline capacity to international markets, we’re discounting our crude, in Saskatchewan and everywhere across Canada.”

Saskatchewan discounts are as bad as what the oilsands have seen, according to Hand. “Not like the oilsands discount. WCS, Western Canadian Select, sees a heavy discount, whereas the LSB crude that’s mostly from our area sees less. It’s still below WTI (West Texas Intermediate), though.

In late 2018, TEML settled a dispute over blending with several of its customers. That dispute, which had gone to the National Energy Board, is now behind them.

“It’s a lot better to be working together, collaboratively, than fighting. No one wins, except the lawyers,” Hand said.

He said they’ve had great conversations with CEOs, including Crescent Point’s, Craig Bryska. “I want to focus on the future and how we can help customers grow their business,” Hand said.

The company has a rail loading facility at Cromer, Man. Despite growth in crude-by-rail usage in other parts of Canada, it hasn’t seen any action. “It’s currently been mothballed, but we’re looking at opportunities of how we can use it,” he said.

If the Energy East pipeline project had gone ahead, with it’s planned Cromer Lateral, TEML would have been in a position to offer southeast Saskatchewan and southwest Manitoba producers the ability to greatly broaden their potential clients. They could ship not only on the Enbridge Mainline to the American Midwest, but on Energy East to Quebec, New Brunswick and overseas via tanker. The rail facility at Cromer offers the rail option for any other facility on the North American rail system. 

“That’s our job, to give the producer any option they want to choose.”

While Energy East is currently dead, Saskatchewan Premier Scott Moe and Alberta Premier Jason Kenney were both talking about a national energy corridor while at the oil show. This would essentially be something similar in concept to Energy East. Asked about a national energy corridor, if it were to go ahead, Hand said, “Absolutely, we want to do whatever we can to help our customers increase their production and put it into whatever option that makes the most sense to them. The Enbridge Mainline will still be a key part of the system that we put barrels into. But, obviously, any other options that go by our infrastructure would be welcome, because you always want to provide your customers with options.

“Everything comes down to economics and what makes the best decision. I couldn’t say for certain we would participate. But any pipelines, multiple pipelines, that get crude out of Canada, and get it to tidewater, it’s a good thing. Any pipeline, like Energy East, which actually replaces foreign oil, with Canadian oil, is a great thing.”

On the Trans Mountain Expansion project, which at that point was still awaiting federal approval (granted June 18), Hand said, “I’m very hopeful it gets approved and moves ahead, absolutely.”

Forrester added, “Trans Mountain is an important part. It gives us the ability to get the to the West Coast, which is an important part of the energy strategy. It gives us another outlet, and to allow us to get the right pricing for our pipelines, and for our oil.”

The argument for Trans Mountain is that by being able to sell oil at Brent prices in the global market, it would lift prices on the continent. Asked how it would impact TEML, Hand said, “It impacts us by providing better economics to the producer who is then going to drill more wells, bring more production onto our system. So we benefit, because our producers benefit.”

Asked about a concern expressed by some small junior producers in the region about the need for TEML to build more pipe in the region’s gathering system to connect to their batteries, as opposed to using truck terminals, Hand said, “It’s economics, right? You have to look at how much volume, the length of the pipe, how many other producers that can be tied into the pipe, to make the best decision for our shareholders as well. But we’re constantly in discussions with our producers in how we can get them connected. Longer term, it’s better economics for them, which means hopefully better economics for us.”

“I’ve really enjoyed my time here. It’s only been half a year from me, but I’m looking forward to meeting the people in southeast Saskatchewan,” Hand concluded. 

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