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Crude oil transportation shouldn’t be a problem, right? Wrong!


When is a pipeline not a pipeline? When it’s better to move it by truck, that’s when!

But isn’t this counter-intuitive, which is a chin scratching term for “are you crazy?!”

Surely it’s more cost effective to move crude oil and refined products (gasolines, diesels, jet fuel and heating oil) by pipe rather than rubber.

Doing my best impersonation of Justin-time-Trudeau, my answer is, “well, yes and no.” This is because we are comparing – out with the old clichés, in with the new – pomegranates to bananas.

Once crude is refined into transportation and industrial fuels, the most efficient mode of moving these products in terms of cost and safety is by pipe, and it’s how they are moved from the refining hub in Houston to the receiving and pricing ports of New York and New Jersey.

The key conduit of transportation is the Colonial Pipeline, which delivers 375-million litres (100 million U.S. gallons) to these and spur locations every day of the year.

Sounds simple as a pimple but not really.

To ensure specification integrity, there are two lines: One for the three grades of gasolines, the other for distillates, diesel, furnace oil, and jet fuel. Gasolines are shipped in batches with the lowest octane first, then the mid-grade, and finally the 91 premium product. It has to be done in this order because of the interphase between the grades, meaning that you will have a small volume blend in the first regular grade that will have some higher octane mid-grade, and the mid-grade will have some of the premium product in the final delivery. This is fine, but you can’t go the other way having mid-grade octane in the interphase with the premium grade gasoline, nor regular in the midgrade blend.

A separate line is needed for the distillates because their specifications are worlds apart from those of the gasolines. Having gasolines and diesels in the same line would be a disaster from the perspectives of both the producers and the consumers.

Question:  Crude oil transportation shouldn’t be a problem, right?

“Well that’s not quite true.” Thanks Justin for your constructive comments!

The crude storage at Cushing (now 88% full, up 3% from last week), is a blend of a variety of crudes with different API gravities (viscosities) and sulphur levels. This has become more and more of a problem for refiners who set minimum and maximum levels for both of these when setting up their refined product slate. With the flood of very light and sweet shale oil and heavy sour Canadian oil sands crude being delivered to Cushing, these refiners are becoming frustrated with the Cushing blend as it varies from load to load, which alters the yield and profit levels of the desired end product.

To lessen this problem, refiners are avoiding pipelined product into Cushing, and going straight to the oil field off loading point to ensure constant specifications of the crude they want to refine. This has resulted in a huge spike in sales and future demand for tractors and tanker trailers.

So we have gone from low cost, low risk pipelines to in-your-face, accident prone crude by rail, to high cost, highly visible crude by rubber.

The environmentalists will be dizzy with excitement. The politicians dizzy with indecision.

What’s in that pipeline they’re smoking?

~ The Grouch


Roger McKnight

Roger McKnight

Roger McKnight is the Chief Petroleum Analyst with En-Pro International Inc. Roger has over 25 years experience in the oil industry, and has held senior marketing management positions responsible for national and international accounts. He is the originator of the card lock concept of marketing on-road diesel that is now the predominant purchase method of diesel in Canada. Roger's knowledge of the oil industry in North America, and pricing structures has resulted in his expertise being sought as a commentator by local, national, and international media. Roger is a regular guest on radio and television programs, and he is quoted regularly in newspapers and magazines across Canada.
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