User:Oceanflynn/sandbox/air barrel
Air barrel is a term used in the petroleum industry by which highly competitive crude oil shippers over-nominate oil volume and overbook for limited space on carrier pipelines[1] to increase its "proportionate share of all nominations" increase its proportionate share of all nominations and, thus, that shipper’s pro rata allocation."[2][3] basing their nominations on the capacity of oil refining facilities to receive the crude oil as opposed to the actual number of barrels of crude oil.[1] In a move to "cut overbooking on congested lines" Enbridge 2012 proposal to "alter how it calculates the amount of crude shippers can nominate on its export network" was approved by FERC in 2013.[4]By 2014, as production from Alberta’s oil sands and U.S. shale deposits booms, oil companies compete for the limited space on existing North American pipeline systems.[3] According to the Financial Post, the steep discounting of crudes such as Western Canada Select is largely the result of tight export capacity.[3] Traders argue that apportionment, in response to air barreling, is a major factor in deepening the discount.[1]
The term "air barrel" became more widely used in 2010 with the reduction in capacity of the carrier pipeline company, Enbridge, following a devastating accident on a key pipeline transporting crude oil to refining facilities in the U.S. Midwest and Ontario.[1]
History
[edit]When major shippers such as Imperial Oil Ltd, Exxon Mobil Corp, Suncor Energy Inc, Marathon Petroleum Corp and Phillips 66,[1] used air barrels based on the highest monthly volume they had moved to refineries between 2008-2010, their nominations were too high.[1] Enbridge reduced the bookings of its c. 70 shippers through apportionment.[1][Notes 1]
Pipeline carrier such as Kinder Morgan and Enbridge, are working to modify verification procedures to ensure a "shipper’s designated delivery point has "adequate take away capacity" to complete delivery of the nominated barrels of crude oil[2] to curb the use of air barrels. In a October 2012 proposal to US Federal Energy Regulatory Commission (FERC), Enbridge proposed to modify the Nomination Verification Procedure based upon "the capacity of the selected destination facility," rejecting nominations that exceed the capacity of the destination refining facility.[2] Prior to 2012, nominations were based on historic volumes limiting verified volumes to "the highest volume delivered to that [destination] facility during the 24-month period leading up to July 2010." Enbridge’s 2012 FERC proposal removed "historical caps from the nomination verification process."[2] Enbridge's proposal was approved by FERC in 2013.[4] By 2014 Kinder Morgan's Trans Mountain Edmonton-to-Vancouver crude oil conduit had been oversubscribed by c. 70% for several years, with severe pipeline apportionment on the 300,000-barrel-a-day capacity line.[3] One of Kinder Morgan's solutions would involve a shift in the "way it verifies the amount of crude its shippers can nominate on the pipeline each month to a new system based on their historical deliveries."[3]
Notes
[edit]- ^ According to the Financial Post, "Traders cite apportionment as a major factor behind recent deep discounts on crudes such as Western Canada Select heavy blend and light synthetic, derived from the Alberta oil sands, saying supplies are backing up in Alberta."
References
[edit]- ^ a b c d e f g Jones, Jeffrey (November 23, 2012), Enbridge, oil companies at odds over ‘air barrel’ relief, Financial Post/Reuters, retrieved April 30, 2014
- ^ a b c d Order following technical conference (PDF), United States of America Federal Energy Regulatory Commission (FERC), July 18, 2013, retrieved April 30, 2014
- ^ a b c d e Lewis, Jeff (April 29, 2014), Oil companies at odds over Trans Mountain plan to eliminate ‘air barrels’, Financial Post, retrieved April 29, 2014
- ^ a b Williams, Nia (July 18, 2013), U.S. approval of Enbridge pipeline plan irks some oil shippers, Calgary, Alberta: Reuters, retrieved July 18, 2013 Cite error: The named reference "Reuters2013" was defined multiple times with different content (see the help page).