More barrels of oil for fewer gallons of diesel

A new Colorado pipeline designed to save money also cut greenhouse gas emissions

BY ERIC LIDJI FOR GREENING OF OIL

Occasionally, decisions that save money for a company also yield environmental benefits.

When oil and gas companies north of Denver, Colo. began producing more crude oil than they could process and sell in the region, they began shutting in wells, deciding it was more profitable to drill new wells elsewhere, closer to a pipeline.

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Due to the lack of refinery capacity, one company began trucking crude oil hundreds of miles away, across two state lines.

The introduction last summer of a new pipeline, connecting the Denver area to Oklahoma, cut out millions of truck miles every year not only by eliminating an unsustainable road trip but also by opening the door to efficiencies in the field itself.

In June 2009 the White Cliffs Pipeline began shipping oil from Platteville, Colo., north of Denver, to Cushing, Okla., the major North American trading hub west of Tulsa. The pipeline is operated by Tulsa-based SemGroup LP, which also owns a 99 percent stake in the line. (Shippers Anadarko and Noble Energy share the remaining 1 percent.)

The pipeline runs like an express train: a single pickup point and a single drop-off point delivering crude oil from the Wattenberg field to storage tanks (and buyers) in Cushing.

Although discovered nearly 40 years ago, Wattenberg hasn’t been the starting point for many oil pipelines because the field primarily produces natural gas, and a lot of it.

Among the largest natural gas fields in North America, Wattenberg stretches across more than 50 miles of northern Colorado. Today some 20,000 active wells pump from the field, which has produced more than 3 trillion cubic feet of natural gas since 1970.

In recent years, though, companies like Anadarko Petroleum Corp. and Noble Energy Inc.—the two primary shippers on White Cliff—began producing oil from the field.

White Cliffs is believed to be the first oil pipeline in the state in at least a decade.

Handwriting on the wall

For a time, those companies primarily sold their oil to local refineries in the Denver-area, but over the past few years, the available space at those refineries became tight.

“We were actually maxing out the refinery capacity here in the Denver area,” said David Howell, Anadarko’s general manager for the Wattenberg field.

During times of particularly limited space—Anadarko said the situation hit its worst point around December 2008—Wattenberg producers even began shutting in oil wells, which in turn forced them to also shut in natural gas wells, since many wells produced both oil and gas. Nobel said it shut in around 8 million cubic feet of natural gas per day and 1,100 barrels of crude oil per day in 2008.

“We could see the handwriting on the wall,” Howell said.

To keep wells flowing, Anadarko began trucking oil more than 650 miles to Cushing, an ironic trip that required burning a lot of diesel to sell the crude oil from which diesel is made.

Trucking oil any significant distance is neither economic nor efficient.

A gallon of diesel fuel averaged about $3.80 in 2008 and $2.47 in 2009, and the giant tanker trucks used to move large fuel shipments only get around five miles to the gallon.

A back door to Cushing

White Cliffs offered an alternative: a 525-mile pipeline from Platteville to Cushing. The 12-inch pipeline can carry up to 30,000 barrels per day, with the capability of one day expanding to 50,000 bpd.

Currently, Anadarko and Noble each are contracted to ship 10,000 bpd, although Anadarko said it frequently exceeds that amount.

The $236 million pipeline gave producers more options: Cushing is the primary oil-trading hub in North America, meaning, in a sense, it has more buyers per square inch.

The pipeline also created an opportunity for Anadarko to cut even more miles off its trip.

Because White Cliffs starts inside the field itself, Anadarko no longer needed to truck crude 40 miles away to a local processing, or “polishing,” facility that gets the oil ready for shipping to a refinery. Instead, Anadarko built a new polishing facility in the field, cutting all truckable miles from the equation.

“The physical location of it is kind of central to our field,” said Joe Aucoin, staff facilities engineer for Anadarko at Wattenberg.

A side benefit: burn less diesel

Those efficiencies, both business decisions, created a side benefit: fewer gallons burned. Aucoin said the two installations have eliminated millions of truck miles in just the eight months the pipeline and the unloading facility have been in operation.

The company said eliminating the drive to Cushing saved some 1,486,728 gallons of diesel fuel a year, while the untaken trips for polishing save about 64,800 gallons each year. That means a reduction of more than 270 tons of emissions per year, Aucoin said.

Geography also helps: the mostly downhill trip from the Colorado Rockies to the plains in Oklahoma means gravity picks up some slack in shipping the oil. The pipeline currently requires only a single pump station to move the crude oil along its route.

Anadarko said that without White Cliffs, it would have continued trucking crude oil to Oklahoma in times of limited capacity. In federal filings, White Cliffs made its case for a new pipeline by calling out-of-state truck shipments a “relatively uneconomic option.”

“It made good environmental sense and excellent economic sense,” Howell said.

Links of interest

Anadarko Wattenberg gathering system

SemGroup White Cliffs profile

Contact Eric Lidji at ericlidji@mac.com