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Full speed ahead to Texas Kinder Morgan joins pipeline contest and new Enbridge-ExxonMobil partnership holds open season on new project; not all proposals expected to survive Gary Park For Petroleum News
A crowded field has become even more congested as rival pipeline companies jostle for leadership in a race to ship production from the Alberta oil sands to the U.S. Gulf Coast.
A partnership of Enbridge and ExxonMobil started soliciting binding commitments from shippers for a US$3 billion, 768-mile system from Patoka, Ill., to Texas refineries just a week after Kinder Morgan proposed a 2,000-mile system through Wyoming and Oklahoma at a cost the company believes will be less than US$5 billion.
TransCanada and Altex Energy have previously staked their claims to open up the Texas market for oil sands producers, while BP is contemplating the reversal of its 600-mile, 100,000 barrels per day line from Cushing, Okla., to Chicago as a possible opening phase of giving producers a link to Texas.
Kinder Morgan Canada Vice President Bill Henderson said the explanation is simple: Producers need to have new markets to handle the rising volumes from northern Alberta, which are expected to roughly triple to 3 million bpd over the next seven years.
But they are uneasy about locking their production into the single outlet offered by Enbridge, so they have pressured pipeline companies to expand the network and move oil farther afield, taking advantage of the fact that their deliveries from Illinois to Texas are currently limited to 100,000 bpd of space available on an ExxonMobil pipeline.
What isn’t clear is how many of the current proposals will reach the construction stage in the near term.
Henderson suggested that probably only one will proceed immediately, although he suggested that the volume profile for the oil sands could see “two, maybe three lines go ahead over time.”
Battle for anchor tenants For now, the battle is to win over the hearts and minds of shippers by pinning down anchor tenants.
Although late on the scene, Kinder Morgan has an eye on Canadian Natural Resources, which has yet to make a commitment to any pipeline for its Horizon production, which is due to come on stream in the third quarter of 2008 at 110,000 bpd, has engineering work under way targeting 232,000 bpd by 2013 and could eventually reach 500,000 bpd.
Canadian Natural Senior Vice President of Marketing Real Cusson tossed some cold water on Kinder Morgan’s hopes by leaning in favor of the Enbridge-ExxonMobil proposal to carry 400,000 bpd from Illinois to the Houston region by 2010-11, building the Texas Access Pipeline alongside its existing smaller link.
Cusson said Canadian Natural does not normally sign long-term shipping contracts, but it is being forced to weigh that against is desire to access the Texas market, where it can get better prices for its volumes.
Kinder Morgan’s planned 300,000 bpd Chinook Pipeline is targeted for a 2012 start-up.
It has also teamed up with Houston-based Teppco Partners, which is working to develop a portion of the Chinook system that would originate at Cushing, Okla., and extend to the Gulf Coast refining centers, although it is not clear who would build that connection.
A Canadian spokesman for Kinder Morgan said a more accurate cost estimate will only be possible once engineering and routing have been completed and that hinges on obtaining commitments from one or more large-scale producers.
He said the producers are preoccupied with calculating the best netback and deciding whether that will come from a direct route, an existing route, expansion of an existing system, or something brand new.
Enbridge says it will compete Meanwhile, Enbridge Chief Executive Officer Patrick Daniel has delivered a blunt message to his rivals, saying his company has the “lion’s share of crude oil capacity expansion out of Western Canada … and won’t sit idly by and watch these new projects (invade that territory). We compete strongly for all customers.”
He noted that Enbridge has C$12 billion worth of projects that are secured today and another C$14 billion that are under development.
That includes the on-going Southern Access program to add 124,000 bpd of capacity by early 2008, then expanding the connection from Superior, Wis., to Patoka by 400,000 bpd in 2009.
The importance of the existing Enbridge system was hammered home in November when an explosion near Clearbrook, Minn., killed two workers repairing one of the lines and temporarily halted shipments, driving oil prices up by US$4 per barrel.
Daniel said Texas Access would expand pipeline infrastructure to “increase the reliable supply of crude oil to U.S. refineries.”
“Producers of crude oil from the Western Canada’s oil sands, and from the Williston Basin in North Dakota and Montana will benefit from low-cost transportation from the limited U.S. Midwest to the large Gulf Coast refining market. Gulf Coast refineries and refined products consumers will benefit from access to reliable, competitively priced new sources of supply.”
Open season closes Feb. 29 Canadian oil priced at Edmonton sells for about C$15 per barrel less than similar oil from Mexico sold to Houston refineries. Enbridge believes it can deliver Canadian crude to Texas for about C$6 per barrel.
The Texas Access open season closes Feb. 29. Until binding commitments are made no regulatory applications will be filed.
Until now, the most intense part of the rivalry has involved Enbridge and TransCanada, the two leading Canadian pipeline companies.
TransCanada has received regulatory clearance to start work on its C$5.2 billion Keystone system to deliver 430,000 bpd from Alberta to Patoka by the final quarter of 2009, then extend the line to Cushing and boost volumes to 590,000 bpd by late 2010.
Taking a lower profile, but insisting it remains in the race is privately held Altex — the first to promote a direct Alberta-Texas link.
That C$5 billion venture would cover about 1,800 miles and carry 300,000 bpd.
Altex Chief Executive Officer Jack Crawford said it has been satisfying to see his company’s ideas “validated … and we still think we have the inside track.”
He said the details are in flux because of the stepped up competition, suggesting that decisions on contracts will “get made pretty quickly.”
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