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Providing coverage of Alaska and northern Canada's oil and gas industry
March 2010

Vol. 15, No. 13 Week of March 28, 2010

Northern Gateway under siege

Enbridge, on verge of filing to open Asian markets for oil sands crude, faces resistance from environmentalists, First Nations

Gary Park

For Petroleum News

No matter which way pipeline company Enbridge turns it is encountering resistance to the first large-scale plan to export crude oil from the North American continent.

First Nations, environmentalists and rival plans for tanker shipments from British Columbia are besieging the Northern Gateway project just weeks before Enbridge is expected to file an application with Canada’s National Energy Board.

And all this comes around the 21st anniversary of the Exxon Valdez disaster, which is being held up as a key reason for regulators and governments to block Enbridge’s hopes of exporting 525,000 barrels per day of oil sands-derived crude and import 193,000 bpd of condensate through the deepwater port at Kitimat.

Enbridge commercial manager Steve Elliot had no sooner told an energy seminar in Tokyo that his company was on the verge of submitting a formal application to the NEB than the proposal was swamped with doubts and negatives.

First Nations from British Columbia to Alberta warned that wildlife along the British Columbia coast would be devastated by an oil spill; the Union of British Columbia Indian Chiefs, representing about 40 percent of the province’s aboriginal population, has unanimously opposed Northern Gateway; Alberta aboriginals are rallying to show their opposition; and environmentalists and landowners have already indicated they will challenge the plans at regulatory hearings.

Problems are also surfacing at the delivery end of the Asian-bound exports, with Japanese refiners and traders indicating they see greater benefits in importing crude from Russia’s Far East which offers higher yields of middle distillates and lower freight costs compared with Middle Eastern crudes.

Kinder Morgan: price the issue

Compounding those challenges, Kinder Morgan — which has developed preliminary plans to either expand its export pipeline from Alberta to Vancouver or build a separate rival pipeline to Kitimat — has warned that crude pricing could stand in the way of Canadian crude reaching Asia.

Kinder Morgan senior business development manager Norm Rinne told reporters in Tokyo said there has been no evidence of deals between Canadian sellers and Asian buyers to support hopes of shipments exceeding 300,000 bpd after 2017, giving Canadian producers a competitive outlet to its sole export market in the United States.

Rinne said Kinder Morgan plans to add two more Canadian pipelines — one carrying 80,000 bpd and the other 320,000 bpd to the B.C. coast by 2017.

He said initially Kinder Morgan expects Asian demand will be less than 100,000 bpd by 2015, before tripling over the next two years.

Kinder Morgan is currently working on engineering and design for a second berth at its Vancouver terminal, building on its trial shipments of crude to Asia, which claimed a share of the average 75,000 bpd exported from Vancouver in 2009 (peaking at 134,000 bpd in March 2009).

He said his company believes that “nothing except prices is holding back Canadian crude oil from going into Asia,” once sellers and buyers can bridge the gap between Dubai and WTI pricing.

Domestic resistance

However, the domestic resistance to Northern Gateway is rapidly gathering momentum.

Coastal First Nations, a coalition of British Columbia aboriginal communities stretching from Vancouver Island to the B.C.-Alaska border, said March 23 it is ready to battle Enbridge.

Coalition Executive Director Art Sterritt said there is too great a risk of an oil tanker repeating the grounding of the Exxon Valdez as it navigated “the pristine waters within our traditional territories.”

“If we had a tanker accident on the coast of British Columbia it would literally wipe out all of our cultures, all of our salmon, all of our groundfish,” he said.

Sterritt said Coastal First Nations were told by Enbridge a year ago, and the company reiterated the pledge at its annual general meeting in 2009, that “if all the communities within this geographic region didn’t support the pipeline that they would stop the project. We’re here to tell you today that all of the communities are opposed to Enbridge.”

He said the Northern Gateway pipeline “is a threat to the very existence of our culture and our way of life.”

A five-year study released by Raincoast Conservation Foundation concluded that whales, wolves, bears and birds would be devastated by an oil spill in the area.

Environmentalists Vicky Husband, who has been recognized for her work by the British Columbia and Canadian governments, said Canada’s conservation community is united in its opposition to the pipeline and tanker traffic.

“Why are we here to shift dirty tar sands oil to China or India?” she asked. “So we can (develop) more tar sands, so we can export more climate change and destroy our Earth? We have to change our course now.”

Earliest in-service late 2016

Elliot told the Tokyo seminar the earliest in-service date for the pipeline is the final quarter of 2016.

Enbridge has estimated that Northern Gateway would create more than 4,000 construction jobs and generate tax revenues for both British Columbia and Alberta.

It argues that ships have safely carried petrochemicals out of the Kitimat port for 25 years.

Elliott said the startup date depends on many factors, including detailed engineering, a regulatory decision, timing of commercial sanctioning and construction progress.

He said a filing for the 720-mile pipeline will be part of an ongoing regulatory Joint Review Panel process by the NEB and the Canadian Environmental Assessment Agency.

Elliott said Enbridge has secured C$100 million from four Canadian oil sands producers and three Asian-based market participants to finance the regulatory application.

Without naming the backers, he said: “We have got a diversified variety level of support from both the supply side and market side.”

Each of the participants is entitled to benefits, such as an option to ship crude at a discount on crude export and condensate import lines.

Enbridge is not prepared to get drawn into a public debate when it is so close to a regulatory filing, but has said it “welcomes and encourages public input.”

British Columbia Premier Gordon Campbell told reporters March 23 that while the project would be reviewed, he noted the jobs it would create.

“There’s literally hundreds and hundreds of jobs that will be available to First Nations people across the northern part of our province.”I think our job is to try and find ways we can get First Nations people engaged with paychecks, building the kind of economic future that they need in a way that meets our environmental standards, which are among the most rigorous anywhere in the world.”





Enbridge eyes Marcellus option

Canadian pipeline company Enbridge hopes to corner its share of the North American natural gas liquids shipping business by testing producer interest in linking the Marcellus Shale in Pennsylvania with Chicago’s industrial region.

The Calgary-based company wants to fill the available liquids capacity at its Aux Sable processing facility near Chicago that currently feeds off liquids delivered by the Alliance pipeline from northern British Columbia. It might also extend the line to serve Ontario’s petrochemicals feedstock market.

The proposed line would cover about 500 miles and capacity will depend on the results of an open season scheduled for the second quarter.

A company spokesman said there are estimates of 100,000 barrels per day of Marcellus liquids by 2013.

Enbridge Vice President Stephen Letwin said in a statement that his company has “extensive knowledge and expertise in the areas of NGL fractionation, transportation and marketing. Within this proposed pipeline, we are uniquely positioned to help Marcellus producers obtain greater value for their future NGL production.”

The Marcellus formation is one of several giant shale plays evolving in North America.

Enbridge is going head-to-head with TransCanada and Spectra Energy’s Union Gas which held a recent open season seeking preliminary commitments from Marcellus producers to ship gas from New York state into Ontario. No results have been announced.

Buckeye Partners is also testing interest in a liquids pipeline from the Marcellus to Ontario.

Enbridge believes that accessing the Chicago market with Marcellus liquids will need only a modest amount of pipe to take advantage of substantial markets.

UBS analyst Chad Friess said the pipeline would likely have only a small financial impact on Enbridge, which is flush with cash and looking for opportunities to divert that surplus.

—Gary Park


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