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Door to Gateway reopens, China out
Gary Park For Petroleum News
Enbridge’s on-again, off-again Gateway pipeline project is very much on-again, but China is out of the picture as the major recipient of oil sands-derived crude from Alberta to be replaced by Asian customers extending from Japan to Singapore, Enbridge Chief Executive Officer Pat Daniel said.
The possible 525,000 barrel-per-day project — involving a pipeline from Edmonton to a deepwater tanker port at Kitimat on the northern British Columbia cost — has attracted a “lot of renewed interest” recently, he told an investor conference at Whistler, British Columbia.
The latest incarnation of Gateway has “much broader Southeast Asian interest” than the initial attempt which had state-owned PetroChina — a subsidiary of China National Petroleum Corp. — as the clear front-runner to refine heavy Canadian crude in return for a possible 49 percent equity stake in the C$4 billion venture.
But those two years of negotiations collapsed in mid-2007, when PetroChina decided not to renew a memorandum of understanding with Enbridge aimed at aggregating 200,000 bpd of Alberta production and starting shipments in the 2012-14 period. CNPC lashed out at the Canadian government and producers, accusing them of not doing enough to support Gateway and facilitate energy trade between Canada and China.
“Canada doesn’t want to open up its own markets to us, so we cannot cooperate,” said CNPC Vice President Yiwu Song.
Customers from Japan to Singapore Daniel, who has made frequent trips to Asia to seek customers, told the investors conference that Gateway’s initial focus on serving China has now been transferred to customers ranging from Japan to Singapore. He did not offer more specifics, but South Korea has always been seen as a possible buyer of Canadian crude.
He said Enbridge, having spent C$80 million-$100 million developing a Gateway application decided “enough of this fun … we need to have customer support.”
So it set the project aside to concentrate on a full plate of other pipelines to the United States.
“We asked (prospective Gateway) customers to step up and support the remaining funding to get National Energy Board approval. We now do have that funding in place — a combination of producers and refiners that are prepared to support the development costs to get it going,” Daniel said.
Equity offered to supporters He said Gateway is now a “broad, industry-wide initiative. We offered 50 percent of the equity to those companies who do support the project and we’ve had very good uptake on that.”
Asia is a priority for Enbridge, which views the demand side for oil sands production as more important than the supply side, Daniel said, noting that the U.S. market is “saturated” with Canadian heavy crude, posing a risk to producers if prices fall.
California was once seen as a possible market for 20-25 percent of Gateway volumes, but indications that the state may ban fuels derived from “dirty fuel,” such as the oil sands, has put that option in doubt.
How fast Gateway might move ahead will be determined by results from testing of Canadian heavy crude and light synthetic oil at Asian refineries.
Ian Anderson, chief executive officer of Kinder Morgan Canada — which also has its eye on shipments to Asia — told the Globe and Mail recently it will “take some time until there’s a meaningful (Asian) market developed that producers will commit significant supplies to.”
But he is confident that within the “next several years” Asia will open up to Canadian crude, allowing producers to make a commitment to Asia and significant pipeline expansions to proceed.
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