Canadian lines clash over crude exports

Kinder Morgan v Enbridge in contest to open Asian markets; Kinder says less environmental impact with expansion of current system

Gary Park

For Petroleum News

Enbridge is fighting on two fronts as it pushes ahead with plans to export oil sands production to Asia, with First Nations and environmentalists lined up against it on one side and now rival company Kinder Morgan Energy Canada set to do battle on the other.

In a submission to the National Energy Board, Kinder Morgan has asked consideration of the Northern Gateway application to be deferred until Enbridge can demonstrate “with a sufficient degree of certainty” that there is enough commercial support for the C$5.5 billion project.

In the process, it said Enbridge appears to be “pursuing approval in advance of demonstrated need for the project in order to create an ‘option to build’ and use that option as part of its marketing process.”

Enbridge declined to comment on the Kinder Morgan argument, saying the matter is now in the hands of regulators.

Kinder Morgan told the NEB that Enbridge’s proposal for a 525,000 barrel-per-day export system is incomplete and does not comply with the federal regulator’s filing requirements because it is not backed by binding commercial contracts.

“Without at least some real and substantial evidence of need and necessity, the application appears to be intended to provide the applicant some type of competitive advantage so that it may pursue commercial support that it has not been able to achieve to date,” the letter said.

Expansion slowed

But it said in May it was slowing plans for a C$7.7 billion expansion of its Trans Mountain system due to a lack of demand, putting in doubt its earlier timetable to add 80,000 bpd in 2013-14 and another 320,000 bpd by 2015-16.

It has also been weighing the prospect of a competing route to Asia, shipping 400,000 bpd through the British Columbia port of Kitimat, the planned site of Enbridge’s terminal.

However, Kinder Morgan President Park Shaper told a Houston energy summit in May there is no sign a “huge effort” to support his company’s planned four-phase expansion of the Trans Mountain network.

He said Kinder Morgan is continuing discussions with prospective customers, making the case that it can provide incremental additions rather than adding 400,000 or 500,000 bpd “all at once.”

Shaper also said the opening of a route to Asia now hinges on the pace of investment in Alberta’s oil sands by China’s state-owned companies.

He was not prepared to get drawn into a debate on whether there will be a battle between Kinder Morgan and Enbridge over the Asian market.

“We still believe that we offer the best option — not just from the customer perspective, but also from the environmental perspective,” Shaper said, noting that Enbridge is faced with building an all-new pipeline through the Canadian Rockies, while Kinder Morgan could use the existing Trans Mountain right of way.

Competitive concerns

In its letter to the NEB, Kinder Morgan said it is concerned with “potential negative market competitive implications” should the NEB decide to even hear the Enbridge application.

The company said it has long been committed to a competitive transportation alternative to that proposed by Enbridge.

“This alternative is one that will maximize utilization of existing facilities and transportation corridors, minimizing cost and footprint,” it said.

The letter said a filing from Kinder Morgan would depend on contractual support from shippers and the “same principles ought to apply for Northern Gateway so as to ensure there is a level and competitive playing field for new Greenfield entrants as well as existing systems.”

Kinder Morgan argued the Northern Gateway filing does not properly consider the alternative of an expanded Trans Mountain system.

Kinder Morgan Canada President Ian Anderson said in a news release that expansion of his company’s existing pipeline would have less impact on the environment and traditional First Nations’ territory, along with lower business risk and costs.

“We have a track record of meaningful and mutually beneficial First Nations and environmental organization engagement,” he said. “We will ensure that our future plans are advanced with the same early honesty and openness as past efforts.”

Anderson said Kinder Morgan supports the development of offshore markets for Canadian crude and has been facilitating the objective with safe movements of crude through the Port of Vancouver over recent years.

“Every barrel of oil that producers want to sell to Chinese interests today is moving and we intend to continue to grow that supply opportunity through rational, stakeholder-respectful and market-based expansions that align Canadian producers with Asian demand,” he said.

First Nations leaders who have already started mounting stern opposition to Northern Gateway were not swayed by Kinder Morgan’s case, arguing that a pipeline by either company would carry the risks of a rupture over land or an offshore tanker accident.