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Providing coverage of Alaska and northern Canada's oil and gas industry
February 2009

Vol. 14, No. 8 Week of February 22, 2009

Enbridge gives Arctic gas cold shoulder

Gary Park

For Petroleum News

Talk about a role reversal: Enbridge believes the “pendulum of opportunity” for pipeline companies is swinging to natural gas and TransCanada shows signs of gaining an edge in oil shipments.

Enbridge, which once monopolized transportation of crude oil in Canada, is pondering a shift to large-scale gas pipelines to fill what it expects will be a slowdown in upstream oil sands development beyond 2012, Chief Executive Officer Pat Daniel said Feb. 13.

“It is fair to say we will see some delay and push-out beyond our long-range plans on some oil projects and (will turn) to some gas projects” to fill the void, he said in a conference call.

But the Arctic does not show up on Daniel’s radar screen.

“I think you have to agree that the economics of (the Alaska and Mackenzie projects) will be challenged as long as we’ve got a significant oversupply and under-demand in the Lower 48.

“Also there is a fairly significant worldwide (liquefied natural gas) overhang that is sitting behind it with likely more favorably priced gas. So it’s hard to imagine (Arctic) gas being economically viable in the near term.”

Daniel said two or three “very exciting opportunities have emerged” in the gas sector, including the proposed Rockies Alliance Pipeline connecting gas fields in the Colorado Rockies with Chicago, the potential to tie in new deepwater Gulf of Mexico prospects and shale gas plays in the United States and Canada.

“We’re very active on the gas side already in developing alternate opportunities,” he said.

“While the composition of our post-2012 growth is shifting in response to the business environment, we still expect to achieve solid long-term growth rates while preserving the safety and income components of this tried and true investment value proposition,” he said.

At the same time Enbridge is moving into the gas field, TransCanada, once the unchallenged carrier of gas in Canada, is making bold strides as an oil sands pipeliner by pressing ahead with deliveries to the Texas Gulf Coast, while Enbridge has shelved its attempts to open up that market.

Enbridge said it still expects 2009 per-share earnings will grow by 20 percent before fading as the dramatic drop in oil sands investment takes its toll.

“With 2008 behind us, we are now into the steeper part of that growth curve over the remaining four years into 2012 and, as I’ve said before, we really now are moving into the sweet spot for our investors,” Daniel said.

“We may find that some of the early (oils sands) projects continue on and others get pushed back a year or two,” he said. “We’ll need a little longer time to assess that as we determine where commodity prices are going and how quickly the cost structure is reacting here in Western Canada.”

Daniel said Enbridge had spoken with oil sands producers about stalling an expansion of its Alberta Clipper system, scheduled to ship 450,000 barrels per day from Alberta to Superior, Wisconsin, starting in mid-2010.

Ultimately both sides agreed it would be a mistake to stop construction, he said.






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