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Sun hasn’t set on Orient Northern B.C. deepwater ports live in hopes of oil links from Alberta to Asia; Enbridge prepares for reg reviews, despite setbacks Gary Park For Petroleum News
In 1910, the Canadian prime minister of the day, Sir Wilfrid Laurier, told the people of Prince Rupert that their deepwater port on the northern British Columbia coast would eventually be the shipping link to an “awakening” Orient.
He was right on one count. Asia is awake … and hungering for natural resources to fuel its rampant economies.
Meanwhile, Prince Rupert is languishing — a victim of a precipitous decline in exports of coal, grain and lumber.
But the town of 13,000 and the nearby community of Kitimat, whose 10,500 residents have also been battered by tough economic times, are not without hope.
The Alberta oil sands hold the key to their economic prosperity.
Both Enbridge and Kinder Morgan have plans to establish supertanker terminals on the B.C. coast to deliver Canadian crude to new markets in China, Japan, Korea and Singapore, as well as California.
And those plans remain alive, despite setbacks over the past year.
The heaviest blow occurred in July when China National Petroleum Corp., amid a blaze of accusations directed at the Canadian government and Canada’s oil producers, said it would not renew a memorandum of agreement with Enbridge to round up 200,000 barrels per day of production to launch the 400,000 bpd Gateway project.
That, combined with the fact that Enbridge has not posted a new Gateway newsletter on its Web site since 2006, seemed to indicate the project was sidelined for the foreseeable future.
PetroChina still negotiating But PetroChina, a unit of CNPC, and Enbridge are still quietly negotiating with prospective Asian customers, while Enbridge quietly assembles its regulatory case for engineering, safety and environmental hearings.
“We still feel the line will be built,” Enbridge Chief Executive Officer Pat Daniel told the Edmonton Journal in a series of year-end interviews, adding that the project is not targeted solely at China.
He said oil sands developers are eager to find buyers outside North America for the anticipated growth in production and Asian buyers would provide a favorable element of “pricing tension” in a market dominated by the United States.
Although Enbridge is concentrated on a C$12 billion, five-year capital plan, mostly targeted at crude deliveries to the U.S. Midwest and Gulf Coast, the company has its eye on another C$14 billion in additional liquids pipeline investment beyond 2011, Daniel told investment analysts in the fall.
And that includes a broadening interest in Asian markets.
“Western Canadian producers continue to tell us that ultimately they need that relief valve in order to maximize the netback pricing that they need for their crude oil,” he said.
Heavy crude price dropping Their motivation has grown since 2000, when a barrel of Canadian heavy crude fetched about the same price at Hardisty, Alberta, as it would have on the Gulf Coast. In 2007, the Hardisty price averaged about US$8 per barrel less than Gulf Coast prices and dropped as low as US$13.
Enbridge Executive Vice President Richard Bird told the same analysts that his company believes action to open up new markets is needed within the next three years, although it has been an “uphill battle getting individual producers to focus on the need for those markets.”
For now, Daniel said, Gateway has a flexible startup date of 2012-14, but that could be moved to a fast track if an Asian company were to make a significant investment in developing the oil sands.
But Enbridge has no intention of undertaking a new project until it has firm shipping commitments from producers, he said.
“Everyone wants access to the Gulf; everyone wants access to the (B.C.) coast, but they know that if they go ahead, everybody else benefits,” he said.
Enbridge keeping Gateway alive At the same time, Enbridge is keeping the Gateway plan alive.
It has hired Force Technology, a Danish-based marine traffic consultant, to identify suitable shipping routes off the B.C. coast for VLCCs (very large crude carriers).
Enbridge has reported that experienced mariners, using Danish ship simulators, have shown that VLCCs can negotiate the challenging coastline to its proposed Kitimat terminal. Energy consultants say the supertankers are a crucial part of the cost equation because they are much cheaper to operate on a per barrel basis than smaller vessels.
The company is also optimistic that it can build two tunnels through the mountain ranges between Alberta and the B.C. coast for the pipeline, thus minimizing the environmental impact.
Construction of the 780-mile pipeline from Edmonton would take about three years and employ 5,000 workers. No new cost estimates have been released since 2005, when the price tag was set at C$4 billion.
But it’s not clear where the budget process stands now, given the sharp rise in costs, and the response to a non-binding open season two years ago, which prompted Enbridge to consider design changes to boost Gateway capacity to 800,000-1 million bpd.
Kinder Morgan has plans on the books for Northern Option And Enbridge does not have the field to itself. Kinder Morgan still has plans on its books that include a so-called Northern Option — a branch line to a northern B.C. port from its Trans Mountain system that currently delivers 260,000 bpd to Vancouver and Puget Sound refineries in Washington State. Kinder Morgan has talked about raising its pipeline capacity out of Alberta to 850,000 bpd, including a possible 400,000 bpd for shipment to Asia.
The Alberta government has bought into the Asian opportunity by studying the prospects for Canadian synthetic crude and blended bitumen, apparently motivated by a Japanese consultant’s study of 2006 that estimated Asian demand for Canadian crude would reach 2 million bpd by 2015.
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