Canadian pipeline giants TransCanada and Enbridge are set to engage in a heavyweight arm wrestle over who delivers additional United States and Canadian crude to the Texas Gulf Coast at the same time Shell is testing shipper interest in a related 900,000 barrel per day link from Louisiana to Houston-Texas City refineries.
While TransCanada is becoming more deeply embroiled in a battle with U.S. landowners, environmentalists and politicians over its Keystone XL project, Enbridge has entered the fray by joining forces with Enterprise Product Partners to develop an 800,000 bpd pipeline to carry crude oil from the Cushing, Okla., hub to the Texas coast.
The pipeline, labeled Wrangler, will originate at Enbridge’s Cushing terminal and end at Enterprise’s ECHO terminal in Houston, with an in-service date of 2013.
The dozen refineries to be served by Wrangler have refining capacity of about 3.33 million bpd, or about 19 percent of operable capacity in the U.S.
Carrying an estimated price tag of up to $2 billion, it will compete for customers with the $7 billion XL project, opening a debate over whether there will be sufficient new crude from the oil sands and plays such as the prolific Bakken formation to fill both lines, assuming XL gains final U.S. government approval.
Issue of capacity
Larry Pendill, a senior analyst at Edward Jones, said that although there is ample pipeline capacity in the region currently and new infrastructure will not immediately operate at full capacity, shippers would be wise to sign long-term contracts.
A TransCanada spokesman offered a blunter assessment, arguing there is no need for Wrangler.
He said his company believes “the market has spoken. We don’t see this project as having any impact on our plans for Keystone XL. We have firm commitments in place. The Wrangler project has still to obtain them in an open season (that will run from Oct. 3 to Nov. 2).”
TransCanada Chief Executive Officer Russ Girling said there is no need for pipelines like Wrangler because the 830,000 bpd XL system would have 200,000-300,000 bpd of unused capacity.
“If Keystone XL goes forward, my view would be that we’ll alleviate the bottleneck (at Cushing) and people will ship on our pipelines because there is no sense in building more,” he said.
Joining forces
Vern Yu, Enbridge’s head of liquids pipeline development, said Enbridge and Enterprise decided they were better to abandon two competing proposals and join forces.
Enbridge had been talking informally about a 350,000 bpd Monarch pipeline and Enterprise along with midstream partner Energy Transfer had already abandoned a 450,000 bpd line called Double E after failing to obtain enough shipper support.
Enbridge Chief Executive Officer Pat Daniel said the two projects were designed to ease the glut of oil at Cushing, but Wrangler offers a more flexible option for shippers to move crude out of Cushing.
Enterprise Chief Executive Officer Michael Creel said Wrangler would be able to transport all grades of crude to meet the diverse needs of shippers, allowing producers to maximize the value of their crude oil and provide a more reliable source of domestic supply for Gulf Coast refiners.
Doesn’t cross border
Unlike XL, Wrangler does not require a permit from the Obama administration because it does not cross the Canada-U.S. border, even though it could carry crude from the oil sands.
Enbridge and Enterprise said Wrangler will “accommodate the constrained medium-to-light crude oil currently stranded at Cushing and prices at a substantial discount to the oil imports that account for most of the supply being used by Gulf Coast refiners.”
UBS Securities analyst Chad Friess said in a note he believes Wrangler can coexist with XL by delivering mid-continental light oil supplies while much of XL’s initial volume of 500,000 bpd will be Canadian heavy oil.
Martin King, FirstEnergy Capital commodities analyst, said London-traded Brent has opened a $20 per barrel price gap over West Texas Intermediate largely because of the surplus at Cushing.
He said that while it’s possible new pipeline capacity could weaken Brent, it’s more likely that WTI will strengthen, which should put more money into the pockets of Western Canadian producers.
