Enbridge and its U.S. affiliate Enbridge Energy Partners have made the boldest move yet to become the dominant shipper of crude from the Bakken formation in North Dakota to refineries in Eastern Canada, the eastern U.S. and the U.S. Midwest.
The Light Oil Market Access Program they have cobbled together involves spending of about C$6.2 billion over the next four years to move an additional 400,000 barrels per day of Bakken and Western Canadian crude to market.
To gain the necessary shipper support, the partnership has bowed to pressure from the Bakken producers and opted for a common-carrier approach rather than imposing long-term shipping contracts.
Enbridge Chief Executive Officer Al Monaco said the initiatives “reflect changing North American supply and demand fundamentals and will create significant value for our customers.”
He said the program will ensure “that most of the light oil production in our catchment area has attractively priced, pipeline-connected destination markets, which can be accessed at favorable cost and on a timely basis.”
Shipper requests
Enbridge said the combined projects are in response to shipper requests for transportation to major refinery hubs and could involve further expansions south of the Patoka, Ill., hub.
Spurring the plans to this stage are Enbridge estimates that Bakken output has grown to 700,000 bpd from 200,000 bpd over the past five years, combined with expectations of growth to 1.2 million bpd over the next five years, plus 100,000 bpd of new light production from the Cardium and Viking plays of Western Canada.
Monaco said the light oil initiative follows his company’s announcements earlier this year of its C$2.7 billion Eastern Access program and its C$5.8 billion U.S. Gulf Coast access program, with more elements under consideration, including pipeline extensions to the eastern Canadian and U.S. coasts and more capacity to the U.S. Gulf Coast.
However, he said any systems to the Atlantic seaboard will be the subject of later announcements.
EEP will cover C$3.4 billion of the costs, with the option to increase or decrease its economic interest by 15 percent, with Enbridge paying the balance.
Long-term contracts not favored
The partnership disclosed Bakken producers are reluctant to participate in long-term shipping contracts, partly because of uncertainty over the long-term potential for using rail.
EEP President Mark Maki told a webcast that “all parties who effectively use the system will pay because all benefit ... it’s a long-term regulatory arrangement.”
Steve Wuori, Enbridge’s president of liquids pipelines and major projects, said some Bakken producers believe “they can achieve better results by having the flexibility of moving by rail.”
He said it is impossible to speak with one voice for all Bakken producers “because they are all taking their individual views of production profiles and the markets they want to target.”
“Many are involved in (shipping) by rail and there’s an on-going question as to whether rail is a short-term or long-term phenomenon,” he said.
“Rail is doing great things right now moving production out of the Bakken that cannot move by pipe (but) without question there is an issue of truck and rail congestion and general infrastructure,” Wuori said.
“Over the long-term for Bakken there is no question that more pipeline capacity is going to be needed.”
Series of projects
The series of projects includes the US$2.5 billion Sandpiper project, funded entirely by EEP, to expand takeaway capacity from EEP’s North Dakota system by 580,000 bpd — 225,000 bpd more than originally expected — through a 600-mile line adding about 225,000 bpd of capacity between Beaver Lodge and Clearbrook, Minn., and 375,000 bpd between Clearbrook and Superior, Wis.
An addition to previously indicated projects is a US$800 million Southern Access (Line 61) extension covering 165 miles from Flanagan to Patoka, targeting an in-service date of mid-2015.
Monaco said an initial 300,000 bpd of capacity on Southern Access has been contracted to Marathon Petroleum for its Midwest refineries, making Patoka a “launching point to move light crude to (western Pennsylvania and Ohio) where there’s significant light oil refining capacity.”
Wuori said the primary initial objective is to serve Patoka, but an open season will be held to determine interest in shipping crude to various markets south of Patoka.
Also involved are expansions and modifications to Line 9 and Line 6B as part of the Eastern Access upsizing at a combined cost of about C$500 million; U.S. Mainline expansions of US$500 million to Line 62 from Flanagan to Griffith, Ind., and US$1.3 billion for Line 61 from Superior to Flanagan; and C$600 million for the Canadian Mainline system.
Shippers have provided 15 letters of support to the U.S. Federal Energy Regulatory Commission covering regulatory approval and the commercial framework of the North Dakota and mainline projects.
The terms endorsed by the shippers for the U.S. mainline projects include surcharges to be added to Enbridge’s competitive tolling settlement international joint toll.
The program will require various regulatory approvals and permits, which Wuori said have been factored into the in-service dates, although he expressed hope that the Sandpiper project could be accelerated ahead of its late-2014 start-up.
—Gary Park
