Kinder Morgan Canada has quietly, persistently been telling those who would listen that it has the edge over Enbridge in the undeclared contest to ship Canadian crude to Asia. The ranks of believers may be starting to expand.
It’s more than five years since Kinder Morgan completed a C$6.9 billion takeover of British Columbia-based utility Terasen, gaining, among other things, ownership of Trans Mountain pipeline, the sole transportation link from the Alberta oil fields to the west coast of North America.
In the process, it acquired a system that has been operating for 57 years, along an established right of way, and is now delivering 300,000 barrels per day to a tanker terminal in the Port of Vancouver and to refineries in Washington state.
Over that same period, Kinder Morgan has been loading tankers at its Westridge terminal for deliveries to the U.S. West Coast and, more recently, Asia and Europe.
The latest statistics available from Canada’s National Energy Board show that an average 31,800 bpd were exported from Canada in the third quarter of 2010 for destinations other than the United States. Of that total, 66 percent left Vancouver for Asian buyers and 34 percent was shipped from Eastern Canada to Europe. Non-U.S. exports in the same quarter of 2009 were 22,000 bpd.
NEB approval neededIf Kinder Morgan, through an application by Trans Mountain, gains NEB approval, it will be able to send 79,000 bpd to offshore markets, 54,000 bpd under long-term contracts, the first in the pipeline’s history.
Those numbers are only modest compared with Canada’s total oil exports, which totaled 1.93 million bpd in the third quarter, of which 1.9 million bpd was carried by overland pipelines to various U.S. markets.
But they do represent careful, measured, step-by-step progress by Kinder Morgan to tighten its hold on the Asian markets, while Enbridge becomes immersed in a showdown with environmentalists and First Nations over its attempt to build the Northern Gateway pipeline to Kitimat, with the bulk of the planned 525,000 bpd capacity earmarked for Asia.
While the issues confronting Enbridge are daunting, notably the opposition to supertankers navigating in northern British Columbia waters, Kinder Morgan has loaded tankers that have slipped, virtually unnoticed, through waters in the densely populated Vancouver region.
How much longer Kinder Morgan will be able to avoid the public spotlight is an open question, given that Vancouver port authorities support the use of Aframax tankers with capacity of 700,000 barrels and are pondering whether Suezmax tankers at 1 million barrels can safely use Westridge.
Kinder Morgan lays out its caseWhatever the potential obstacles, Kinder Morgan does not hesitate to lay out its perceived advantages over Northern Gateway that are endorsed by observers such as Vincent Lauerman, president of Calgary-based Geopolitics Central, who said the “incredible opposition” to Enbridge suggests the Kinder Morgan option could be an easier path forward.
Ian Anderson, Kinder Morgan’s Canadian president, said in a news release last year that expansion of the Trans Mountain pipeline, along an existing right of way, would have less impact on the environment and traditional First Nations’ territory, along with lower business risk and costs, than Enbridge’s greenfield proposal.
He said Trans Mountain has provided safe, reliable and efficient transportation service to the Greater Vancouver area and other destinations via Westridge.
Kinder Morgan has already made its case to the NEB that, without “at least some real and substantial evidence of need and necessity,” such as binding commercial support, Enbridge appears to be seeking regulatory approval to create an “option to build” that will be part of its marketing process.
In its own NEB application, Kinder Morgan said Trans Mountain is “facing circumstances where it is critical that it be able to respond to competitive market forces and meet the needs of its shippers.”
Anderson has said his company intends to build offshore exports “through rational and market-based expansions that align Canadian producers with Asian demand.”
Open season oversubscribedThe Trans Mountain open season held last year demonstrated a “clear market demand for long-term firm service to Westridge,” the NEB application said, adding that contractual certainty would give producers and buyers the chance to obtain better prices and higher producer netbacks.
It said the open season was oversubscribed, with seven parties submitting nine transportation service agreements for 95,000 bpd of capacity, resulting in an initial allocation of five 10-year contracts totaling 54,000 bpd.
Currently, Trans Mountain allocates 248,000 bpd to land shipments and 52,000 bpd to Westridge. The application to the NEB would reallocate 27,000 bpd of land capacity to Westridge for a total of 79,000 bpd, of which 25,000 bpd would be available for uncommitted capacity.
Over the past two years, since 75,000 bpd were added to the Trans Mountain system in 2008, nominations to Westridge exceeded capacity by 54 percent in 2009 and 78 percent in 2010, while land capacity nominations have declined by 18 percent and 6 percent, respectively, the application said.
Although Kinder Morgan decided last year to slow plans to further increase Trans Mountain capacity, the NEB application said proposed TMX-2 and TMX-3 expansions could add 80,000 bpd and 320,000 bpd by 2016-18. It also has in reserve plans for a 400,000 bpd “northern leg” from Trans Mountain to the same deepwater port at Kitimat that Enbridge plans to use.
Energy consultant Muse Stancil estimates there is an opportunity for Canadian producers to export 1.75 million bpd to China, Japan, South Korea and Taiwan, with Chinese refineries taking 630,000 bpd.