If Enbridge gets a green light for its Sandpiper pipeline it could lead to a new Bakken trading hub in Superior, Wis., further eroding the role of Clearbrook, Minn., as a center for spot trading activity, market observers say.
If the proposed 600,000 barrels-per-day Sandpiper system is cleared by regulators, there is no reason why Clearbrook would be needed as a hub, said Neil Earnest, president of consulting firm Muse Stancil.
A U.S. Federal Energy Regulatory Commission document issued in late March said the Enbridge system, part of its Light Oil Market Access program, would form a unified system to carry crude from origin points on the Enbridge North Dakota system to a new connection with its Lakehead System at Superior.
The $2.5 billion Sandpiper link is planned to run from Beaver Lodge, N.D., to Clearbrook, boosting the line’s capacity to 435,000 bpd from 225,000 bpd, while other pipeline would be built from Clearbrook to Superior, coming on stream at 375,000 bpd.
Although FERC has rejected Enbridge’s proposed tolls for Sandpiper, the company does not view that ruling as either blocking the project or affecting the in-service target of early 2016.
The FERC document said the pipeline connection at Superior would bypass “forecasted capacity constraints for that segment on Lakehead, thus facilitating the transport of crude to Midwestern, Eastern and Southern markets.”
Limited deliveriesTrading sources say the pipeline limitations have seen deliveries from the Enbridge system at Clearbrook from about 93,000 bpd from 210,000 bpd, causing a decline in spot trading, with Bakken crude volumes slumping to less than a half of the volumes at the hub around mid-2012.
Shipper say Bakken crude is being delivered to Clearbrook mostly to protect pipeline space in case the market recovers.
Enbridge Energy Partners said Bakken volumes on its pipeline decreased 16 percent in the final quarter of 2012 from a year earlier because of a surge in rail movements, said Steve Wuori, president of the company’s liquids pipelines, conceding that a rail shipper collects better netbacks than on pipe.
Transportation costs for using rail to move Bakken crude to the Atlantic Coast is about $17-$19 per barrel and $13-$16 per barrel to the Gulf Coast — markets that are both tied to benchmark Brent prices, which translates into a large premium to West Texas Intermediate.
Rail shipments accounted for 68 percent of Bakken production in January, compared with 64 percent in December, while pipelines were used to 23 percent, with the balance used as feedstock at Tesoro’s 58,000 bpd refinery at Mandan, North Dakota.