Vol. 24, No.49 Week of December 08, 2019
Providing coverage of Alaska and northern Canada's oil and gas industry

One small step …

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Addition of 10,000 bpd on Enbridge’s Line 3 points to 100,000 by end of 2019

Gary Park

for Petroleum News

Forget the stresses and strains of the Trans Mountain expansion and Keystone XL, which still have a long wait ahead to determine whether they will ever get built.

Canada’s oil sands producers had cause to celebrate, if only in subdued fashion, on Dec. 1.

Enbridge started to fill the C$5.3 billion Canadian portion of Line 3, a first step towards raising transportation capacity on the rebuilt 640 miles of right of way between Hardisty, Alberta, and Gretna, Manitoba.

That shifts attention to the US$2.9 billion U.S. section of Line 3 from North Dakota to Wisconsin, a project facing another year of delays pending a resolution of regulatory issues in Minnesota.

For now, Line 3 will immediately add 10,000 barrels per day of shipping capacity out of Western Canada - enough to build hopes that the chokehold on exports to the U.S. can be eased - setting the stage for another 90,000 bpd by the end of December.

“There’s a sense of excitement,” said Leo Golden, Enbridge’s vice president of major projects. “This is proof of what can be achieved when people come together with an open mind and a willingness to talk and to build rather than to take apart. But it’s been a very long road.”

Five years

Enbridge filed its regulatory application to replace the entire aging pipeline and raise capacity to 760,000 bpd from 390,000 bpd with Canada’s National Energy Board (now the Canadian Energy Regulator) five years ago.

The Canadian government issued its first approval two years later on the same day that it gave the go ahead for TMX and Enbridge’s now-defunct Northern Gateway to a northern British Columbia tanker port.

On the U.S. side, the Line 3 replacement - sold as vital to improve safety on the system while boosting capacity - was scheduled for completion in the second half of 2019, but that got stalled by changes to permitting timelines in Minnesota.

Ben Brunnen, vice president of the Canadian Association of Petroleum Producers, said any incremental market capacity is “absolutely welcomed from an upstream producer perspective.”

Investment revival possible

Assuming Line 3 will be fully completed, analysts suggest that day could open the door to a revival of oil patch investment in Canada.

“This is definitely the jolt that people are looking for,” said Mark Oberstoetter of the consulting firm Wood Mackenzie.

At the same time, optimism among analysts is guarded given the history of legal and regulatory barriers that have shunted pipeline expansions to the sidelines that IHS Market estimates have stretched the timeline from regulatory filings to operational startup to almost eight years.

IHS analyst Kevin Birn said that if Keystone XL and Line 3 make it out of the starting blocks, Western Canadian producers could gain an additional 400,000 bpd of pipeline space over the next year.

In addition, Enbridge is planning a 50,000 bpd addition to its Express pipeline that is due online in 2020.

Covering a planned 750 miles, Express currently carries 260,000 bpd from Hardisty to Casper, Wyoming.

These small gains are proof that gains are possible, said National Bank Financial analyst Patrick Kenney, who told the Calgary Herald that “they may be under-the-radar type expansions, but they are definitely significant.”

So long as progress can be made “on all fronts we will soon be singing a different tune about Canadian energy.”

Tristan Goodman, president of the Explorers and Producers Association of Canada, said “anything that improves market access is extremely positive (and can) make a dramatic difference.”

The hope among producers is that easing the pipeline crunch will allow the Alberta government to ease its production quota, imposed to tighten the price gap between Western Canada Select (Canada’s heavy crude), and West Texas Intermediate.

CBR contracts

Still to be resolved is the Alberta government’s search for a buyer of the crude-by-rail contracts it inherited from the previous New Democratic Party, including service, staff and track capacity.

In late November word leaked out that Texas-based Clover Oil & Gas, which has been shipping unspecified volumes of undiluted heavy crude from Alberta to the Texas Gulf Coast since May, had surfaced as a contender to buy the C$3.7 billion in CBR contracts that the government is eager to transfer to the private sector.

But there has been no confirmation of a possible deal from the Alberta Petroleum Marketing Commission, APMC, which is responsible for marketing the government’s royalty share of conventional crude oil and is in charge of divesting the CBR contracts.

Brent Osmond, president of Clover, said that in addition to moving crude from Western Canada to the U.S. his company brokers crude marketing transactions and any business obtained through APMC would be an extra.

Currently, the 4,400 tanker cars in the government’s portfolio can handle 120,000 bpd, compared with the overall 320,000 bpd exported under CBR in September.

A spokesman for Alberta Energy Minister Sonya Savage, without identifying any contenders, said a deal was “very, very close.”

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