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Enbridge’s journey to Asia slowed Company unable to line up Chinese anchor shipper; Gateway could be delayed to ‘14; company accelerating, enlarging pipelines to U.S. Gary Park For Petroleum News
Enbridge has demoted its hopes of delivering oil sands production to Asia, giving greater urgency to building its links into the United States where it is engaged in a fierce head-to-head contest with rival TransCanada.
Chief Executive Officer Pat Daniel said the planned in-service date for the C$4 billion Gateway project, designed to ship as much as 280,000 barrels per day to Asian markets (primarily in China) and 120,000 bpd to California, has been stalled from late 2010 to at least 2012 and possibly 2014.
In making the disclosure to analysts Nov. 1, Daniel confirmed what has been increasingly apparent that negotiations with the three Chinese oil majors — PetroChina, Sinopec and China National Offshore Oil Corp. — are moving slowly.
In emphasizing that there is no indication of a lack of interest among the Chinese, he said a deal “could be done at any time, but right now there is no anchor shipper.”
The Chinese have yet to make “the significant equity investments in oil sands developments or form joint ventures with oil sands players” so that they could take on an anchor role in Gateway.
He said Western Canadian producers and Asian refiners “continue to be very supportive of the Gateway project, in that it provides significant supply and market optionality to them.”
China’s hunger for new oil supplies is reflected in its white-hot economic growth of 10.7 percent so far this year.
It imported an average 2.92 million bpd in the first three quarters, up 16.3 percent from a year earlier, up from a 3.5 percent increase for all of 2005.
Among the other Asian economic powers, India posted a 5.4 percent year-over-year rise in crude imports which averaged 2.15 million bpd to the end of September, while South Korea was up 6.5 percent at 2.4 million bpd. Japan, up only 0.6 percent, easily led the volumes at 4.21 million bpd.
Interested in U.S. outlets But Daniel has previously said Alberta oil sands producers are more interested in building their U.S. outlets than embarking on a pioneer venture to open Asian markets.
He said the recent joint venture between EnCana and ConocoPhillips to share production and expand two U.S. refineries, BP’s decision to spend US$3 billion revamping its Indiana refinery to process more Canadian heavy crude and Marathon’s plans for additions to its refineries “point to a desire on the part of our customers to accelerate the development of eastbound pipeline capacity.”
Daniel said Enbridge will continue to work on Gateway, but “not at the same accelerated pace” as the company’s Alberta Clipper project which has now moved ahead of Gateway.
Slowing the outbound pipeline likely means Enbridge will put the brakes on its plans to start importing 150,000 bpd of diluent (used as a thinning agent for heavy oil and bitumen, making it easier to transport by pipeline) in 2010 in a parallel line along the Gateway route.
Daniel has estimated that building the two pipelines simultaneously could save C$150 million in construction costs.
He told the analysts Enbridge will have a better sense over the next few months whether the diluent line should be moved at a more rapid pace than the Gateway crude line.
“But at this point we would tend to pretty much keep them in sync,” he said.
In the meantime, Enbridge is still testing market response to a proposed Chicago-to-Edmonton pipeline to ship 180,000 bpd of condensate to Alberta to answer part of the demand for an additional 300,000 bpd of diluent.
Clipper: Initial 450,000 bpd The Clipper pipeline, originally designed to carry 400,000 bpd from Edmonton through Wisconsin to Chicago at a cost of US$1.8 billion is now being targeted for an initial 450,000 bpd, adding US$140 million to the expected cost. Completion is scheduled for 2009.
Enbridge is still searching for an anchor customer for Clipper, putting it behind TransCanada, which has signed up ConocoPhillips for 300,000 bpd of planned capacity of 435,000 bpd on TransCanada’s US$2.1 billion Keystone pipeline, which is now before the National Energy Board, seeking conversion of a Canadian section of pipeline currently carrying natural gas.
Daniel said Clipper is not tied to a “specific refinery solution,” but is directed at a “very broad service that will address not only refinery expansions, but expanded markets for Canadian crude.”
He noted that PADD 2 (Midwest) refiners have announced 800,000 bpd of capacity additions to handle Canadian heavy crude — a need Clipper could meet with its ability to move up to 60 different grades to Midcontinent markets.
Although Enbridge is currently talking about 400,000 bpd for Clipper it could double those volumes, Daniel said.
He said an application for Clipper should be filed with U.S. and Canadian regulators late this year or early in 2007.
Canada’s second largest energy pipeline is also speeding up expansion of its Southern Access line from Alberta through Wisconsin to the Chicago area.
The next capacity addition is now targeted at 120,000 bpd by the end of 2006, tripling the earlier plans.
It said the move is designed to avoid rationing space to its customers on a system which should have capacity of 400,000 bpd by 2009.
A US$350 million Southern Access extension from Chicago to the southern Illinois pipeline hub at Patoka should be finished by 2009, offering initial capacity of 400,000 bpd, Daniel said.
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