|
Oil sands pipeline plans waver Enbridge, producers unable to negotiate tolling agreement for connection to Cushing; Terasen plans at risk; but China explores ways to process Alberta crude Gary Park Petroleum News Calgary Correspondent
China is moving into the spotlight as other plans for shipping oil sands production out of Alberta to new markets show signs of wavering.
Enbridge and Terasen, the two front-runners to build new pipeline connections, have raised doubts about pipeline projects that were destined to handle the burgeoning supplies of synthetic crude.
Unable to reach a deal with oil sands producers, Enbridge has stalled its plans for reversing an old BP line, to push 300,000 barrels per day of light, sweet Canadian synthetic crude from Chicago to the Nymex crude delivery point at Cushing, Okla.
The US$142 million, 650-mile Spearhead project, launched last year, was targeted for start-up in 2005 and designed to interconnect with Enbridge’s proposed US$550-$650 million Southern Access system, offering initial capacity of 250,000 bpd from Superior, Wis., to the Wood River hub in southern Illinois in 2007.
Those two links were seen by market sources as the launching platform for carrying Canadian crude to the Gulf Coast refinery region. Producers unwilling to pay additional toll But Rick Sandahl, Enbridge’s market development vice president, told The Canadian Press that producers were unwilling to pay an additional toll for several years to make Spearhead work.
He said Enbridge, despite its belief that Spearhead offered high incentives, was unable to “get enough mutual support.”
However, Sandahl and the Canadian Association of Petroleum Producers said producers have agreed to explore other alternatives.
Meanwhile, Terasen is growing nervous over the impact of oil sands cost overruns on its planned C$2 billion pipeline from northern Alberta to the Pacific Coast, where it could be shipped to fresh outlets in California or Asia.
Terasen Pipelines President Rich Ballantyne said the mushrooming costs announced in March by Syncrude Canada on top of other multi-billion dollar overruns, could erode the confidence of other companies with ambitions to join the oil sands fold.
Noting that Terasen is the tail, not the dog, he said customers are needed before any pipelines can be built. Ballantyne said the Syncrude setback could send a chill through the ranks of oil sands investors, who are vital to the sector’s hopes of doubling output to 2 million bpd by 2010.
Still being evaluated is an Enbridge proposal to build a C$2.5 billion Gateway pipeline from Alberta to deepwater ports in Prince Rupert or Kitimat on the British Columbia coast, matching Terasen’s plans to access the U.S. West Coast or Asia.
That 400,000 bpd scheme, which could be completed by 2009, also needs producer backing. The prospects of opening up a market in China got a boost at a conference in late March that discussed new markets for Alberta oil sands production.
Chunming Xu, an engineer from the University of Petroleum in Beijing, said synthetic crude appeals to China because of its high diesel yields, and although synthetic crude from Alberta has yet to be processed through a Chinese refinery that research is now being conducted by the Alberta Research Council and state-owned PetroChina.
He noted that China is consuming 5 million bpd of oil, almost half of it imported, while the demand for transportation fuels and diesel soared by 8.9 percent last year.
However, Xu also said Chinese refineries are currently able to produce only 1.8 million bpd of diesel.
Regardless of the failure by producers and Enbridge to arrive at a deal, there is some hope that refiners and producers can form joint ventures in the United States to handle greater volumes of synthetic crude.
Brent Lee, director of crude oil supply and marketing for Suncor Energy, said Flint Hill, ConocoPhillips and Marathon Oil are all working on refinery projects, while ExxonMobil has plans for reversing an idle pipeline within the next year to ship Canadian heavy crude from Illinois to the Gulf Coast.
| 