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Breaking new trails Enbridge gives added momentum to plans for shipping oil sands production to U.S. markets; new markets key to better bitumen prices; best prospects thought to be Midwest, Rockies Gary Park Petroleum News Canadian Correspondent
Enbridge is answering the call to open up new markets for Western Canadian oil sands production — seen as the key to shrinking the gap between light and heavy crude prices — by pushing ahead with plans for new links to the United States.
The Calgary-based pipeline company has launched an open season for its planned Southern Access mainline expansion and extension and is evaluating a new pipeline from southwestern Wyoming to Utah.
The Southern Access proposal could proceed in stages at a total cost of US$1.32 billion, offering 400,000 barrels per day of capacity on the Enbridge mainline system from central Alberta to Chicago and a new 30-inch, 300,000 bpd line from Flanagan, Ill., to Illinois hubs at Wood River and Patoka.
If the response is strong enough through the non-binding and binding phases this summer, Enbridge plans to file a regulatory application in October and start construction in the final quarter of 2006.
Enbridge Vice President Richard Bird said the program is designed to give producers improved access to markets south and east of Chicago, while giving U.S. refiners enhanced access to a “secure and expanding source of crude oil supplies.”
The program is also flexible enough to proceed in phases. Enbridge already has U.S. markets access Enbridge has already opened doors to U.S. markets with its Mustang Pipeline joint venture from Chicago to Patoka; the Toledo system from Michigan to Ohio; and the Spearhead reversal now being developed from Chicago to Cushing, Okla.
Meanwhile, rival pipeline TransCanada expects to hold a binding open season later this year for its proposed C$1.7 billion Keystone Pipeline from central Alberta to Patoka.
In a separate announcement, Enbridge said it has embarked on a study with Holly Corp. and Holly Energy Partners to start construction in the second quarter of 2006 on a new pipeline from Evanston, Wyo., at the terminus of the Frontier Pipeline (in which Enbridge has a majority stake) to Holly’s refinery at Woods Cross, Utah.
Holly President Matthew Clifton said that gaining access to the “right grades and quantities of crude” for the 26,000 bpd Woods Cross refinery strengthens his company’s ability to meet the rising gasoline, diesel and jet fuel needs of the Salt Lake City area for many years.
Holly owns and operates pipelines and terminals in six states and has 119,000 bpd of capacity at three refineries. Access to more markets needed The need to access more markets and shrink the gap between light and heavy crudes from Western Canada was underscored by two experts speaking to investment analysts at a Calgary conference earlier in July.
Stephen Fekete, with Purvin & Gertz, said that although the differential started to narrow in June and should continue along that path the spread is likely to remain wide by historical standards.
Michael Lovett, president of Muse Stancil, said the expected surge in Alberta bitumen production creates an urgent need for additional markets, with the Midwest and Rocky Mountain states offering the best prospects because refiners are discussing new cokers able to crack bitumen blends.
He also said that Canadian production will compete successfully with heavy sour crudes from Mexico in the U.S. Gulf Coast refinery region.
As well, California could become a major outlet if either of the Enbridge or Terasen pipelines to the British Columbia coast gets built, offering the prospect of tanker shipments to offset declining Alaska volumes, although the market is restricted because additions to refining capacity appear unlikely, he said.
Lovett said China and possibly South Korea offer the prospect of improved bitumen blend prices if they add suitable refining capacity.
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