Easing the pipeline squeeze

If it’s a case of every little bit helps, word that Kinder Morgan Canada is expanding its Trans Mountain oil pipeline from Alberta to British Columbia and Washington state will be welcomed by oil sands producers.

And they have a chance to further lift pressure on transportation systems by signing shipping deals with Kinder Morgan for a further 100,000 barrel-per-day addition to the company’s capacity.

The Canadian unit of Kinder Morgan Energy Partners said construction started Aug. 23 on a C$450 million loop project to boost Trans Mountain volumes to 300,000 bpd from 260,000 bpd by late 2008.

Kinder Morgan President Ian Anderson said in a statement that the project is an “important component of our overall expansion plan to provide greater access to our customers to the West Coast and Far East markets.”

The next test is whether final agreements will be signed with shippers to feed another 100,000 bpd into the system by 2011 at a cost of C$1.3 billion.

Kinder Morgan is also hoping to attract enough support to build an 850,000 bpd pipeline from Alberta to Kitimat on the northern British Columbia coast for loading on to tankers destined for the U.S. Pacific Coast or Asia.

But that venture is in direct competition with Enbridge’s planned Gateway project that has been stalled by the withdrawal of PetroChina, once the frontrunner to become the anchor tenant on Gateway and a possible equity partner.

With Enbridge now placing its emphasis on moving oil sands production to U.S. markets, the race has shifted from the Pacific to the Gulf of Mexico, said Steven Paget, an analyst with FirstEnergy Capital.

Canada’s National Energy Board and the Canadian Association of Petroleum Producers have warned that the growth of oil sands production is outpacing the introduction of new pipeline capacity, raising the prospect of apportionment by late 2007 into 2008, with a further squeeze in store by late 2008.

The worry for Canadian producers is that pipeline rationing, shut-in production and more oil going into storage will create a supply bulge that could eat into prices.

—Gary Park