Enbridge reaches for reins

Canadian governments and oil producers are trying to figure out whether the U.S. sidelining of Keystone XL marks a seminal point in a trading arrangement that started almost 60 years ago, regardless of Prime Minister Stephen Harper’s suggestion that Canada is a merely victim of the U.S. “political season.”

The rethink has suddenly seen Enbridge move to the forefront to get more North American crude to Texas Gulf Coast refineries.

Starting in 1952, Canadian producers sent an average 3,900 barrels per day of its crude across the 49th parallel. For August, those shipments were 2.4 million bpd, about 20 percent of total U.S. imports, trailed by Mexico at 1.15 million bpd and Saudi Arabia at 1.07 million bpd.

The quiet assumption has been that as the oil sands grow so will Canada’s share of the U.S. market, which analysts believe will continue to need 10-11 million bpd of imported crude for years to come.

But Gwyn Morgan, former chief executive officer of Encana, said the U.S. has become a “less attractive customer in general for Canada, for not just energy but everything because of their own economic and financial difficulties. This is just another signal that Canada is going to have to diversify away from the United States.”

Harper, Natural Resources Minister Joe Oliver and Finance Minister Jim Flaherty have all hammered home the importance of opening routes from Western Canada to Asia, while the industry is turning its attention to Enbridge’s bid for ascendancy in the race to the Gulf Coast while it wrestles with stiff resistance to its plans for accessing Asia through Northern Gateway.

Enbridge announced Nov. 16 it is spending US$1.5 billion to acquire 50 percent of the Seaway pipeline from ConocoPhillips, teaming up with Enterprise Product Partners, to reverse the 150,000 bpd line, which currently delivers crude from Texas to Cushing, by mid-2012.

If the Seaway plan comes together, the pipeline could be expanded to 400,000 bpd by early 2013, putting Enbridge well clear of its rival TransCanada in accessing the Gulf Coast.

Enbridge Chief Executive Officer Pat Daniel said reversal of Seaway would “provide capacity to move secure, reliable supply to the Texas refineries, offsetting supplies of imported crude.”

The Enbridge-Enterprise partnership will to hold an open season to test shipper support for the Seaway venture, confident the line will be fully contracted.

What isn’t immediately clear is the impact a Seaway go-ahead would have on the partnership’s existing plans for the 800,000 bpd Wrangler and 500,000 bpd Flanagan South pipelines that have respective in-service dates of 2013 and 2014.

Both of those projects attracted “significant commitments” in recent open seasons and Daniel said Wrangler was not dependent on the future of XL.

Enbridge is also pressing ahead through stiff headwinds with Northern Gateway, having derived some encouragement from the priority Harper and Oliver are giving to the pipeline as their earliest chance to ship large volumes of crude to Asia.

Oliver said that although he will not interfere in the regulatory process, he hopes the Northern Gateway regulatory phase can be completed by early 2013, about a year ahead of the latest estimates, based on the level of opposition and the registration of more than 4,000 individuals and groups to make presentations at the public hearings which start in January.

Just back from a week in China and Japan, Oliver said the Chinese are eager to buy Canadian crude, while Harper said he discussed the future markets for that crude with Chinese President Hu Jintao and Obama at the Asia-Pacific Economic Cooperation summit in Honolulu.

—Gary Park