Carriers go from pipedreams to pipelines to ship oil sands

Terasen, Enbridge race to lock up shipping contracts for proposals to transport oil sands production to the coast of British Columbia

Gary Park

Petroleum News Calgary Correspondent

An all-out race is developing between Terasen and Enbridge, Canada’s two leading crude oil carriers, to lock up shipping contracts for their multi-billion dollar proposals to deliver oil sands production to the British Columbia coast.

From there, the big prize is the prospect of opening up new markets in the United States, with the Orient beckoning as a bonus.

With a flurry of new oil sands projects in the offing, the two pipelines are out to woo shippers as they head towards crucial decisions sometime in 2004.

The latest bar-raising came from Terasen on Dec. 3, when it not only revived its Bison project to move production out of northern Alberta, but indicated it is ready to almost double the volumes it delivers to 610,000 barrels per day. It already operates the Corridor pipeline from the oil sands to Edmonton.

The Vancouver-based company, formerly BC Gas Utility, said the 300-mile Bison line to Edmonton, originally targeted at 320,000 bpd, could be built in three stages — 172,000 bpd by 2006, 320,000 bpd by 2008 and 610,000 bpd by 2010 at a total cost of C$1 billion.

The original Bison scheme, carrying a price tag of C$510 million, was sidelined in May after TrueNorth Energy scuttled its oil sands plans and Petro-Canada took a time-out to rethink its possible C$5.8 billion oil sands strategy.

A number of new projects launched, proposed or hinted

In addition, the current operators, Syncrude Canada, Suncor Energy and Shell Canada, are also in various stages of expanding operations that could add another 800,000 bpd over the next 12 years.

On top of its Bison plans, Terasen said it is weighing a parallel line to its 280,000 bpd Trans Mountain line to the British Columbia coast and Puget Sound in Washington state.

The parallel system would offer 100,000 bpd of capacity from Fort McMurray, Alberta, to Jasper, Alberta; add another 100,000 bpd from Jasper to Kamloops, British Columbia, and boost capacity by 440,000 bpd from Kamloops to Vancouver. The successive phases would cost C$450 million, C$700 million and C$925 million.

About 200,000 bpd of the new volumes would go to Puget Sound and the balance would go by tanker to California.

Calgary-based Enbridge is also exploring tanker deliveries to California and possibly Asia, where it is trying to line up refineries, as part of its C$2.5 billion Gateway pipeline that would offer 400,000 bpd of capacity from Alberta to either Prince Rupert or Kitimat, both of which are believed to be capable of handling supertankers.

California open to processing more heavy crude

Shell announced in mid-November that a lack of San Joaquin Valley heavy crude will force it to close its 70,000 bpd Bakersfield, Calif., refinery in October 2004, while upgrading an adjacent terminal to receive product from its three other West Coast refineries that have combined output of 385,000 bpd.

In the campaign to sway shippers, Terasen Pipelines president Rich Ballantyne said his company’s objective in its current discussions with a “number of parties” is to win over anchor tenants and hope smaller producers will follow.

Apart from the toll charges, Edward Koshka, an energy consultant with Purvin & Gertz, told the Financial Post that the shipping costs — which could range from C$2-$2.65 per barrel — are only one factor in the equation.

He said the contest then comes down to who offers very large crude carriers and who can service only smaller tankers.