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Shoring up oil security Enbridge works on strategy to tap Alberta oil sands for North America Gary Park Petroleum News Calgary Correspondent
The owner of the world’s longest crude pipeline, Enbridge is on a fast track to extend its reach far into the United States as part of what one analyst has called a “Fortress North America” strategy.
Two announcements in the past month by the Calgary-based company “represent major steps in furthering continental security of energy supply,” said Chief Executive Officer Patrick Daniel.
First, Enbridge paid $122 million to BP for a 90 percent interest in the Cushing to Chicago pipeline system, which it will rename Spearhead and — pending regulatory approval and a tolling deal with producers — reverse the 650-mile system to a north-to-south flow by 2004.
Then, on Oct. 6, it floated a proposal, again dependent on extensive support and approval, for a $550 million-$650 million new link covering 630 miles from its existing terminal at Superior, Wis., south to the Wood River hub in southern Illinois.
The Southern Access project is initially targeted to carry 250,000 barrels per day through a 24- or 30-inch diameter pipeline and, if it achieves its expected 2007 in-service date, might also offer access to Canton, Ohio, and Catlettsburg, W.V.
The two developments reinforce Enbridge’s own ambitions to extend its network to the Gulf Coast refining center, despite market views that Alberta’s synthetic crude may not get an enthusiastic reception from refiners, who are not equipped to handle heavy, high-sulfur grades.
Even so, Daniel confidently predicted in a statement that U.S. refineries and their customers in the U.S. Midwest and Midcontinent will benefit from improved access to secure, reliable and growing supplies of crude oil from the Alberta oil sands.” Canada could replace some other crudes Karen Taylor, an analyst with BMO Nesbitt Burns, told The Globe and Mail that if Enbridge can improve the penetration rate and consumption of Canadian bitumen in the Lower 48 it could displace Venezuela and Latin American crudes in some markets.
She said the “Fortress North America” strategy has gained some popularity since Sept. 11, 2001, among those who favor continental energy self-sufficiency over continued reliance on imports.
Underpinning Enbridge’s thinking is the expectation of “unprecedented” growth over the next 15 years of the oil sands, which account for 174.8 billion barrels of Canada’s total crude reserves of 180 billion barrels.
Based on the potential production of synthetic crude and bitumen, Enbridge has estimated crude from the Western Canada Sedimentary Basin could grow from just over 2 million barrels per day last year to about 3.4 million bpd in 2017.
In an on-going Oil Sands Markets Study, launched in 2002, Enbridge said that with C$50 billion in active or planned projects now advancing in the oil sands region, the “long lead time required for new pipeline and market development requires careful assessment.”
The study, in addition to the traditional outlets in Ontario and the United States, is focused principally on the Rocky Mountain states and upper Midwest, plus potential new markets in the lower Midwest, Gulf Coast and Asia-Pacific rim.
“Based on total anticipated demand of 3.7 million bpd by 2010 in the traditional markets, it appears that new or expanded pipelines to new markets will be required, in addition to growth in existing markets,” the study overview said. Refinery interest? Dealing with the doubts hanging over the interest of North American refineries in stepped up oil sands volumes, Enbridge said it is trying to determine “whether modifications to refinery operations such as coking, hydrotreating and sulfur removal capabilities would improve the fit between oil sands supply potential and the ability of these markets to absorb this increase in supply.”
Enbridge said meetings with oil sands producers and refiners will continue through 2003 before a decision is made to proceed with a full project application.
With some of the eastern pieces falling into place, interest is turning to the Gateway concept — a possible C$2.5 billion line from northern Alberta to either Kitimat or Prince Rupert on the British Columbia coast for tanker shipment to California and Asia.
Gateway could be designed to carry 400,000 bpd over 720 miles, coming on stream in 2009.
But Enbridge does not have that field to itself. Terasen Pipelines a competitor Since earlier this year, Vancouver-based Terasen Pipelines, a unit of a company formerly known as BC Gas, has declared its interest in pumping C$1.6 billion into twinning its Trans Mountain pipeline, with current capacity of 281,000 bpd, from Alberta to the British Columbia coast and the United States to carry 400,000 bpd of heated heavy crude.
As well, Terasen operates the 1,700-mile Express pipeline from Alberta to Wyoming, with connections to U.S. Rocky Mountain and Midwest refineries. Current Express capacity is 172,000 bpd, with future design capacity of 282,000 bpd.
Like Enbridge, Terasen is also eyeing the tanker-shipment of oil sands production to California and Asia, but for now the two pipelines are in a tussle for supremacy, with the spoils going to the company that wins over customers.
Richard Bird, Enbridge group vice president transportation north, said in a conference call Oct. 6 that hard and fast commitments for Gateway will be needed by early 2005.
He said that although no shippers have signed up there is “strong shipper interest in the concept.”
Terasen President Richard Ballantyne told the Financial Post Oct. 9 that it’s not likely both projects could proceed simultaneously.
“The shippers will need to determine where they want their markets ... and indicate how the order of things will happen,” he said.
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