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Enbridge seizes pipeline opening Dueling with rival TransCanada in rush to serve Texas Gulf Coast refineries; plans Seaway line reversal, keeps Wrangler on books Gary Park For Petroleum News
With TransCanada’s Keystone XL pipeline grounded for possibly 18 months, Enbridge is showing its Canadian rival no mercy.
It has a deal to pay US$1.5 billion for ConocoPhillips’ 50 percent share of the under-utilized Seaway pipeline from the Texas Gulf Coast to Cushing, Okla., teaming up with Enterprise Products Partners.
If the partnership gains regulatory approval for its US$300 million plan, it will reverse the line by mid-2012, offering initial capacity of 150,000 barrels per day and, following an open season, targeting 400,000 bpd by early 2013.
In addition, Enbridge and Enterprise say they remain committed to the 800,000 bpd Wrangler pipeline from Cushing to the Gulf of Mexico, which is scheduled to start service in July 2013.
“The need for additional capacity beyond a reversed Seaway still exists,” said an Enbridge spokeswoman, adding Seaway and Wrangler are complementary.
A reversal of Seaway would also unlock Enbridge’s 193,000 bpd Spearhead pipeline that runs from Flanagan, Ill., to Cushing, allowing it to ship crudes from Canada and the Bakken play to the Houston area.
Enbridge has also announced plans for the Flanagan South pipeline to Cushing that would initially carry 400,000 bpd by mid-2014 and could be expanded to 550,000 bpd.
No clue from State Department The assumption is that Enbridge is poised to knock TransCanada out of the ballpark, while its Calgary-based neighbor licks its wounds and ponders whether to reroute the portion of XL that crosses Nebraska to avoid the sensitive Sand Hills region.
Whatever decision it takes, the U.S. State Department gives no hint of being able or willing to bring an approval process this side of the US elections in 12 months.
The best TransCanada has managed so far, as it watches Enbridge disappear over the horizon, has been to talk about accelerating construction of its Cushing to Gulf Coast leg as part of its goal to add 500,000 bpd to the existing 590,000 bpd Keystone system.
However, analysts at Wells Fargo suggested that phase of XL was unlikely to obtain approvals from the State Department.
They said expansions of existing pipelines (such as Seaway), are “typically more economic than new-build pipelines (such as Keystone).”
Their research note said that of XL falls by the wayside, Enbridge and EPP “could pursue a larger expansion of Seaway to levels sufficient to balance the Cushing market,” estimating that undertaking could reach 800,000 bpd.
“Alternatively, if Keystone XL is constructed and fully contracted, we anticipate Sea could still be expanded past 400,000 bpd,” the analysts said.
Try for positive spin In trying to generate a positive spin, Alex Pourbaix, TransCanada’s president of energy and oil pipelines, told an investor day on Nov. 17 that a full Keystone system would provide a growth platform for future crude oil opportunities in Canada and the U.S.
Conceding that if the Seaway project proceeds it could ease the crude glut at Cushing, he suggested there is likely room for both TransCanada and Enbridge pipelines from Cushing.
“From our perspective, there’s enough oil in Cushing for both us and Enbridge-Enterprise to compete,” Pourbaix said.
He said that on top of focusing on connecting supply, TransCanada will concentrate on adding new and diversified markets for its U.S. and Canadian producers.
In Alberta, that includes competing for projects such as investments in storage facilities and pipeline extensions, such as the C$400 million Heartland extension from the Edmonton region to the Hardisty hub, Pourbaix said.
TransCanada is also considering providing crude services to the Fort McMurray region, the source of oil sands production.
As well, the company views the Bakken area as an excellent growth prospect and will continue pursuing those volumes in Saskatchewan and North Dakota, while it discusses providing incremental access points of 100,000 bpd for producers.
Amid this heated contest, Jim Williams, an energy analyst at WRTG Economics in Arkansas, said the good news for producers in Canada and North Dakota is that they stand to collect a better price for their crude if the spread between West Texas Intermediate and Brent crude futures shrinks from its high of US$25 per barrel during the summer. At one point after Enbridge announced its Seaway proposal the differential was down to almost US$9.
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