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Taking one step forward … sort of Enbridge announces proposed Northern Gateway project fully subscribed; twin pipes would export oil sands crude, import diluents Gary Park For Petroleum News
Enbridge says it has achieved a “significant milestone.” One of its former rivals likens the deal to a “good old boy handshake.” And British Columbia First Nations say they will wage a legal battle to stop Enbridge’s plans.
In the end it’s just another round of tit-for-tat in the battle for supremacy over Enbridge’s Northern Gateway project — the proposed twin pipeline system that is designed to export 525,000 barrels per day of oil sands crude to the Asia-Pacific region and import 193,000 bpd of diluents to Alberta.
Enbridge announced Aug. 24 that it has agreed to commercial terms with undisclosed parties which “fully subscribe for long-term service and capacity” on both lines.
The press release had barely landed when the critics were in full flight.
Hal Kvisle, the former chief executive officer of TransCanada, Enbridge’s archrival in the Canadian pipeline sector, rated the early-stage precedent agreements as nothing more than “agreements in principle,” characterizing them as a “good old boy handshake.”
First National opposition Chief Larry Nooski, of the Nedleh Whut’en First Nation in British Columbia, said it doesn’t matter what signatures Enbridge obtains, the pipelines “come through our territories and we’ve already said no and we’ll use every legal means we have to stop them.”
Nooski is involved in the Yinka Dene Alliance of five First Nations which have refused to support Northern Gateway because of concerns over possible oil leaks on land, waterways and in the ocean.
Steven Paget, an analyst with FirstEnergy Capital, said the announcement provides some assurance to stakeholders — including a National Energy Board environmental review panel — that the project is commercially viable and supported, but it did not change his view of Northern Gateway.
He said the challenge facing the contentious pipeline is to obtain regulatory approval. Until then FirstEnergy will not automatically add earnings to its future estimates for Enbridge.
Andrew Potter, an analyst with CIBC World Markets, said that if TransCanada receives a presidential permit for its Keystone XL project in the United States, downplaying U.S. opposition to oil sands crude, Northern Gateway cannot be viewed as an “absolute necessity,” even though it makes sense for Canada to open a market beyond the U.S.
Agreements nonbinding Enbridge itself acknowledged the shipping agreements are nonbinding because the producers and refiners make no financial commitments, promise no crude or condensate for the pipelines and face no financial penalties if they back out.
Shippers will have another four years to decide whether they will sign the contracts, based on timelines included in Enbridge filings with the National Energy Board.
Paul Fisher, Northern Gateway’s vice president, commercial, while agreeing there is no firm commitment by shippers, said that if Enbridge builds the pipeline, the crude will be delivered because of expectations producers will receive higher prices in Asian markets.
He also noted that producers and refiners have invested C$100 million so far toward the C$250 million initial development costs for Northern Gateway.
Enbridge said in its filing that it remains convinced the project is economically feasible if it is used at a “reasonable level” over its lifetime and said tolls would “likely” be paid to cover costs.
But the next test will be whether prospective shippers will cover a detailed cost estimate, that itself will need another C$150 million.
UBS Securities analyst Chad Friess said that although shippers he has spoken to are indicating universal backing for Northern Gateway, none wants to get caught in a “huge cost overrun” or become tied to a pipeline that may not get built for 15 years.
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