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Enbridge breaking with oil sands Looks for wind, solar options to reduce dependence on sands after 2019; says US, Europe offer ‘very attractive’ renewable prospects GARY PARK For Petroleum News
Enbridge, Canada’s largest pipeline company, and the International Energy Agency have dealt a double-blow to the Alberta oil sands, reinforcing the impact of low oil prices and a mounting surplus of crude.
The message from Enbridge Chief Executive Officer Al Monaco about the long-term outlook was as blunt as any delivered from the industry when he warned analysts and investors that final investment decisions “on new, incremental projects are obviously going to be tougher in this environment.”
For the post-2019 era he said Enbridge has been trying to re-balance its longer-range prospects “around new platforms, whether it’s power generation, transmission, natural gas and other opportunities.”
“You can’t just find new opportunities when you need them. You have to start building for the future early and that’s what we’ve been doing over the last couple of years,” Monaco said.
Wind, solar projects He suggested this could be an excellent time to invest in wind and solar projects in Alberta, especially now that the new provincial government has rolled out a climate change plan that proposes an economy-wide tax on carbon pollution, while encouraging more renewable forms of energy.
Monaco said that offers a “set of conditions, from a policy point of view, that would support further investment (in Alberta).”
In addition, the United States and Europe offer “very attractive” investment options by setting targets for renewable energy generation, he said.
Enbridge has already embarked on offshore wind development by making a C$750 million investment in the Rampion Offshore Wind Project in the United Kingdom.
Bitumen outlook hazy Production from the oil sands is expected to keep rising over the next couple of years, beyond which the outlook for bitumen is increasingly hazy as producers compete with lower cost shale oil suppliers in the United States.
The IEA released a forecast in late February for oil production over the next 7 years, warning that Canada’s output should slow down, if not come to a “complete standstill” once oil sands projects now under construction are completed.
It said heightened environmental concerns, a lack of pipeline access to new markets and the uncertain impact of the New Democratic Party’s election victory in Alberta last May are causing energy companies to slow development plans.
The report said that by 2021 Canadian oil volumes should average 5.2 million barrels per day, with the oil sands accounting for 3.4 million bpd.
Project challenges The IEA’s prediction of a downturn was strongly reflected in Enbridge’s warning that two of its projects - the US$2.6 billion Sandpiper project from North Dakota to Minnesota and the C$7.5 billion replacement of its Line 3 to double capacity to 760,000 bpd from Alberta to Wisconsin through Minnesota - face rising costs and regulatory delays of at least two years.
The Minnesota Public Utilities Commission said it would require a final environmental impact statement on Line 3 before it will agree to start work on a route permitting process.
Enbridge has said the new requirements are “unprecedented and contrary” to Minnesota law and has filed petitions to overturn the regulations.
Monaco also disclosed that Enbridge might not make its deadline to start construction on the C$7.9 billion, 525,000 bpd Northern Gateway export pipeline by the end of 2016, even though progress has been made on negotiations with local communities and First Nations in British Columbia.
He said the company’s ability to embark on the construction phase “is really quite remote at this point.”
But not all is lost for Enbridge, which expects to bring an additional 800,000 bpd of pipeline capacity on line by 2019 through its Line 9B reversal in Canada and the Flanagan South and Seaway connections to the Texas Gulf Coast - all major elements of its C$26 billion commercially secured capital program through 2019.
Robert Kwan, an analyst at RBC Capital Markets, said in a note to clients that his firm is “concerned about the execution of (Enbridge’s) funding plan along with the deferral of growth.”
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