Calgary-based Enbridge is facing a second set of allegations that it is favoring long-haul shipments of Canadian heavy crude over U.S. light sweet crude from North Dakota, stalling plans for pipeline connections that would give U.S. refineries access to lower cost Bakken oil.
High Prairie Pipeline, a wholly owned unit of Colo.-based Saddle Butte Pipeline, has filed a formal complaint with the U.S. Federal Energy Regulatory Commission, accusing Enbridge of preserving pipeline space for crude from the Alberta oil sands that is expected to start flowing in 2016.
The allegation coincides with an agreement between High Prairie and an unidentified anchor shipper/equity partner to transport 50,000 barrels per day on its proposed 450-mile pipeline that could be expanded to 150,000 bpd.
High Prairie President John Earley said in a statement that HP Pipeline is a “viable project that is ready to bring much-needed relief to infrastructure in North Dakota. The only thing preventing development and construction (of HP Pipeline) is Enbridge.”
The holdup stems from Enbridge’s refusal to link HP Pipeline to its common carrier system for wider shipment across the United States unless High Prairie pays what it describes as an “unreasonable” $1 billion to upgrade Enbridge’s system to accommodate the extra barrels.
Under the U.S. Interstate Commerce Act, the Enbridge Mainline system, acting as a common carrier, is obligated to carry crude from any shipper that can pay.
The dispute with High Prairie has involved U.S. refiner Tesoro, which plans to receive crude through HP Pipeline and Canada’s largest oil sands producer Suncor Energy, which plans to use the Enbridge system. Both have asked to take part in negotiations.
The biggest challenge facing Western Canadian and Bakken oil producers is the shortage of pipelines from their fields to refineries, resulting in regional supply gluts and discounting of crude prices.
The proposed 16-inch diameter pipeline from Alexander, in McKenzine County, would run due east to the pipeline hub in Clearbrook. It also would have a 17-mile spur in McKenzie County and an 8-mile spur in Mountrail County.
Pipeline project could be terminated
Tesoro, Phillips 66 and other refiners have turned to rail shipments to receive Bakken crude, despite the addition of $10 per barrel for transportation costs.
Depending on the outcome, the 450-mile High Prairie Pipeline that was projected to be running late next year could be at a "minimum delayed, or worst case, terminated all together," Greg Ward, a company vice president, told Associated Press reporter James MacPherson
Mike Moeller, director of Enbridge's North Dakota operations, said the company's pipeline network in North Dakota has been running at capacity since 2006, coinciding with the start of the state's oil boom and increased shipments from Canada.
“The Enbridge mainline does not have room for all of it," Moeller told AP.
Enbridge, which operates 50,000 miles of pipelines in North America, currently has the capacity to ship about 210,000 barrels of crude daily from North Dakota and Montana, Moeller said. The company has invested millions of dollars to increase its capacity in North Dakota and is even building two rail terminals in the state to bump shipping capacity by 120,000 barrels daily, he said.
It's "nontypical" for a pipeline company to turn to rail but it "helps with capacity problems," Moeller said.
Second company to file FERC complaint
High Prairie is the second to file a FERC complaint against Enbridge, following PBF Energy which said in May that the Canadian pipeline company had unfairly turned down its requests for light crude capacity on Enbridge’s underutilized Line 6.
PBF said Enbridge shows an “unjust preference for shippers and users of heavy crude” from Western Canada.
Enbridge refuted that allegation, saying the refiner focused too narrowly on a timeframe to reach a fair conclusion on what crude Enbridge carried on Line 6.
Enbridge said it “applies a consistent, reasonable and even-handed approach … that favors neither light nor heavy crude shippers.”
An open season for HP Pipeline closed April 5 and received binding commitments from prospective shippers for the pipeline, with an anchor shipper agreement providing additional capacity commitments.
High Prairie said that without further delays from Enbridge the pipeline could be operational by late 2013.
FERC spokeswoman Tamara Young-Allen told AP the agency is taking comments on the complaint until July 2. A hearing, which could come before an administrative law judge, has not been set, she said
—Gary Park
