Enbridge makes new pitch to Chinese on oil sands stake

COMMENT: Different spin, same story. At the beginning of November, Enbridge announced that it would "delay a planned pipeline running from Alberta to the Pacific in favour of expanding and accelerating new lines to U.S. markets" - moving the Alberta Clipper project to the top, moving Gateway somewhere else. Until there is an anchor shipper, said CEO Pat Daniel, there won't be a Gateway pipeline.
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Enbridge makes new pitch to Chinese on oil sands stake

OTTAWA

Calgary-based Enbridge Inc. is trying to kick-start Chinese investment in Alberta's oil sands, just weeks after announcing the delay of its Gateway pipeline project due to lack of Chinese contracts. In Beijing yesterday, Enbridge's executive vice-president Richard Bird touted the pipeline project, which would deliver oil sands crude to the West Coast and Asian markets at a world heavy oil conference. Federal Natural Resources Minister Gary Lunn also addressed the conference, where he sought to spotlight Canada's role as an energy superpower.

Mr. Lunn and Mr. Bird, accompanied by Alberta Energy Minister Greg Melchin, had a full day of meetings scheduled to promote the Gateway project with Chinese government officials and the country's major oil companies, including Chinese National Petroleum Corp., the China National Offshore Oil Corp. and China Petroleum & Chemical Corp.

Enbridge announced two weeks ago that it was shifting resources away from its Gateway project and accelerating the construction of a new line into the U.S. Midwest.

The company has touted the proposed 1,100-kilometre Gateway pipeline as critical to realizing the desire of Western Canadian oil producers to diversify their markets and gain access to booming Asian demand.

Yesterday, Mr. Bird told an oil sands conference that by 2015 Canada would have an additional 600,000 barrels per day of crude oil production that could be allocated to Asian markets, according to Bloomberg News.

Mr. Bird identified China Petroleum & Chemical Corp., known as Sinopec Group, as a potential shipper and investor in the oil sands, Bloomberg reported.

Enbridge is shifting resources away from Gateway, which had been targeted for a 2010-11 startup, in order to fast-track a new pipeline to traditional U.S. markets.

"We now believe it is likely that customers will not require the Gateway project to be in service until the 2012 to 2014 time frame," Enbridge spokesman Glenn Herchak said in an interview from Calgary.

That timeline could be revisited, Mr. Herchak said, if Chinese buyers and Canadian producers could reach a deal for long-term contracts that would anchor the $4-billion project.

However, Mr. Herchak said the company has yet to identify a major customer that would anchor the project, despite expressions of interest from several major Chinese companies in investing in the oil sands and shipping the crude to the West Coast.

He added that there is still significant interest among Chinese refiners and oil sands producers in Gateway, which would provide the suppliers with new markets for their crude. One-quarter to one-third of the Gateway supply would be destined for California markets, which currently are not served by any crude oil pipeline.

"We really are breaking new ground with the Gateway project in opening up a market in Southeast Asia and California for oil sands product," he said. "It's challenging finding an arrangement that is going to be beneficial to both parties, and will withstand the test of time."

While Enbridge is hitting the brakes on the Gateway project, it is accelerating its Alberta Clipper pipeline, which would deliver crude to Wisconsin and then into Midwest markets.

"We always pride ourselves on being driven by market priorities and customer needs and, right now, our customers are telling us that the market they need for pipeline capacity expansion is the U.S. Midwest and further east," Mr. Herchak said.

Annette Hester, a University of Calgary professor and fellow with the Center for Strategic and International Studies (CSIS) in Washington, said there is no good reason for Canadian producers to woo the Chinese market, when American refiners are dramatically increasing their demand for oil sands crude.

"There is little to be gained by increasing sales to China. This idea of diversifying markets speaks more to political government objectives than business ones," said Ms. Hester, who co-authored a recent CSIS study on energy market integration in the Western Hemisphere.

In Ottawa, government officials worry that the U.S. has limited capacity to refine the oil sands crude, whether or not it is upgraded in Alberta. Without new investment to retool refineries south of the border, they fear, oil sands crude could sell at a significant discount in U.S. markets.

Pipelines to the West Coast would expand the range of refiners that could handle the Canadian product, both in Asia and California, said Greg Stringham, vice-president with the Canadian Association of Petroleum Producers in Calgary.

The industry will need four new multibillion-dollar pipelines to the U.S. and/or the West Coast, given forecasts that oil sands production will grow from one million barrels per day to three million, he said.

But even if it does identify customers, Enbridge would face major regulatory hurdles in meeting its previous 2010-2011 target date.

The company has to negotiate right-of-way with more than 40 different native bands in Alberta and British Columbia.