U.S. oil demand delays pipeline

Enbridge Gateway project on hold until offshore market grows

Scott Simpson
Vancouver Sun
December 06, 2006

A spike in North American demand for fuel is driving a decision to delay by at least three years a $4-billion pipeline that would help carry Alberta oil through British Columbia to offshore markets, a spokesman for Enbridge Gateway Pipelines said on Tuesday.

Environmental groups in B.C. are celebrating the decision, which was revealed last week in a filing by Alberta-based Enbridge to the National Energy Board.

The Gateway project, a pair of 1,150-km pipelines carrying 400,000 barrels of oil a day from the Alberta oilsands through B.C. to a new terminal on the Pacific coast at Kitimat, was announced three years ago and was expected to be in service by 2010.

B.C. stands to receive about $1 billion in direct spending and 5,000 construction jobs during the two-year construction life of the project, plus some permanent jobs at a shipping terminal in Kitimat.

Environmental groups including the Living Oceans Society have strongly criticized the project because it would generate additional oil tanker traffic -- and the risk of oil spills -- along the B.C. coast.

However, last week Enbridge informed the NEB that the company's projects "are driven by market priorities and customer needs" and said it expected to set completion of the project back to a 2014 "timeframe."

Enbridge Gateway Pipelines president Art Meyer announced details of the project to the Vancouver Board of Trade last June and described it as one of the largest infrastructure projects in B.C. history.

In a few months, however, the company's priorities have changed and it will now concentrate on increasing capacity of lines that will serve a North American oil refinery network that is making its first significant expansion in more than 20 years.

Current under-capacity is a contributing factor to recent high consumer prices for gasoline, as existing refineries have struggled to keep pace with demand.

"Recently, Enbridge has seen an increase in customers' requirements to accelerate the development of pipeline capacity to markets in the United States, midwest and further east," the company said in its NEB filing.

"As a result, Enbridge is reprioritizing its efforts towards fulfilling the more immediate requirement of U.S. markets."

Glen Herchak, Enbridge Gateway manager of communications and stakeholder relations, said the company will slow down the pace of development on Gateway -- but said it could quickly accelerate if there's a surge in offshore demand for Alberta's synthetic crude.

"This decision makes sense in light of recent announcements we've seen on the customer front, for instance BP's plan to expand its Whiting, Indiana, refinery, along with the recent [$10.7-billion US] ConocoPhillips-Encana announcement on their refinery expansion as well," he said.

"There's a real need to have these pipes in service sooner than later, and at this point it would appear that those projects are now going to be completed before Gateway."

As a result of that situation, Enbridge is asking the NEB to delay the environmental assessment process for Gateway.

Enbridge said it has made "substantial progress" in Gateway project design and consultation with key stakeholders, including several first nations.

Jennifer Lash, executive director of the Living Oceans Society, disputed Enbridge's assertion of progress in cultivating community support along the route. "We think they're delaying it because they've become aware of the opposition and the challenges to going into that area," Lash said.

Gateway letter to NEB: link

FRASER MILNER CASGRAIN LLP
Richard A. Neufeld
(403) 268-7023
richard.neufeld@fmc-law.com
November 27, 2006

National Energy Board
444 Seventh Avenue S.W.
Calgary, AB T2P 0X8
Attention: Michel L. Mantha

Canadian Environmental Assessment Agency
22nd Floor, Place Bell 160 Elgin Street
Ottawa, ON K1A 0H3
Attention: Bruce Young

Dear Sirs:

Subject: Enbridge Gateway Project
File No. 158084-281

We act as counsel to Gateway Pipeline Inc. (“Gateway”). In November, 2005, Gateway filed with the Canadian Environmental Assessment Agency (the “Agency”) and the National Energy Board (“NEB”) a Preliminary Information Package (“PIP”) in respect of the Gateway Pipeline Project.

The purpose ofthe PIP was to request that the environmental assessment process be initiated. Over the course ofthe past year, substantial progress has been achieved in respect of the design of the Gateway Project, environmental assessment, and aboriginal and key stakeholder consultation.

Support for the Project from Western Canadian producers and southeast Asian refiners continues to be strong. However, Enbridge projects are driven by market priorities and customer needs and Gateway represents one of many pipeline projects that Enbridge has under development.

Recently, Enbridge has seen an increase in customers’ requirements to accelerate the development of pipeline capacity from Alberta to markets in the United States mid-west and further east. As a result, Enbridge is reprioritizing its efforts towards fulfilling the more immediate requirement of US markets.

Enbridge is confident that the Gateway Project will be required and will proceed in due course; however, the timing for an in-service date for Gateway will likely move to a 2012 to 2014 timeframe as opposed to the 2010 to 2011 timeframe contemplated at the time of filing the Preliminary Information Package.

In light of these developments, Gateway suggests that the environmental assessment process for the Gateway Project be delayed until the former pace of activity resumes. At that time, we suggest that a decision can be made as to whether to proceed on the basis of the work done to date, including the issuance of a draft Joint Review Panel Agreement for public comment, or whether some additional work is required. We will file brief comments on the current draft Agreement for future reference, but would reserve detailed comments until the environmental assessment process is resumed.

On behalf of Gateway, we have been requested to express its appreciation for the efforts made by many federal agencies in initiating the environmental assessment process.

If there are any questions regarding this matter, please do not hesitate to contact the writer at (403) 268-7023 or Mr. Greg Cartwright of Enbridge’s legal department at (780) 420-5162.

Yours truly,
FRASER MILNER CASGRAIN LLP
Richard A. Neufeld

RAN:ek

Cc Enbridge Gateway Pipelines, Attn: Mr. G. Cartwright

Gateway letter to NEB: link