Pipeline demands mount

Canadian oil pipeline to U.S. East Coast planned
By David Ebner, Globe and Mail, 17-Jan-2007

Pipeline demands mount
Shaun Polczer, Calgary Herald, 18-Jan-2007

Enbridge Inc. wants to move Canadian oil-sands output all the way to the Philadelphia region, and is working on early plans for a $1.4 billion pipeline that would carry domestic crude to the east coast of the United States for the first time.

The plan is part of a larger effort by Enbridge to build a network of new oil-pipeline connections in the United States so that expected increases in oil-sands production do not flood any single market.

The connection could be in service as early as 2010, according to the company, with the pipeline carrying 300,000 barrels a day. The link would begin in the Chicago region, which is now the main destination for Canadian oil.

Enbridge considers the project a "potential initiative," describing it as "very preliminary," according to company spokesman Glenn Herchak.

"Because of the increasing growth of the oil sands, we've seen some market interest (from oil producers) in the potential for new pipeline capacity into the (eastern U.S.) region," Herchak said.

The company has also had initial discussions with refiners to handle the oil, but Herchak wouldn't identify them.

One potential customer would be Sunoco Inc., which owns the largest refinery in the region, a facility in Philadelphia that can process 330,000 barrels a day.

ConocoPhillips Co. has a 230,000-barrel-a-day refinery in New Jersey and a 185,000-barrel-a-day operation near Philadelphia.

The Philadelphia connection is one of two big new pipeline concepts Enbridge is pursuing. Last July, it said it was looking at a $3.6 billion, 400,000-barrel-a-day line to connect Alberta with Texas. The idea remains in the early stages, Herchak said.

The new ideas to move Canadian oil to different areas of the United States follow the stall that hit the proposed Gateway pipeline, which would move oil-sands crude from Edmonton, Alberta, to the west coast of British Columbia for export to Asia. After significant opposition from aboriginal groups along the route, as well as slow talks between refiners in China and Canadian producers, Enbridge was unable to get long-term shipping contracts signed.

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CALGARY - At least three new pipelines will be needed to move Alberta's growing oilsands production to new markets in the United States and abroad, a senior official with Enbridge Inc. said Wednesday. Those are on top of a 400,000-barrel per day (bpd) link to the U.S. Gulf Coast and a proposed 300,000 bpd hook-up to Kitimat, B.C., said Rick Sandahl, Enbridge's senior vice-president of market development.

``There's a need for significant infrastructure changes going forward,'' he told a Calgary oilsands conference.

``Getting to existing markets isn't adequate, you need to have pipelines to get to new markets.''

According to industry forecasts, oilsands production is expected to triple to about 3.5 million bpd by 2015, requiring at least two million bpd of incremental transportation capacity out of Western Canada.

Sandahl said Enbridge has received strong interest from American refiners interested in securing access to more Canadian oil.

In addition to the Gulf Coast, other potential new markets include California, which could be supplied from Kitimat, and the Eastern Seaboard, which would require a $1.4-billion line from Chicago to move Canadian oil into places like Philadelphia, Baltimore and New Jersey.

An Eastern pipeline could also access refineries on the Canadian side of the border, particularly in Montreal.

Companies like Shell Canada Ltd. and Petro-Canada have speculated on building or modifying facilities in Eastern Canada to process Alberta heavy crude.

However, Sandahl noted the East Coast line is the ``most speculative'' proposal in Enbridge's $15-billion project inventory. If it goes ahead, the pipeline could be built and in service by 2012.

But the Gulf Coast remains the big prize for Canadian shippers.

It has the largest concentration of heavy oil refineries in North America and is looking to diversify supply sources that come mainly from Venezuela and Mexico.

Venezuelan President Hugo Chavez has threatened to reduce exports to the U.S. while Mexico's oil production is in decline.

Other proposed export pipes from Canada include a 250,000-bpd bullet line to Texas currently being advanced by Altex Energy Ltd.

Altex is a private company headed by Jack Crawford and a management group responsible for building the Alliance natural gas pipeline to Chicago in 2000.

``The scope and scale of what we're proposing to do at Altex is very similar,'' he said.

Altex proposes to ship raw bitumen to U.S. refineries capable of upgrading and refining it into finished products.

Acknowledging the debate over value-added processing at home, Crawford said the pipeline would serve as a hedge against rising costs for labour and materials in Alberta.

``We believe exporting at least part of it is a way to mitigate some of the risk of cost overruns we're seeing here with upgrading,'' he said.

OPTIONALCUTENDS

Andrew Kuske, a pipeline analyst with UBS in Toronto, said Enbridge stands to gain from future expansion projects.

``Enbridge's asset position is likely to fuel a significant portion of highly visible corporate growth over the next five years,'' he said in a research note.

Enbridge shares fell 69 cents in Toronto, to close at $38.45.

spolczer@theherald.canwest.com

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