Enbridge revives $4-billion pipeline

New demand from Asia, domestic clients; Chinese pullout cancelled earlier project

NORVAL SCOTT
Globe and Mail
With files from Reuters
February 22, 2008

CALGARY -- Enbridge Inc. has lined up enough support from a clutch of Asian refiners and Canadian oil producers to revive its $4-billion plan to build a pipeline from the oil sands to the West Coast, just months after China pulled out of the project.

Enbridge has now turned to Southeast Asia to find customers for its Gateway pipeline and attracted enough funding from refiners there to accelerate work on winning regulatory approval, says Enbridge chief executive officer Patrick Daniel. "The pull from the other end of Gateway, initially, was primarily from the Chinese, but in this initiative the Chinese are not participants," Mr. Daniel told investors at a conference in Whistler, B.C., yesterday.

The project was shelved last year when PetroChina Co. Ltd. - a Chinese national oil company that had said it would buy half the Gateway crude - withdrew and rebuked Ottawa for not doing enough to support the project.

Mr. Daniel has travelled to Asia regularly, leading Enbridge teams seeking to woo potential customers. Now, he said, customer demand for the pipeline "ranges from Japan down to Singapore - so [there is a] much broader Southeast Asian interest."
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The Enbridge pipeline would enable Canadian oil sands producers to tap into a new and fast-growing market. The U.S. Midwest accounts for most oil sands exports, putting producers at risk if that market becomes saturated and prices plummet.

Oil sands producers have been leaning heavily on pipeline builders such as Enbridge to connect Alberta to new markets, including the U.S. Gulf Coast. Some producers had cooled on Asia as a potential destination as U.S. refiners showed they were willing to take on more Canadian production. Enbridge is looking for support to build a pipeline from Illinois to Texas that would allow Canadian crude to reach markets further south.

But interest for an Asian outlet seems to have returned. Kinder Morgan Canada already operates a medium-sized pipeline from Alberta to British Columbia's coast that it plans to expand. It usually supplies crude to California or the U.S. Northwest.

Last year, a record amount of that crude - as much as seven oil tankers, or about 550,000 barrels of oil - travelled to buyers in Asia last year, according to the National Energy Board, Canada's energy regulator.

The increased shipments suggest that Asian firms have been testing both Canadian heavy crude and light synthetic crude in their refineries to see how well they work, with a view to taking more in the future.

"The crude needs to be tested in refineries, and that's what is happening," Ian Anderson, chief executive of Kinder Morgan Canada, said in a recent interview.

"It will take some time until there's a meaningful [Asian] market developed that producers will commit significant portions of supply to. But in the next several years we'll see Canadian crude penetrate that market more and more, until there's a critical mass that would underpin both producers making a commitment [to Asia] and a significant pipeline expansion," Mr. Anderson said.

While Enbridge would not say which countries or companies have committed to Gateway, South Korea would likely join Singapore and Japan as customers.

Enbridge is still in talks with some Chinese firms about getting involved in Gateway, spokeswoman Jennifer Varey said. She wouldn't say how much funding customers have committed to the project.

ENBRIDGE INC. (ENB)

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