Pipeline to West Coast gains backing

Nathan VanderKlippe
Globe and Mail
Thursday, Nov. 19, 2009

Enbridge expects ‘solid shipping commitments' for Gateway

For years, two major West Coast oil pipeline projects have languished without enough momentum to build the multibillion-dollar infrastructure required to take bitumen from the Fort McMurray, Alta., region to tidewater.

In 2005, when Enbridge Inc. (ENB-T44.220.180.41%) sought shippers for its Northern Gateway project, an 1,170-kilometre pipeline capable of carrying 525,000 barrels per day to the British Columbia coast, support was too low and the proposed project lost traction.

By early next year, however, Enbridge expects to announce for the first time that it has secured “solid” commercial backing for Gateway, marking a major step forward in the country's plans to diversify its oil exports.

That comes amid a shifting of the landscape, as industry executives, politicians and economists increasingly promote the idea that it is risky to rely solely on the United States to buy Canadian crude, especially as the oil sands grow in importance and demand for oil stagnates south of the border.

“We must export oil to China,” BMO chief economist Sherry Cooper said Thursday in a speech in Calgary. “It's very important. And the sooner the better.”

Such an outlet is both a useful exercise in market diversification, but also a necessary strategy in the face of looming U.S. climate policies, which may restrict oil sands imports, she said.

“For sure, the U.S. isn't going to like it,” Ms. Cooper said. “But that's good, because it gives us more leverage with the U.S. For example, it makes it more difficult for the U.S. to threaten us with comments about dirty oil.”

Kinder Morgan Canada (KMP-N56.00-0.22-0.40%) owns the only route currently connecting the oil sands to the Pacific, its 300,000-barrel-per-day Trans Mountain line to the Lower Mainland, largely used to fuel domestic consumption.

The company is, however, drafting two expansion plans, one to expand Trans Mountain capacity by 80,000 barrels, and another to add a further 320,000, which it plans to detail in the next three to six months. Kinder Morgan is also working with Vancouver port authorities to sail huge, one-million barrel Suezmax tankers into harbour there, in hopes of boosting exports, which have already seen a dramatic rise this year.

In 2008, Kinder Morgan filled up 55 tankers with Canadian crude. By the end of this November, it will already have loaded 78. “We shattered last year's record,” said Kinder Morgan Canada president Ian Anderson, “which is really reinforcing the demand for West Coast access.”

But the idea of sending significant volumes of crude across the Pacific remains fraught with difficulty, both because of the volatility of ocean freight costs, and because it represents a radical change. In the second quarter of this year, Canada exported 1.76 million barrels a day to the U.S, but only 24,000 elsewhere. Several major pipelines to the U.S. will also provide ample capacity for years of oil sands growth.

However, new Asian oil sands entrants – including PetroChina and the Korea National Oil Corp. – have helped raise interest in shipping crude to Asia, and Enbridge plans to submit a full Gateway regulatory filing late this year or early in 2010. Tucked into that filing will be evidence that the project has solid support, beyond the $100-million that some shippers handed Enbridge last year to push Gateway forward.

“We expect we'll be able to demonstrate solid shipping commitments in our application,” said Gateway pipeline president John Carruthers.

But sending oil sands crude through B.C. may not be easy. Enbridge faces criticism of its Gateway plan among the 50 native communities Gateway will affect. They are concerned about the impact of potential spills on salmon and other marine life.

“Gateway faces growing and stiff and fairly unequivocal opposition,” said Eric Swanson, a corporate campaigner with environmental group Dogwood Initiative. “I think it is setting itself up to be one of the biggest fights in B.C.'s history.”

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