Enbridge pipeline to flow the other way
PATRICK BRETHOUR
From Wednesday's Globe and Mail
CALGARY — Enbridge Inc. is placing a billion-dollar bet that a huge swath of the oil sands industry will take a pass on building expensive upgrader facilities in Alberta and will instead ship cheap bitumen straight to U.S. refiners.
While there have been numerous announcements of new pipelines to service the oil sands, the latest from Enbridge is different. This line would flow northward, and instead of shipping oil, it would transport diluent — liquid hydrocarbons used to thin gooey, southbound bitumen so it can flow easily — back to Canada from the United States.
Enbridge said yesterday it's asking for formal commitments from shippers for its Southern Lights pipeline, which the company proposes to build and have operating by 2009.
“We're breaking new ground here,” said Enbridge spokesman Glenn Herchak.
Underpinning that vision is the belief that Canadian oil sands producers could end up shipping huge amounts of bitumen — more than 420,000 barrels a day — to the United States rather than risking their own capital to build upgraders in Canada. The worry plaguing the industry is that soaring labour and materials costs will put Canadian plants at a permanent disadvantage compared with other refineries around the world.
Faced with that prospect, oil sands companies are starting to look south, at either building their own upgrader in the United States, or striking a long-term deal to ship bitumen south.
In either case, an oil sands producer would need large and constant volumes of diluent to move its production south — and that is the trend that Enbridge is looking to exploit.
Imperial Oil Ltd., for instance, has said the Fort McMurray region, the epicentre of the oil sands, is overheated to the point that it could be uncompetitive. Husky Energy Inc.'s head, John Lau, has said the entire country is too expensive and that his company is focusing on finding a partner in the United States to process output from its Sunrise oil sands project.
Enbridge said its new pipeline is a response to inquiries from shippers for increased diluent supply in Western Canada, adding that several firms have already expressed interest. It is now conducting an “open season” over the next month, meaning it will require shippers to make formal commitments.
Shippers will need to make contractual commitments to secure a berth on the pipeline.
Southern Lights would span more than 2,500 kilometres and would cost $920-million (U.S.) to set up, an amount that includes the cost of constructing a new stretch of pipeline from Chicago to Clearbrook, Minn., and reversing the flow of an existing Enbridge pipeline running from Clearbrook to Edmonton.
Mr. Herchak said Enbridge sees the pipeline being used chiefly to recycle diluent shipped south from Edmonton, although it will also be available to shippers wanting to feed in supplies from surpluses produced by refineries in the Chicago area.
There are other diluent pipeline projects on the go, but they are typically aimed at shuttling the commodity between Fort McMurray and Edmonton, or importing it from overseas.
Brian Purdy, research analyst for energy infrastructure at FirstEnergy Capital Corp. in Calgary, said the short duration of Enbridge's open season — just a month — is a concrete demonstration of how much the oil sands sector wants to make use of diluent. He said the pipeline could significantly cut costs for producers by allowing them to recycle diluent, which has recently cost more per barrel than crude. |
