To Texas by sea? Enbridge revamps pipeline plans
NORVAL SCOTT
From Thursday's Globe and Mail
theglobeandmail.com
May 7, 2008 at 8:43 PM EDT
CALGARY — Delays in the oil sands are forcing Enbridge Inc. to rethink its proposed $2.6-million pipeline to the U.S. Gulf Coast, as oil producers wrestling with technical hurdles hesitate to commit to the pipeline.
Enbridge is now considering a scaled-down, $500-million plan that would rework existing infrastructure to supply a smaller amount of crude to the Gulf Coast refineries by sea via Maine, said chief executive officer Pat Daniel.
“The upstream producers who are providing the main drive and incentive for [the Gulf Coast pipeline] are experiencing some delays,” Mr. Daniel said. “Their timelines may be a little pushed back.”
An anticipated boom in oil sands output has had producers hungering for a pipeline connecting their future output with the untapped market of the U.S. Gulf. Refineries there are increasingly looking to Alberta as supplies from Venezuela and Mexico dwindle.
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But for oil sands producers, bringing on major projects has proven to be a less-than-flawless science, with delays and problems cropping up more than in conventional oil fields. For example, Syncrude Canada's 2006 expansion of its oil sands plant still hasn't regularly produced at full capacity, while Husky Energy Inc.'s Tucker project hasn't performed at expected levels either. Nexen Inc.'s Long Lake project opens this summer, a year late.
All three projects, like many others, have been plagued by technical problems related to getting bitumen out of the tarry sands.
Despite the challenges, the number of big projects under way means that oil sands production will triple by 2015. As demand for Canadian crude in the U.S. Midwest, Alberta's main market, is largely saturated, oil sands output regularly trade at a substantial discount to Mexican oil of a similar quality.
Connecting Alberta to the Gulf Coast would narrow that price differential, improving profit margins for producers and providing reliable supplies for refiners.
Enbridge, in partnership with Exxon Mobil Corp., had been leading the race to build the first large pipeline to Texas, which would give the companies a strong advantage to build future connections to the region.
The stakes are high and the competition is fierce; earlier this month, Enbridge rival TransCanada Corp. said it's eyeing a $5 billion-plus, 750,000-barrel-per-day pipeline to the region, while Kinder Morgan Inc. and closely held Altex Energy Ltd. also have alternatives on the table.
Enbridge's proposed Texas Access line would connect Alberta with Illinois using existing infrastructure and carry on to the Houston region on the Gulf Coast, and would move 445,000 barrels a day. The more modest sea route proposal now under consideration would ship up to 200,000 b/d of crude to Portland, Me., by 2010.
Enbridge solicited binding commitments for Texas Access earlier this year. But with fewer producers than expected signing up, the company now expects to decide later this year which project to pursue, Mr. Daniel said.
Even if the company decides on the scaled-down project, it would still consider building a larger pipeline to the Gulf at a later date, he said.
Producers' hesitation in backing Enbridge is also because they want to get the best deal possible from the competing firms, said Bob Hastings, a Vancouver-based analyst with Canaccord Adams.
“Producers love competition as they can play the [pipeline] companies off against each other,” he said. “It keeps everyone honest and gets you the best terms.”
Desjardins Securities analyst Daniel Shteyn said that the lack of support was “not a good sign” for Enbridge, in a race where “the stakes are very big.”
However, he believes that the cost advantages of Enbridge's Texas Access proposal – which uses existing infrastructure in the Midwest – mean the company is still likely ahead of TransCanada in the battle, with Kinder Morgan and Altex probably further back.
“Enbridge's pipeline is a little quicker to market [than other projects] and its lower tolls will win the day,” he said. “Despite the open season not being enthusiastically greeted, it's still advantage to Enbridge.”
In its first quarter results, Enbridge's profit rose 11 per cent as returns from its oil pipeline and gas distribution business strengthened. It earned $253-million, or 70 cents a share, in the quarter, up from $228.7-million, or 64 cents, in the same period last year. |
