IN THE NEWS / Alberta oil to face challenge from old pipeline Formerly subsidized
Sarnia-to-Montreal line will send crude west, creating possible displacement for
U.S. shippers
Tuesday, January 5, 1999
STEVEN CHASE - Globe & Mail
Calgary -- The Sarnia-to-Montreal oil pipeline, a relic of the 1970s energy crisis,
is preparing to ship North Sea crude westward in May and compete head-on
with Alberta oil in Ontario.
Calgary-based Enbridge Inc., formerly IPL Energy Inc., has spent $90-million
reversing the flow of Line 9, as the pipeline is known in the industry.
It is building pump stations to ship the crude in the opposite direction, to Sarnia,
Ont. from Montreal.
The 832-kilometre pipeline will transport offshore crude to Oakville, Nanticoke
and the Sarnia region for use by refiners. The light, sweet and sour crude will
come mainly from the North Sea.
Industry observers predict Line 9 will give Alberta crude a run for its money by
importing slightly cheaper oil.
The refineries currently get their crude from Western Canada, the U.S. Gulf
Coast and the U.S. Midwest.
"It'll squeeze Alberta crude back to Alberta. The only possible impact is going to
be negative," predicted Christopher Robb, an investment banker with Traction
Capital in Calgary.
"The only reason the refiners are going to use [Line 9 crude] is they want access
to cheaper raw materials. You can't blame the refiners."
Thomas Ebbern with Newcrest Capital Inc. said the effect of shipping more
crude into Central Canada will be to add "injury on top of injury" for western
producers already reeling from low prices worldwide.
"Any time there's additional supply coming into a limited demand market, in this
case refining, it can't be very positive."
Shippers on Line 9 -- including Imperial Oil Ltd. of Toronto and Calgary-based
Petro-Canada, Shell Canada Ltd. and Nova Chemicals Corp. -- all have
refineries or chemical plants in Ontario.
Imperial Oil spokesman Pius Rolheiser said refiners hope to save between 20 and
40 cents (U.S.) a barrel on the Line 9 oil, compared with benchmark West Texas
Intermediate prices for Alberta crude.
Line 9 was originally commissioned by Ottawa in the 1970s to guarantee a crude
oil supply for Quebec at a time when fears over domestic energy self-sufficiency
were rampant.
Ottawa guaranteed IPL Energy it would cover budget shortfalls on Line 9 for 20
years and paid $200-million (Canadian) in subsidies between 1976 and 1991.
The pipeline has shipped little crude since 1991.
Line 9 shipments are expected to begin in May and will start at about 100,000
barrels a day, ramping up to 240,000 within three years.
That means Line 9 will ship the equivalent of between 20 and 48 per cent of the
crude flowing to Ontario from Western Canada. The Canadian Association of
Petroleum Producers (CAPP) in Calgary estimates about 500,000 barrels of oil a
day flow to Central Canada from Western Canada.
Greg Stringham, CAPP's vice-president of markets and fiscal policy, said
producers believe that the ones who will be hit first by the Line 9 crude will be
U.S. shippers.
"There's still some small question as to whether the displacement will happen with
Western Canadian crude, but it's more likely the foreign crude coming up through
the U.S. will be displaced."
Ontario refiners import 70,000 to 80,000 b/d of crude from U.S. pipelines,
according to Onno DeVries, manager of crude oil and fiscal policy at CAPP. The
crude to be shipped through Line 9 from Montreal will come from the Portland
Pipe Line and Montreal Pipeline systems, which run between Portland, Me., and
Montreal. |
