Despite opposition, Enbridge doubles down on Gateway

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Enbridge Inc. is pouring more money into plans to carry Alberta oil to the West Coast for export, in a substantial show of confidence that its controversial Northern Gateway pipeline project will one day be built.

At the same time, the company is working to its expand its reach into northwestern British Columbia as it seeks a deal with an Australian firm to propose a natural gas export terminal.

It is a two-pronged strategy that has Enbridge pressing further into a region where it faces choppy waters, amid strong criticism of the environmental risk of projects that would enable lucrative shipments of Canadian energy to markets in Asia.

Enbridge recently began work on a "class three capital cost estimate," a $150-million exercise that comes on top of the $300-million that Enbridge and its oil company partners expect to spend on the regulatory process.

It is a major move to advance a project whose estimated cost has already risen to $6.5-billion, and will likely get even more expensive.

"We definitely believe in this project, and we are prepared to go forward and invest that kind of capital to move this project toward sanction," said Barry Horon, senior project director for Gateway technical studies.

Enbridge has already begun the work, hiring six engineering firms and employing up to 50 people internally. Over the next 12 months, those people will drill hundreds of shallow wells to assess rocks the pipe would pass through, primarily at river crossings. They will sort out the precise route, the wall thickness of each piece of pipe and the amount of horsepower needed to move oil through it.

They will complete roughly 30 per cent of the pipeline's engineering to produce a cost figure accurate to, at a minimum, 25 per cent above and 15 per cent below – although on other recent projects, the estimates have been close to final costs.

The number they land on may change, depending on conditions placed on Gateway by the National Energy Board – assuming it is approved. But this type of estimate is typically used by companies to make a final investment decision.

Yet those lined up against Gateway wonder why Enbridge is spending more on a project that has yet to receive NEB approval. That decision is expected late in 2013. Enbridge said it expects to reveal its new estimate in 18 months.

"I guess it's their risk to take. Personally, I think it's false optimism here," said Barry Robinson, a lawyer with Ecojustice, which defends environmental causes.

"What they're doing is gambling that if it is approved, by getting this engineering done in advance, it will help them move ahead more quickly."

Gateway has become part of a broader West Coast strategy for Enbridge, which is also actively considering other Asian export plans.

Several sources have told the Globe that Enbridge is working to develop – but has not finalized – a partnership with Woodside Petroleum Ltd., a Perth-based Australian oil and gas giant that already operates numerous LNG "trains," or liquefaction facilities, including Pluto, a massive $15-billion (Austr.) production and LNG project. Woodside has, in 2012, made natural gas investments in offshore Israel and Myanmar and has said it is also looking to expand into the Americas.

Woodside and Enbridge both declined comment on a potential deal, which they called "speculation."

But Enbridge has spoken publicly about its interest in LNG, saying that it could use the Gateway pipeline right-of-way to also carry gas to the coast. In October, Leon Zupan, the company's president of gas pipelines told investors that, "we really believe there is a good opportunity to see LNG come on board in the future." He said Enbridge has been talking to industry to ensure "that we can provide the right infrastructure to get to the right tidewater port, have the right liquefaction player and most importantly, have the right markets established."

Enbridge has experience with natural gas, through its part ownership of the Alliance pipeline that carries B.C. and Alberta gas to the U.S.

Critics wonder, however, whether it may have difficulty pursuing a massive project in a crowded field – Royal Dutch Shell PLC, Exxon Mobil Corp., BG Group PLC, Petronas and CNOOC Ltd. are all looking to build West Coast LNG facilities – in a place where many have grown angry with the company.