Not all proposed oil pipelines needed, Enbridge CEO says

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Canadian oil producers will likely need only two major pipeline projects to go ahead to have sufficient capacity for growing volumes over a decade or more, Enbridge Inc.'s chief executive says.

Al Monaco said that in the next couple of years, pipeline capacity is going to be tight as production from Alberta's oil sands ramps up, adding to the volumes competing for space on already full pipelines to key U.S. markets.

But he also added his voice to the chorus who say not every oil pipeline project being proposed will be needed into the 2020s. He said Enbridge's $7.5-billion Line 3 replacement project, other incremental capacity his company will be able to add on its Mainline system, plus one other major oil pipeline project by a competitor, will likely be enough.

"We believe our post-Line 3 capacity, along with future expandability, and one of the other pipelines being proposed, provides enough capacity well into the latter half of the next decade," Mr. Monaco said on his company's earnings call Friday.

"That should suffice based on the current supply outlook."

Mr. Monaco cautioned that the building of pipelines is not his call – that it is based on market demand by producers and refiners.

But the Enbridge chief executive has the luxury of making his comments with a key approval for his Line 3 replacement – part of the company's Mainline system moving oil from Alberta to U.S. markets – in hand. The Canadian portion of Enbridge's Line 3 replacement project was given a green light by the federal cabinet last November. The project will add 375,000 barrels per day of new capacity by 2019, nearly doubling the current volumes moved on the line. The plan still needs Minnesota Public Utilities Commission approvals, but it faces less on-the-ground opposition than other new pipeline projects.

Ottawa has also given its blessing to Kinder Morgan Inc.'s plan to triple its existing TransMountain system from Alberta to Burnaby, B.C.

And Enbridge's Canadian competitor, TransCanada Corp., is also working to build its long-stalled Keystone XL project, which was rejected by former U.S. president Barack Obama, but has been revived by the new Trump administration. The $8-billion (U.S.) project would add more than 700,000 barrels a day of Canadian export capacity to the U.S. market, with another 130,000 barrels per day of capacity earmarked for American producers. Even with the White House's endorsement, the project still faces regulatory hurdles and environmental opposition at the state and community level. TransCanada executives said during their own earnings call Thursday that they don't expect Keystone XL construction to begin until "well into" 2018.

TransCanada is also pursuing its Energy East project to carry 1.1 million barrels of Alberta and Saskatchewan crude oil to refineries in Eastern Canada – a pipeline that has been held up by regulatory delays and environmental opposition. Last month, TransCanada officials speaking in favour of Energy East at a Senate hearing acknowledged the capacity of pipeline projects currently being proposed would exceed that supply growth.

The Canadian Association of Petroleum Producers, an industry lobby group, predicts that Western Canadian oil production will increase to 4.83 million barrels per day in 2030, from 3.68 million barrels per day in 2015 – mostly driven by oil-sands activity. Growth forecasts have been scaled back from previous levels, due to the cancellation of oil-sands projects that companies say are a result of lower oil prices and concerns about market access.

But as production still grows – albeit at a slower pace – companies say new pipeline access to ship oil to both U.S. and new foreign markets is crucial. Currently, more than 99 per cent of Canadian oil exports go to the U.S. – or about three-quarters of all crude produced in Canada.

On Friday, Enbridge also said it has moved to further diversify its portfolio of oil and gas pipelines throughout Canada and the United States, natural-gas distribution in Ontario, and solar, hydroelectric, geothermal power generation projects and wind. The firm confirmed reports that emerged last year that it would take a 49.9-per-cent stake in state-owned German utility EnBW's North Sea offshore wind project. Enbridge said it finalized its purchase this month, and will make a total investment of approximately $1.7-billion (Canadian).

In releasing its fourth quarter and full 2016 results on Friday, Enbridge reported Friday that it had $1.78-billion of net income last year, or $1.95 per common share. It had $2.08-billion, or $2.28 per share of adjusted earnings, after excluding a number of items.

In the fourth quarter ended Dec. 31, Enbridge had $365-million of net income, or 39 cents per share. Adjusted earnings were $522-million or 56 cents per share.

The Calgary-based company also said after recovering some amounts from potential shippers, it will take an impairment of $373-million, or $272-million after-tax, on its rejected Northern Gateway project.

Mr. Monaco also said he still expects Enbridge's $37-billion Spectra Energy Corp. acquisition, to create the largest North American energy-infrastructure company, will close in the first quarter. He said the deal looked favourable when it was first announced last year, but looks even better as oil prices have recovered, and as Canadian and U.S. governments have given approvals to a number of key pipeline projects. Mr. Monaco said the political landscape in North America has shifted "to a more balanced tone for energy and infrastructure development."