Enbridge Inc. has a new scheme for getting around North American oil pipeline snarls, with plans to transport Canadian and North Dakota crude to the large east Gulf Coast refining area with a $3.4-billion conversion of a natural-gas pipeline system.
The proposed project, a joint venture with Texas-based Energy Transfer Partners LP, would see more than 1,100 kilometres of the existing Trunkline natural-gas transmission line between Patoka, Ill., and St. James, La., reversed and modified to transport up to 660,000 barrels of oil a day by 2015, a relatively short timeline.
The move is another in a long list of tactics companies are employing to get better prices for Western Canada’s discounted heavy oil.
Vern Yu, vice-president of business development and market development at Calgary-based Enbridge, said Friday that if the plan to access the Louisiana refineries goes ahead, Canadian producers will then be able to get the higher Maya heavy crude blend price, a benchmark for heavy oil produced in Mexico, rather than the discounted prices seen for Alberta bitumen.
On Friday, the price difference between the two was almost $40 a barrel.
“It’s a brand new market for Canadian crude,” Mr. Yu said. “It should help producers with their pricing because it opens up a significant new market for both Bakkan and Canadian heavy.”
There are no pipelines currently carrying Canadian crude to the St. James refinery area, Mr. Yu said. Oil is transported by barge, rail or overseas vessels.
Although the company has reversed or expanded other oil pipelines, such as the Seaway system, he said this would be the first time in recent memory Enbridge has looked at converting a natural-gas pipeline to crude oil service.
“This is a very obvious opportunity to repackage an asset that’s not very useful today,” Mr. Yu said, citing numerous natural-gas pipelines constructed in past decades now sitting idle or little used.
The plan still needs the assurance of customers and regulatory approval from the Federal Energy Regulatory Commission.
If all conditions are met, Enbridge will become a joint owner in the Trunkline, now fully owned by Energy Transfer.
Mr. Yu said the regulatory process should be less onerous than building a new pipeline. However, the project will require about 160 kilometres of new connections to bring the bottom end of the Trunkline pipeline to the refinery hub in St. James, which has heavy crude refining capacity of about 1.2 million barrels a day.
It is not clear what the ratio of light and heavy crude to be transported will be, but Mr. Yu said “this line is going to be running a mixed service. So it’s not like Keystone – it’s not a 100-per-cent bitumen line.”
As Enbridge awaits the outcome of regulatory hearings this year for its Northern Gateway project, to bring Alberta bitumen to the West Coast, it is also looking for other options for its customers. Mr. Yu said the company is searching every day for assets that can be changed to help the North American transportation bottleneck.
Although there has long been a price gap between heavy Canadian crude and world prices for oil, the differences have widened significantly in recent months as U.S. light oil production has surged and pipelines have grown increasingly congested.
While the oil industry looks hopefully toward pipelines such as Northern Gateway and Keystone XL – which would also bring Canadian crude to refineries in Texas – both environmentalists and local residents have fought both the pipeline routing through sensitive waterways and the very fact bitumen is being transported. The oil sands’ increasing greenhouse gas emissions have made Canadian crude a target.
Avery Shenfeld, chief economist of CIBC World Markets Inc., said although the size of the differential has varied in recent weeks, the problem of how to get Canadian oil to refineries and markets is going to continue into the medium term.
“In all likelihood, this is going to be a portfolio of decisions rather than one investment that fixes the problem,” Mr. Shenfeld said.
“If you look ahead in the next decade, the world is going to need that Canadian crude, even if the U.S. is successful in developing more of its own sources. And human ingenuity will find a way to get into the market.”