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Pipeline capacity crunch looms, analyst says Add to ...

Canada’s energy industry risks running out of room on critical export pipelines in little more than two years, according to a new analysis that sounds a warning about Alberta’s ambitious oil sands plans.

If the controversial Keystone XL project is not built, the pipes that shuttle Canadian crude to market could reach capacity somewhere between late 2013 and early 2016, energy consulting firm Purvin & Gertz cautioned in a report made public Wednesday.

That finding casts in dramatic light the need for TransCanada Corp.’s Keystone – and other pipelines – as the oil sands enters a decade where the potential for major growth is butting up against an increasingly long list of challenges that include not only environmental detractors, but also labour, cost inflation and, now, export outlets.

The problem is serious enough that it could affect how rapidly the oil sands is able to expand, said Tom Wise, the report’s author.

“If XL does not go ahead, then I think producers ought to be considering how they would slow things down until we get things right,” he said.

And even if Keystone XL, which has yet to receive U.S. approval, does enter service, Canada will likely be left scrambling for more capacity by some time between 2016 and 2018, he said. That suggests other options will also be needed, including Enbridge Inc.’s Flanagan South line, which would allow more Canadian crude to flow into southern U.S. markets, and potentially its Northern Gateway pipe, which would bring oil to the Canadian West Coast for export.

The Purvin & Gertz analysis flies in the face of other forecasts that have suggested new pipes won’t be needed for many years.

“I definitely disagree with that strongly,” said Chad Friess, an analyst with UBS Securities. “There’s absolutely no way that we can exhaust the crude takeaway capacity in that short amount of time.”

He pointed to the Enbridge Mainline crude system, which currently has roughly 1 million barrels of spare room. Add to that another half-million from Keystone XL, which much of the industry believes will be built by 2013, and that’s enough for “about 10 years’ worth of growth,” Mr. Friess said.

Enbridge, too, suggests the prediction may be overly dire.

“What [Purvin & Gertz] is pointing out is that there are bottlenecks on our system,” said Vern Yu, the company’s vice-president of business development. “And that’s something we’re actively working on.”

Enbridge recently announced plans to expand capacity of one of its export pipes by 50,000 barrels a day. More such announcements, which will make “significant” additions, are on their way, Mr. Yu said. And, he added, the company can boost its Alberta Clipper pipeline by 400,000 barrels a day at minimal cost, simply by adding horsepower to its pumping stations.

Still, Mr. Wise said today’s pipeline configuration suggests problems are imminent. For one, an increasing amount of Canadian export capacity is likely to be devoted to U.S. crude. The expansion of the Bakken play in North Dakota and Montana could bring an extra 170,000 barrels into Canadian pipes.

And it’s not just a question of how much crude can be shoved through a pipe. It’s also a question of how much can be used at the other end. Current markets in the central and eastern U.S. are likely to be saturated well before pipes are full, Mr. Wise said.

Enbridge is, however, moving to get Alberta and Saskatchewan crude to new markets in Ontario and, potentially, Quebec, which could partially address that issue.

Industry itself is confident it will find a way to move its oil.

“There are many other pipelines available to transport our production to market,” said Rhona DelFrari, a spokeswoman with Cenovus Energy Inc.

Follow on Twitter: @nvanderklippe

 
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