Enbridge Inc. is racing to expand its pipeline capacity in oil-rich North Dakota, amid a fountain of new U.S. crude production that promises to sustain the pipeline industry over the next decade.
The company is building a 58-kilometre pipeline to connect parts of the Bakken play in North Dakota, and selling off some more space on existing lines. It's part of a broad effort that has seen Enbridge work to suck away an extra 200,000 barrels per day by 2013 from the Bakken, one of the fastest-growing sources of crude oil in North America.
Enbridge already has pipeline and rail loading facilities capable of moving 275,000 barrels from the region and says it's looking to add even more pipeline space after 2013, amid forecasts that the Bakken alone will grow to more than one million barrels a day. It's now at just over 500,000.
The Bakken growth comes amid a continent-wide race to extract oil from so-called "tight oil" plays, where advances in horizontal drilling and underground fracturing technology have opened up major sources of new energy.
Now, Enbridge says those plays will form the heart of pipeline expansion over the next decade.
"We're watching very closely how these tight oil plays are developing," outgoing Enbridge chief executive officer Pat Daniel said this week. He pointed to a series of developing areas, like the Niobrara in Colorado, the Eagle Ford in Texas and the Utica in the eastern United States. Growth in those spots "will be the biggest determinant" in how and where new pipelines are built in coming years, he said.
Already, growth in oil production has created "a huge amount of challenges" with existing pipe, said Steven Paget, an analyst with FirstEnergy Capital Corp. "You've got a lot of different bottlenecks, between southeastern Wyoming, Cushing [Okla.] Chicago and North Dakota."
Some of those pressures can be relieved by the TransCanada Corp. Keystone XL pipeline, if it is built; others by Enbridge plans to reverse and expand its newly acquired Seaway pipeline out of Cushing.
But growing oil volumes point to an increasing need for even more pipe. Estimates vary broadly, but it's possible tight oil plays will add two million barrels per day to North American production in 10 years. It has happened so quickly that not even Enbridge has "fully figured out" the scale of needed construction, said Perry Schuldhaus, Enbridge vice-president of regional business development.
"We are just now looking at these various other plays trying to figure out what the potential is," he said in an interview.
Some of the potential lies in seizing back barrels from trains which, in the absence of enough pipe, have been used to carry oil from the Bakken and elsewhere.
Burlington Northern Santa Fe, for example, is now sending roughly 100 trains a week to move Bakken oil – and has seen a 40-per-cent increase in petroleum product shipments year-over-year. Other railways are seeing similarly rapid expansion. Canadian Pacific Railway Ltd. moved 500 carloads out of the Bakken in 2009, 13,000 in 2011 and expects that to grow to 70,000 in coming years – or about 125,000 barrels a day.
But rail is expensive, costing anywhere from $10 to $20 (U.S.) a barrel to move oil to markets in California, the Gulf Coast and elsewhere. Pipelines typically charge single-digit tolls per barrel.
Pipelines, however, face a different set of challenges. The opposition facing Keystone XL has made clear how hard it is to build new lines. That means "anybody who has pipelines in the area of any of these new plays will have a huge first-move advantage," said UBS Securities analyst Chad Friess.
"But really, the sky is the limit here if those growth forecasts for the Bakken and other plays really come to fruition."
Mr. Schuldhaus said Enbridge is looking in part to acquisitions to get into new oil plays. In other areas, like the Utica, it can build new pipe to funnel crude to refineries. It's looking at pumping more product through its existing crude oil mainline, the huge backbone of pipe that delivers Alberta oil to Midwestern markets. New pipe might also be needed for the mainline if it is to manage both growth in the Bakken and the oil sands, he said.
"There's still potential for significant expansion of the Enbridge system," he said.