Enbridge defers $2.6-billion Sandpiper pipeline project

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Enbridge Inc. has officially announced the deferral of its already delayed $2.6-billion Sandpiper pipeline, citing a need for more crude production from North Dakota.

Early this year, the company said the proposed 991-kilometre Sandpiper pipeline, meant to transport Bakken light crude from North Dakota to Wisconsin, wouldn't go into service until 2019 – two years later than the scheduled start time of 2017.

The likelihood of the project coming to fruition was further thrown into doubt in early August, when the Canadian pipeline company announced that Enbridge Energy Partners, L.P. – the partnership that operates the U.S. portion of its oil pipeline network – and Marathon Petroleum Corp. planned to terminate their transportation and joint-venture agreements for Sandpiper.

Late Thursday, Enbridge said EEP will withdraw regulatory applications for the Sandpiper project that are pending with the Minnesota Public Utilities Commission, where the permitting process has met delays due to environmental concerns.

"EEP has completed a review of Sandpiper and concluded that the project should be delayed until such time as crude oil production in North Dakota recovers sufficiently to support development of new pipeline capacity," Enbridge said in a news release.

"Based on updated projections, EEP believes that new pipeline capacity will not likely be needed until beyond the company's five-year planning horizon."

The market fundamentals for the project, meant to capitalize on the U.S. shale boom, have changed. North Dakota crude production is directly correlated with the price of oil, which has languished since mid-2014. With North American crude prices well below $50 (U.S.) a barrel, the state's oil production dropped in June to its lowest level in two years.

Also in early August, Enbridge and Marathon announced they were forming a new joint venture to buy 37 per cent of the partially built Bakken pipeline system from Energy Transfer Partners, L.P. and Sunoco Logistics Partners L.P. for $2-billion. Enbridge said on Thursday it has negotiated a tentative arrangement with EEP to jointly fund its $1.5-billion portion of the Bakken pipeline system purchase.

"In light of the deferral of Sandpiper, our investment in the Bakken pipeline will accelerate cash-flow generation from our Bakken assets and help alleviate the funding drag associated with a large greenfield project," Enbridge chief executive Al Monaco said in Thursday's news release.

However, the Dakota Access pipeline, a part of the Bakken pipeline system scheduled to be completed by the end of this year, has also faced fierce protests and environmental opposition.