Pipeline approvals ease strain on network
NORVAL SCOTT
Globe and Mail Update
February 24, 2008 at 10:39 PM EST
CALGARY — Pipeline companies are set to build the projects needed to transport higher levels of crude production from Alberta's oil sands, resolving the question of how energy firms will bring their future output to market.
Last week, the National Energy Board – Canada's energy regulator – approved two projects being proposed by Calgary-based Enbridge Inc., including its giant Alberta Clipper pipeline that would allow increased exports to Wisconsin.
The pipeline firms are now expected to bring more than one million barrels a day of new pipeline capacity into service by late 2009, strongly relieving the strain on the existing Canadian system.
“This allows us to stay ahead of the curve,” said Enbridge chief executive officer Pat Daniel in an interview. “[Alberta] produces more crude oil than we can consume, and it's a resource whose export provides us with much basic wealth. Projects like Alberta Clipper allow that export to happen, and there's no other way to move the oil than by pipeline.”
While output from the oil sands is expected to increase from 1.25 million b/d currently to about 3 million by 2015, producers have long feared that a lack of pipelines could restrict their ability to move their crude to North American markets.
In the mid-1990s, Alberta's production at times jumped ahead of the available pipeline capacity, creating apportionment – a situation in which pipeline space is rationed between firms, creating gluts of oil and causing prices to plummet.
Enbridge, Canada's largest pipeline firm, hasn't seen apportionment since that time, but just avoided such a situation last month, when its customers over-subscribed the space available on the company's main system. Production didn't keep up with the expected demand and apportionment was narrowly avoided, but the situation indicates the need to bring new pipelines on stream, Mr. Daniel said.
Both Kinder Morgan Canada and Enbridge are expected to complete pipeline projects this year that will expand the existing network.
Thereafter, as long as major developments such as TransCanada's 435,000 b/d Keystone pipeline, which would connect Alberta to Illinois and received regulatory approval last year, and Enbridge's Alberta Clipper project are finished in 2009 as expected, producers “will know that the capacity to export will be there,” said Canadian Energy Pipeline Association President David MacInnis.
“Even with the anticipated increase in production, these pipelines mean there is less likelihood of oil being stranded,” he said. “[The pipelines] allow higher exports, which is good for revenue streams and Canada's balance of payments, creates jobs, and provides producers with the ability to move their output to market.”
If those pipeline projects are built on schedule, then the pressure on Canada's oil infrastructure is effectively off for between five and eight years, he added.
The National Energy Board approvals of the Keystone and Alberta Clipper pipelines have stirred political controversy, with the Alberta Federation of Labour claiming that the pipelines will mean that bitumen – the heavy crude produced in the oil sands – will be processed in the U.S. instead of Alberta, causing thousands of jobs to be lost.
However, it's “illogical” to criticize the Alberta Clipper project, which is driven by shippers' needs to ship both raw bitumen and upgraded forms of crude, Mr. Daniel said.
“It's important as shippers to be able to move all of those products, as there's a need to move them both – and it adds significant value in the province.”
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