Enbridge delays Gulf Coast pipeline
Company blames lagging output in oil sands as it pushes back project to 2014
NORVAL SCOTT AND SHAWN MCCARTHY
July 10, 2008
CALGARY, OTTAWA -- Enbridge Inc. is pushing back plans to build a $2.6-billion pipeline that would connect the oil sands to refineries on the U.S. Gulf Coast, blaming the delay on the slow pace of development in Alberta.
While energy companies are bringing billions of dollars worth of new oil sands projects on stream, technological problems and regulatory delays mean the volumes of crude being produced aren't keeping up with companies' lofty expectations.
As a result, Enbridge now says there won't be enough oil by 2011 to supply its proposed 445,000 barrels-a-day Texas Access pipeline and is pushing the project's completion back to 2014.
Instead, Enbridge, which was developing Texas Access with Exxon Mobil Corp., is opting for a much cheaper solution: it will build out existing lines to connect the pipeline hub of Sarnia, Ont. to Portland, Me., by 2010, at a cost of only $350-million, and then ship the oil further south by sea.
"We've seen a slowdown in supply ... it relates to technological issues faced by upstream producers, and increased regulatory scrutiny," said Al Monaco, Enbridge executive vice-president of major projects, on the sidelines of the TD Newcrest Oil Sands Forum in Calgary.
The Sarnia-Maine solution "addresses the timing needs of producers and offers a good near-term solution to get [crude] to the market quickly," Mr. Monaco said.
Producers have been seeking to connect Alberta to the untapped Gulf Coast to broaden their base of refinery customers because Alberta's main market, the U.S. Midwest, is largely saturated with Canadian crude. Refiners in the Gulf Coast are keen to get a new source of supply amid mounting geopolitical concerns about Middle East oil, and concerns about declining supplies from Venezuela and Mexico.
But while oil sands production is rising substantially enough for producers to be seeking new markets - from 1.25 million barrels a day today to 2.8 million in 2015, according to a forecast last month by the Canadian Association of Petroleum Producers (CAPP) - that increase is lagging expectations. Last year, CAPP was expecting output to hit 3.4 million barrels a day by 2015, but delays, problems and cancellations have led to those predictions being scaled back.
Developments like Syncrude Canada Ltd.'s 2006 expansion of its oil sands plant and Husky Energy Inc.'s Tucker project aren't producing as much oil as expected due to problems in getting the technology to work as effectively as they had hoped.
Others, including foreign firms Total SA and StatoilHydro ASA, have pushed back massive oil sands projects because of cost pressures, as well as concerns over the unspecified costs of meeting forthcoming federal environmental legislation aimed at reducing greenhouse gases.
Judith Dwarkin, an analyst at Ross Smith Energy Group, said she is not surprised Enbridge has delayed Texas Access, saying building the pipeline was "always a speculative notion."
She doesn't think the change is related to the pace of development in oil sands, but is more related to price. Producers would likely get better prices for their crude output from Enbridge's alternative Trailbreaker project from Sarnia to Maine, or from the company's Gateway pipeline which would connect Alberta to the Pacific Coast, enabling exports to Asia.
While Texas Access is off the table for now, Enbridge's rivals - who don't have the luxury of pursuing a cheaper option like Trailbreaker - maintain the economics still support their proposals to bring crude to the Gulf Coast. TransCanada Corp. is eyeing a $7-billion, 700,000-barrel-a-day pipeline to the region, while Kinder Morgan Inc. and closely held Altex Energy Ltd. also have projects on the table.