Bloomberg News

Enbridge’s Oil Sands Project Is Years Early, Says IHS CERA

October 06, 2011

(Updates with opponents’ objections in penultimate paragraph.)

Oct. 6 (Bloomberg) -- Enbridge Inc., Canada’s largest pipeline operator, wouldn’t need to build the Northern Gateway project to export Alberta’s oil-sands crude for almost a decade if TransCanada Corp.’s Keystone XL is approved this year, according to IHS CERA, an energy research company.

The 732-mile (1,177-kilometer) Northern Gateway pipeline would pump 525,000 barrels a day from near Edmonton, Alberta, to the port of Kitimat, British Columbia, where crude would be loaded on tankers bound for Asia. The line, scheduled to start in 2017, would reduce Canadian dependence on U.S. markets and compete with the Keystone XL, designed to pipe 700,000 barrels a day to refineries in Texas along the Gulf of Mexico by 2013.

Jackie Forrest, a director of global oil at IHS CERA, said there won’t be enough oil sands production to support Northern Gateway’s launch even if, as she expects, Keystone XL approval helps the output double in 10 years to 3 million barrels a day.

“This Keystone XL pipeline is pretty big and there’s a fairly big refining infrastructure at the end of it, and just from a pure production-equals-pipeline perspective, you don’t need the pipeline to the West Coast until post-2020,” Forrest said yesterday in a telephone interview from Calgary.

Enbridge reported in August that it had secured enough shipments to justify the C$5.5 billion line. Paul Stanway, a spokesman for the company, said Keystone XL “has no impact” on plans for the line to B.C.

“We’re confident that all the product that we move through the pipeline will be purchased,” Stanway said in a telephone interview. “There is demand for it.”

Sinopec Support

Ten companies have contributed $10 million each to help Enbridge pay for steps in the regulatory approval process, with China Petroleum & Chemical Corp., Asia’s largest refiner, also known as Sinopec, the only company to state its participation publicly, Stanway said. He declined to provide more information on project partners, customers and projected volumes.

Alberta’s bitumen-like oil sands give Canada the third- largest crude reserves in the world after Saudi Arabia and Venezuela, with 169 billion barrels of recoverable oil, according to Steve Rodrigues, a spokesman at the Canadian Association of Petroleum Producers.

Not all Asian refiners are able to process the Canadian export, even if it’s mixed with 193,000 barrels a day of natural gas condensate that will be imported to Kitimat and pumped to Edmonton beside the westbound crude in a line that is part of the same project.

Asian Demand

“The appetite in the Asia-Pacific for the heavy crudes, given the relative absence of high-conversion refining, is really pretty limited,” Mark Gilman, an oil and gas analyst at The Benchmark Co., said in a telephone interview from New York.

The long-term growth market for crude in Asia as it modernizes is an opportunity for Canada to diversify its markets, get better prices and reduce bottlenecks at Cushing, Oklahoma, where most Canadian crude ends up now, said Robert Mark, an oil sector equities analyst at MacDougall, MacDougall & MacTier Inc. in Toronto.

“At the rate at which the oil sand production is growing and the stagnant nature of U.S. demand, oil sands producers will need a larger pool of markets in the future to maximize value,” Mark said in an e-mail.

Canadian crude prices suffer by being priced alongside West Texas Intermediate crude delivered at Cushing. Brent’s premium to WTI surged to a record $26.87 a barrel on Sept. 6. Brent was 63 cents more expensive than WTI in 2010.

Regulatory Steps

The regulatory process for Northern Gateway is just getting under way compared with the Keystone XL project. The U.S. State Department, which has the final approval on the TransCanada line because it crosses an international border, has said it will make a decision by year’s end.

Enbridge’s proposal faces a three-member Joint Review Panel of the National Energy Board and the Canadian Environmental Assessment Agency. They are preparing for hearings and environmental assessments that could take several years before issuing a final decision. The deadline is today for requests to make oral submissions starting in January.

Northern Gateway faces opposition from environmentalists and Indian groups because it passes through the Great Bear Rainforest and raises the risk of supertanker oil spills in the Douglas Channel. However, the Canada-only route may make the project less prominent than Keystone XL, which has drawn protests from celebrities such as Daryl Hannah and Margot Kidder, who played Lois Lane in several Superman movies.

“Northern Gateway would be an all-Canadian fight and thus perhaps could be less sensational and muscular, think Canadian Football League vs. U.S. NFL, but nonetheless might get very contentious,” Judith Dwarkin, chief energy economist for ITG Investment Research, wrote in an e-mail from Calgary.

--Editors: Charlotte Porter, Richard Stubbe

To contact the reporter on this story: Colin McClelland in Toronto at cmcclelland1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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