California beckons for Enbridge

Non-binding open season for planned Gateway pipeline generates unexpected response from U.S. West Coast; larger line contemplated

Gary Park

Petroleum News Canadian Contributing Writer

The hunt by U.S. West Coast refiners for crude oil to replace dwindling shipments from Alaska has resulted in a course correction for Enbridge’s planned Gateway pipeline.

The response to a non-binding open season that ended Dec. 16 could see the West Coast take more than 25 percent of Gateway’s volumes — originally targeted at 400,000 barrels per day — and has prompted Enbridge to look at sharply increasing Gateway’s capacity.

That announcement came just a week after Enbridge signaled its growing interest in the Pacific Northwest and California by forking over US$101.9 million for a 65 percent stake in a 290,000 bpd refined products pipeline.

Richard Bird, Enbridge’s liquids pipeline vice president, said the stake in Olympic Pipe Line, controlled by BP’s wholly owned Arco MidCon, gives the Calgary-based company entry to a growing market in the U.S. refined products pipeline sector and an “important window” to the West Coast.

It also throws a gauntlet in the direction of Kinder Morgan Canada (formerly Terasen), which is seen as strongly positioned from its Vancouver base and through its Trans Mountain pipeline to expand in the Washington-Oregon-California region.

The Olympic network includes 385 miles of 6-inch to 20-inch diameter pipe, with the pipeline extending from Blaine, Wash., to Portland, Ore., linking four Puget Sound refineries to terminals in the two states as well as a 500,000 barrel products terminal.

That deal came on the heels of BP acquiring sole ownership of the Olympic system by taking over the 40 percent holding of Royal Dutch Shell.

Although contractual commitments have yet to be negotiated, the bidding by prospective Gateway customers exceeded the 400,000 bpd economic threshold set by Enbridge.

Company spokesman Jim Rennie told Petroleum News that Enbridge is now weighing the possibility of increasing the pipeline’s diameter to 36 inches from 30 inches.

The project involves a 720-mile link from Edmonton to a deepwater tanker terminal at Kitimat, on the British Columbia coast, with a possible in-service date of 2010.

With the addition of pumping stations that could give Gateway eventual capacity of 800,000 to 1 million bpd, he said, while emphasizing that the open season interest did not reach those heights.

But Rennie said it could make “more sense” to build a 36-inch line which would allow a significant reduction in tolls as volumes build.

An earlier non-binding open season for a twin pipeline to import condensate, used to dilute bitumen and allow it to move more easily through pipelines, attracted similarly strong interest.

That test of the market showed a desire to deliver 265,000 bpd, substantially higher than Enbridge’s projected 150,000 bpd.

To meet its tentative target of filing with Canada’s National Energy Board in the second quarter of 2006, Enbridge, in addition to negotiating shipping contracts, must complete environmental and engineering work and consultations with First Nations, communities and governments along the Gateway route.

Rennie said those discussions have focused on issues of compensation for land owners, jobs and environmental impact.

Bird said in a statement following the open season that by building the condensate and oil sands pipelines in tandem “the increased scale for both pipelines would provide a very economical system.”

Enbridge has estimated that building both lines at the same time instead of as standalone projects could save C$600 million in construction costs.

But a final cost estimate will not be available until a regulatory application has been prepared.

Given its talk of a much larger project, Enbridge is seen as having edged ahead of Kinder Morgan, which is exploring the prospects of a 625,000 bpd pipeline from Alberta to Prince Rupert or Kitimat, targeting the same California and Asian markets as Gateway.