Enbridge Energy Inc. has launched plans for a pipeline to give Canadian oil access to the key Gulf refinery market, and alleviate a backlog that has plagued a major hub in Oklahoma.
The company, along with Enterprise Products Partners LP, announced plans to build a pipeline linking Cushing, Okla., with refineries on the Texas Gulf Coast. Both Enbridge and Enterprise recently shelved similar separate proposals, and are instead joining forces to compete against TransCanada Inc.'s proposed Keystone XL line.
Enbridge's planned Wrangler pipeline will compete for customers with Keystone XL, and TransCanada says Enbridge's new line isn't necessary. But as production from Canada's oil sands and other prolific plays such as the Bakken continues to grow, experts predict there will be room for both pipelines. Enbridge and TransCanada argue their new lines will help boost the price North American oil companies receive for their crude because they will be able to reach a new market.
Enbridge may have an easier time with Wrangler than TransCanada is having with Keystone XL, which is facing opposition from environmental groups and some politicians. Unlike Keystone XL, Wrangler does not need approval from the Obama administration because the pipeline does not cross the border between Canada and the United States. The Wrangler line will cost about $1.5-billion to $2-billion to build, while TransCanada expects to spend about $7-billion on Keystone.
Wrangler will be geared to companies producing light and medium crude oil. Keystone is focused on heavy oil from northern Alberta.
"There will be a need for a new pipeline, whether an expansion of Keystone XL or the addition of [Wrangler]" said Chad Friess, an analyst at UBS Securities Inc. "Long-term it is definitely needed."
Lanny Pendill, a senior analyst at Edward Jones, believes that even though there is plenty of pipeline room in the region now, and new infrastructure will not immediately be used at full capacity, shippers would be wise to sign long-term contracts now. "Keystone alone is not going to cut it," he said.
TransCanada, however, believes its line will be enough to satisfy demand for Canadian oil transportation needs to the area. "We don't believe there is a need for Wrangler," TransCanada spokesman Terry Cunha said. "Our project is already committed with contracts," he said.
"We believe the market has spoken, " he added. Wrangler, he notes, has not even started the process to sign shippers.
Keystone XL would be a 2,673-kilometre effort, connecting Alberta directly to refinery complexes in Texas, moving 830,000 barrels of oil a day. By contrast, Wrangler would start at Enbridge's existing Cushing terminal and stretch 800 kilometres south to a storage facility controlled by Enterprise in Harris County, Tex. The line would "closely" follow existing pipeline corridors, transporting about 800,000 barrels a day, the companies said. New storage and a 137-kilometre pipeline to the Beaumont/Port Arthur refining centre are also part of the joint venture.
Enbridge and Enterprise said their previous proposals were warmly welcomed by shippers, although no contracts were signed. This project, they argue, offers more than their original proposals, including a larger pipeline, more storage space, and access to more refineries.
Wrangler will "accommodate the constrained medium-to-light crude oil currently stranded at Cushing and priced at a substantial discount to the oil imports that account for most of the supply being used by Gulf Coast refiners," Enbridge and Enterprise said. However, Mr. Friess said the glut of oil at Cushing that had been dragging down the price of West Texas intermediate is no longer there. While he discounts the notion of excess oil in Oklahoma, he still believes future production and demand will make Wrangler necessary.