Pipeline giants rush to feed Gulf Coast refineries

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Enbridge Inc. and TransCanada Corp. are racing to win support for rival pipelines to feed the massive oil-refining hub on the Gulf Coast, and help erase a price discount that has cost the Alberta oil industry billions in lost revenue.

Enbridge is spending $1.5-billion for a half interest in the Seaway crude pipeline, which connects the oil distribution hub of Cushing, Okla., with oil refineries on the Texas Gulf coast. Enbridge, along with partner Enterprise Product Partners LP, plans to reverse the flow of oil in the underused pipe to provide much-needed crude supply to the Texas refineries. The Seaway line was originally designed to ship oil from Texas to the small refining hub in Cushing.

At the same time, TransCanada says it is pursuing plans to quickly construct the most southerly leg of its controversial Keystone XL project – connecting Cushing to the Houston area – even as it fights to win approval for the full $7-billion, 2,700-kilometre project planned to run from Alberta to Texas.

The latest pipeline plans highlight the United States' growing need for Canadian oil even as Keystone XL is caught up in regulatory scrutiny and political wrangling. Gulf refineries have been built to process heavy oil from foreign sources such as Mexico and Venezuela, but those supplies are in decline, stoking demand for product from other sources. Canadian heavy oil, including oil sands output, is a natural fit.

Cushing has become a key choke point for oil producers from Canada and North Dakota's Bakken field. A glut of supply in Cushing due to a lack of outbound capacity has driven down the price of West Texas intermediate crude, which serves as the benchmark for Canadian oil deliveries.

The planned Seaway reversal "will definitely start to clear that Cushing glut," Enbridge chief executive officer Pat Daniel said in an interview.

The partners said the pipeline could deliver some 150,000 barrels a day to the Gulf Coast refineries by the second quarter of next year and ship 500,000 barrels a day by early 2013, with investments in pump stations and other modifications.

Investors drove up oil prices on futures markets Wednesday, anticipating greater demand for crude currently piling up in Cushing storage facilities. West Texas intermediate gained $3.22 to $102.59 (U.S.), breaking the $100 barrier for the first time since June.

"This is good news for the Canadian producers and the folks in North Dakota, who are going to get a better price for their crude," said Jim Williams, an energy analyst at WRTG Economics Ltd. in Arkansas.

Those producers have primarily been selling their crude into the landlocked midcontinent market, and the supply glut created a steep discount to internationally-traded crude sources as North Sea Brent. That discount narrowed Wednesday, however, as Brent prices fell while WTI prices rose.

TransCanada added to the supply glut when it commenced delivery from a new line into Cushing earlier this year. The Keystone XL line is designed to help alleviate the glut by extending the pipeline network to the Gulf Coast, home of the world's largest refining complex.

TransCanada is ready to start construction on the Cushing-to-Houston line "literally very early in the new year in January," said Alex Pourbaix, president of the company's oil pipelines division.

It has also heard from companies that want to send oil down that corridor "that they would very much like to see that Cushing-to-Gulf-Coast phase come in as soon as possible. So we'll take a really hard look at the commercial underpinnings for that."

But before it acts, TransCanada may need to obtain permission from the U.S. Department of State, which expects to take more than a year as it decides whether to approve the full Keystone XL pipeline.

Given the company's tense relations with the department following last weeks' announcement of a delay in that decision, TransCanada is operating with "an overabundance of caution on our side. We want to make sure everybody at the State Department would be happy with that proposal," Mr. Pourbaix said.

He also suggested there is likely room for both TransCanada and Enbridge pipes from Cushing.

Seaway "certainly helps out with the glut in Cushing," TransCanada's Mr. Pourbaix said. "I think from our perspective, there's enough oil in Cushing for both us and Enbridge and Enterprise to compete."

Enbridge's Mr. Daniel said the Seaway project will complement the company's planned projects to expand deliveries of oil sands bitumen and Bakken crude to the Gulf Coast. The company is planning two new pipelines, Flanagan South and Wrangler pipelines. The Wrangler will deliver an additional 500,000 barrels a day to Texas.

Enbridge and Enterprise are launching an "open season" to determine shipper support for the Seaway reversal, but Mr. Daniel said he expects the line to be fully contracted. He said the TransCanada plan would initially compete with the Seaway line, but added there should be enough volumes for all the planned pipelines in the coming years.

Enbridge is also considering reversing pipelines in Ontario, Quebec and New England to bring Western crude to eastern North American refining markets, and is canvassing producers to determine their interest in supporting that project.

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The Cushing crush

Enbridge Inc. and TransCanada Corp. are racing to win support for rival pipelines to feed the massive oil-refining hub on the Gulf Coast, and help erase a price discount that has cost the Alberta oil industry billions in lost revenue.

Enbridge is spending $1.5-billion for a half interest in the Seaway crude pipeline, which connects the oil distribution hub of Cushing, Okla., with oil refineries on the Texas Gulf coast. Enbridge, along with partner Enterprise Product Partners LP, plans to reverse the flow of oil in the underused pipe to provide much-needed crude supply to the Texas refineries. The Seaway line was originally designed to ship oil from Texas to the small refining hub in Cushing.

At the same time, TransCanada says it is pursuing plans to quickly construct the most southerly leg of its controversial Keystone XL project – connecting Cushing to the Houston area – even as it fights to win approval for the full $7-billion, 2,700-kilometre project planned to run from Alberta to Texas.

The latest pipeline plans highlight the United States' growing need for Canadian oil even as Keystone XL is caught up in regulatory scrutiny and political wrangling. Gulf refineries have been built to process heavy oil from foreign sources such as Mexico and Venezuela, but those supplies are in decline, stoking demand for product from other sources. Canadian heavy oil, including oil sands output, is a natural fit.

Cushing has become a key choke point for oil producers from Canada and North Dakota's Bakken field. A glut of supply in Cushing due to a lack of outbound capacity has driven down the price of West Texas intermediate crude, which serves as the benchmark for Canadian oil deliveries.

The planned Seaway reversal "will definitely start to clear that Cushing glut," Enbridge chief executive officer Pat Daniel said in an interview.

The partners said the pipeline could deliver some 150,000 barrels a day to the Gulf Coast refineries by the second quarter of next year and ship 500,000 barrels a day by early 2013, with investments in pump stations and other modifications.

Investors drove up oil prices on futures markets Wednesday, anticipating greater demand for crude currently piling up in Cushing storage facilities. West Texas intermediate gained $3.22 to $102.59 (U.S.), breaking the $100 barrier for the first time since June.