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Enbridge Pipe Reversal to Tap Alberta, Bakken Shale Supplies

A new destination for shale oil, forecast to reduce market congestion and price discounting across North America, will open in central Canada as a result of a pipeline decision Thursday by the National Energy Board (NEB).

After a hard but short fight with eco-opponents Enbridge Inc. won approval to reverse the flow direction, to west-to-east, of a conduit known as its Line 9, running 833 kilometers (520 miles) across Ontario and Quebec between Sarnia and Montreal.

The C$170-million (US$153-million) project includes a 25% capacity increase to 300,000 b/d from 240,000 b/d. A modest amount of new construction required is expected to take about nine months.

The approval lets Enbridge offer mixed shipping service for all crude grades including oilsands bitumen. But the prime target sought by refineries that have booked 90% of the capacity is top-quality, light production from shale development in Alberta and the northwestern United States, such as from the Bakken drilling boom.

Economic forecasts filed with the NEB in support of the project predict that the Line 9 flow reversal will have a safety valve-like effect, relieving downward pressure on North American light oil prices by easing competition to board limited eastbound pipelines.

Discounting of benchmark West Texas Intermediate, which averaged US$10/bbl below North Sea Brent last year, is forecast to go down by US$4.00/bbl or more. At the same time, the eastern refineries are projected to save US$3.00-9.00/bbl by avoiding consistently higher, at times spiking Brent prices for imports from overseas.

The reversed Enbridge Line 9 is also forecast to refill after traffic fell to 64,000 b/d over the last three years as eastern refineries curtailed tanker imports as much as possible by resorting to alternatives such as railway shipping of cheaper western supplies.

The Line 9 reversal is the first in a series of Canadian pipeline projects proposed to keep up to supply growth. Forecasts filed with the NEB predict western U.S. and Canadian production will climb over the next 10 years by 3.3 million b/d: about 450,000 b/d from Alberta and Saskatchewan shale deposits, 1.8 million b/d from the oilsands, and one million b/d or more from the Bakken and other formations in the western U.S.

U.S. oil reaches the Sarnia start of Line 9 via at least three connections into the Lakehead Pipeline arm of the Enbridge pipeline that flows west around the southern shores of the Great Lakes, passing through the Chicago oil hub along the way.

The new switch is a re-reversal. Line 9 was built in 1975 as an eastbound national energy security and self-sufficiency scheme, financially backed by the federal government. The conduit was first reversed, to carry tanker imports west across Quebec and Ontario, in 1999 during a period when overseas Brent prices were lower than North American WTI.

The Line 9 re-reversal case stood out as a dress rehearsal for forthcoming environmental duels over TransCanada Corp.'s C$12-billion (US$11-billion) Energy East proposal, which made its regulatory debut as a formal project description filing at the NEB in recent days. The TransCanada plan for a 1.1 million b/d line is dedicated to growing oilsands production and weighted towards overseas exports via Atlantic tankers up to very large crude carriers (VLCCs) capable of taking two million barrels apiece.

The Line 9 case complied with 2012 federal procedural reform legislation by narrowing regulatory agency focus strictly onto pipeline issues, referring most of the international oilsands debate to forthcoming reviews of particular bitumen projects, and limiting the time available for opponents to stall the projects. The Line 9 review attracted 171 participants, but only 60 were allowed to appear as interveners while 111 had to settle for filing comments under tightened "standing" rules. As a result, the NEB complied with a 15-month deadline for finishing the case from application to approval, under elapsed time provisions of the reform legislation.

But the decision foreshadowed the potential of the forthcoming Energy East case to be hotly contested. The Line 9 ruling included a rare dissenting opinion by one of three members on the NEB decision panel.

Mike Richmond, a Toronto lawyer, agreed with project critics that Enbridge should be required to increase its funds on hand to cover costs of spills. The company currently has a C$685 million (US$616 million) insurance policy supplemented by a C$300 million (US$270 million) emergency cash account, and adds that its other financial resources are more than capable of picking up any conceivable damage tabs.

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