Enbridge Inc. and Energy Transfer are partnering to develop a transport solution for Bakken crude oil using some of the latter’s Trunkline Gas Co. LLC pipeline. Meanwhile, some of Enbridge’s Gulf of Mexico gas pipeline assets have been underperformers in the current era of abundant shale gas and oil.
The partners are planning to develop a pipeline to carry crude oil from Western Canada and the Bakken Shale, by way of the Patoka, IL, hub to the eastern Gulf Coast in a project that would convert portions of the Trunkline natural gas system to oil service.
Trunkline is a subsidiary of Energy Transfer Partners LP and Energy Transfer Equity LP. The project is subject to approval by the Federal Energy Regulatory Commission of Trunkline’s July request to abandon certain segments of pipeline from gas transmission service (see NGI, Sept. 3, 2012).
The converted 30-inch diameter crude pipeline is expected to be in service by 2015 and have capacity of 420,000-660,000 b/d depending on crude slate and results of an upcoming open season. The Trunkline conversion would create the first pipeline transportation option to carry crude oil to the eastern Gulf Coast from the Midwest.
The eastern Gulf Coast market is highly attractive for Canadian and Bakken crude, but it is not currently accessible by pipeline, the companies said. “This project will be another significant step toward our goal of optimizing the Energy Transfer asset base, while helping solve the critical logistics bottlenecks in North America by connecting enormous reserves of oil to the most attractive markets in the U.S., near St. James, LA,” said Energy Transfer Partners CEO Mackie McCrea.
The repurposing of natural gas transportation assets to oil service has been gathering pace in the industry as dry gas prices continue to languish (thanks to the shale gas miracle) and demand for oil transport capacity increases substantially (thanks to the shale oil miracle). For instance, Kinder Morgan plans to convert a portion of the El Paso Natural Gas Co. system to oil service (see NGI, Jan. 21).
For its part, Enbridge had been trying to do something different with some of its Gulf of Mexico gas transportation assets but to no avail. Last December, Enbridge took an impairment charge of $166 million ($105 million after tax) for certain offshore assets, mainly within the Stingray and Garden Banks corridors in the Gulf of Mexico. It had been pursuing alternative uses for these; “however, due to changing competitive conditions in the fourth quarter of 2012, the company concluded that such alternatives were no longer likely to proceed,” it said.
“In addition, unique to these assets is their significant reliance on natural gas production from shallow water areas of the Gulf of Mexico, which have been challenged by macroeconomic factors, including [the] prevalence of onshore shale gas production, hurricane disruptions, additional regulation and the low natural gas commodity price environment.”
During an earnings conference call, CEO Al Monaco said gas drilling in the Gulf of Mexico “is at zero level” and only gas associated from oil projects will be moving in the future. “So we’re running at relatively low volumes compared to the ultimate capacity of the system,” he said.
CFO J. Richard Bird said that during last year losses in the offshore had stabilized but Enbridge would continue to “run in the red on offshore in 2013, and then as we move beyond that and some of the new projects come into service, we should be climbing back up into positive earnings [offshore].” Enbridge earnings overall were $610 million (79 cents/share) for 2012 compared with $820 million ($1.09) for 2011. Growth was offset mainly by unrealized hedging losses.
Back onshore in the oil patch, the Enbridge-Energy Transfer project would span more than 700 miles, including a new lateral from central Louisiana, near the town of Boyce, to the refining market and the crude oil hub at St. James, LA. The St. James hub would provide access to refineries in the eastern Gulf Coast, as well as dock access for water-borne shipments.
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