Pipelines in Heated Race to Reach U.S.Oilsands Pipelines in Heated Race to Reach U.S. Gulf Coast Refineries
By Dina O'Meara
12 Jul 2007
CALGARY (CP) -- The race to reach refineries on the U.S. Gulf Coast is heating up for Canadian pipeline companies looking to cash in on burgeoning demand for crude oil by the world's largest energy consumer, the United States.
With almost three billion barrels per day of bitumen production expected to flow from Alberta's oilsands within the next decade, the need to reach the refineries is acute, pipeline executives said Thursday in Calgary.
''The real target market, the real prize the industry is focused on, is the larger refineries on the coast,'' Steve Becker of TransCanada Corp. [TSX:TRP; NYSE:TRP] told oilsands producers.
''The major market for Canadian producers is on the Gulf Coast and we're currently in discussions with shippers providing a whole variety of options to get there.''
TransCanada recently announced plans to expand its proposed Keystone oil pipeline project to Patoka, Ill., by an additional 155,000 barrels per day due to increased shipper commitments.
The proposed expansion, from Illinois to Cushing, Okla., would increase Keystone's transportation capacity to 590,000 barrels a day.
Keystone's initial nominal capacity when it enters service in late 2009 is to move about 435,000 barrels of crude oil daily from Hardisty, Alta., to U.S. Midwest markets at Wood River and Patoka.
TransCanada, Canada's largest natural gas pipeline operator, is converting under-used pipe to oil by installing pumps instead of compressors and has aligned itself with ConocoPhillips, which has extensive pipeline networks from Oklahoma to the coast.
At the same time, Enbridge Inc. [TSX:ENB; NYSE:ENB], which operates the longest oil pipeline in the world, is promoting its 450,000-barrels-per-day Alberta Clipper project. The proposed pipeline will move oil from Alberta into Wisconsin and Enbridge's U.S. system to Illinois by mid-2010.
In June, the Calgary-based company announced it was partnering with ExxonMobil Pipeline Co. to build a line from Patoka to Beaumont, Tex., and onward to Houston.
The Canadian rivals have aligned themselves with two of the largest U.S. importers of Canadian crude, which are planning to secure future supply. And they're keeping their eyes on the jackpot at the end of the line.
''The prize is that there are a lot of refineries on the Gulf Coast, and they can increase their capacity to turn bitumen into refined products more cheaply than anywhere else,'' said analyst Steven Paget, with First Energy Capital Corp.
The existing refineries also have the capacity to grow bigger over time without major expansions, so don't expect any new Canadian refineries to be announced anytime soon, he added.
''There is enough flexibility in the system to try and keep pipelines open for any capacity that comes on line,'' Paget said. ''And a pipeline can increase capacity faster than an oilsands project will be built.''
Production from Alberta's oilsands outstripped conventional crude production several years ago, now representing almost 60% of total provincial oil production, and 38% of total Canadian production.
Output from the oilsands is expected to triple by 2015, fuelling the race to build the networks required to take the crude to southern markets.
© The Canadian Press 2007