Inter Pipeline launches $2.1B project
Inter Pipeline Fund will proceed with a $2.1-billion expansion of its Alberta bitumen and diluent pipeline systems, the largest in its history, to be anchored by oilsands players Cenovus Energy and ConocoPhillips.
The expansions of the Calgary-based company’s Cold Lake bitumen and Polaris diluent line — involving the construction of 840 kilometres of pipeline — will provide 820,000 barrels per day capacity for the producer’s Foster Creek and Christina Lake operations by 2014.
Cenovus and ConocoPhillips, under FCCL Partnership, will contribute $225 million toward long-lead materials, engineering and regulatory costs on the two producing operations and the Narrows Lake project, set to launch in 2016, Inter Pipeline said Tuesday.
An additional 400,000 bpd of new capacity will be open to third party shippers for a total 1.2 million barrel per day expansion, strengthening the company’s position as a major bitumen blend transporter and diluent provider, Chris Bale, chief financial officer said.
“This development program has been driven by market demand and in particular, the transportation requirements from the planned FCCL projects,” said Bale.
“However, it is important to note that the development projects being undertaken will build in pipeline capacity on certain segments that significantly exceed FCCL’s capacity requirements. Inter Pipeline is constructing additional pipeline infrastructure and capacity to further enhance our competitive position with respect to numerous other third party oilsands projects, either currently under construction or consideration.”
Diluent, often a byproduct of natural gas production, is used to thin out sticky bitumen for ease of transport along pipelines.
The company said the first and largest expansion phase will be completed by mid-2014, bringing the Cold Lake system to 1.2 million bpd, from a current capacity of 650,000 bpd. Additional expansions will increase ultimate capacity to 1.9 million bpd by 2015.
The bulk of capital, 95 per cent of $1.1 billion, will be spent in 2013 and 2014.
Capacity on the $1 billion Polaris diluent line expansion will increase to 820,000 bpd within two years from 120,000 bpd, with an ultimate potential of 1.1 million bpd.
Tuesday’s announcement comes as pipelines and midstream companies jostle to gain contracts to transport a forecast 1.5 million barrel per day increase in oilsands production by 2020.
“It is interesting to see producers making sure they support more than one pipeline company,” said analyst Steven Paget with FirstEnergy Capital Corp.
“The industry always likes to have alternative, but that said, I think Inter Pipeline put together a compelling offering.”
The company already is a dominant player in diluent delivery through its Polaris line and has an advantage of existing right of way for most of its expansion plans, he said.
Inter Pipeline is about a fifth of the size of pipeline powerhouses Enbridge Inc. and TransCanada Corp., and recently fell behind in size to Pembina Pipelines after that firm took over Provident.
In addition to the FCCL partnership’s $225 million in funding, several other oilsands players added another $70 million toward the expansion.
The company also is in active discussion with other parties for the additional new capacity, Bale noted.
Inter Pipeline will add 840 kilometres of new pipeline and seven new pump stations as part of the expansion.
Bale said final binding transportation service agreements with the FCCL business venture likely will be completed by the end of the year.
The agreements will be structured as long-term, ship or pay contracts which provide stable cash flow unaffected by commodity price fluctuations or throughput volume risks, he said.
The company plans to finance the expansion using a combination of debt and equity.
Also on Tuesday, Aecon Group Inc, a Canadian construction company, said a joint venture between one of its units and pipeline builder Robert B. Somerville Co was awarded a $600 million contract for the expansion of the Cold Lake and Polaris pipelines.
The joint venture will install 560 kilometres of pipeline between Edmonton and Fort McMurray, Alberta, and offer engineering support for the project.