Another pipeline crunch
Need cited for increased capacity and diverse markets
CALGARY— Canadian oil producers face another month of tight pipeline capacity leading out of Alberta, a key factor cited for bargain-basement discounts for their output, which has cut into corporate earnings over the past two months.
Enbridge Inc. and Kinder Morgan Energy Partners, which run the three of the four major crude pipeline systems from Alberta, had to ration space for March after volumes nominated by their shippers exceeded capacity, in some cases by wide margins.
Companies face smaller-than-hoped-for shipments on Kinder Morgan’s Trans Mountain pipeline system to Vancouver and Washington state from Alberta, the downstream leg of its Express-platte system to Southern Illinois, and on Enbridge’s Line 5 to Sarnia, Ont., from Superior, Wisc. The restrictions come at a time of rising production from the oilsands. Producers and analysts say it highlights the need for increased pipeline capacity and diversified markets.
Several multibillion-dollar projects have been proposed, some by Enbridge and Kinder Morgan, to increase the capacity, but they face hurdles, including opposition by environmental groups and aboriginal communities, and lengthy public hearings.
They include Enbridge’s $5.5billion Northern Gateway pipeline to Canada’s Pacific Coast from Alberta, aimed at opening up vast new markets in Asia and boosting business in California. That project is undergoing regulatory proceedings expected to last through 2013.
On Tuesday, Kinder Morgan said it had garnered enough support from shippers to take the next step in a planned $3.8-billion expansion of its Trans Mountain system, which would double capacity to 600,000 barrels a day.
Neither offer short-term relief for Canadian producers, however, as they would not start operations until 2017 or later.
Prices for Canadian light synthetic crude tumbled this month as burgeoning supplies, an outage at a major U.S. Midwest refinery and tight pipeline space led to record discounts in the mid-$20s per barrel under benchmark West Texas Intermediate crude. This was for March delivery.
Western Canada Select heavy blend for April had a range of $26.50-$30 a barrel under WTI, which was similar to discounts seen at the end of the trade window for March.
Among the pipelines, Kinder Morgan said its Trans Mountain line was overbooked by 69.4 per cent for March, meaning shippers would be able to move just 30.6 per cent of nominated volumes. The line serves refineries in Vancouver, northwestern Washington and an export terminal in Vancouver’s harbour.
Its 280,000 bpd Express Pipeline to Wyoming from Alberta is not apportioned for March, but just 19 percent of nominated volumes will flow on the downstream leg of that system, the Platte pipeline to Wood River in Illinois, from Wyoming.
The 491,000 bpd Line 5, which serves refineries in Michigan and southern Ontario, will move 73 per cent of nominated volumes next month, Enbridge said.