Enbridge plans to up capacity in two systems following output surge

Enbridge Inc. plans to expand its main oil pipeline system and its newly acquired natural gas pipeline system in British Columbia as production of both commodities continue to rise in Western Canada.

Enbridge closed a bidding period for new capacity on its T-South pipeline between northern B.C. and Vancouver on June 2 and gas producers fully committed to supporting an expansion project that would expand the line’s capacity by 190 million cubic feet per day, Enbridge president and CEO Al Monaco told investors during presentation in Toronto on Thursday.

Monaco said the expansion project was “fully subscribed”, which analysts say highlights a desire among producers to diversify away from Alberta’s AECO prices, the natural gas benchmark index.

“We had bids totalling over three times the expansion capacity,” Enbridge executive vice-president and president, gas transmission and midstream William Yardley said.

The company plans to spend $1 billion expanding the line, which delivers most of the natural gas Vancouver uses to heat homes, with a planned in-service date of 2020. Enbridge acquired the T-South pipeline when it spent $37 billion to buy Houston-based Spectra Energy Corp., a transaction which recently closed.

Alliance Pipeline L.P., which is 50-per-cent-owned by Enbridge, has similarly asked producers in the area for firm commitments to deliver an additional 500 million cf/d to the Chicago market. “We received significant interest there,” Yardley said.

Increasing natural gas demand in Vancouver, Seattle and soon at Woodfibre LNG’s export terminal near Squamish, highlight the case for the T-South expansion, Eau Claire Energy Advisory president Ed Kallio said.

“T-South has been like gold. Anybody who has T-South (capacity) keeps holding it and there are a lot of people looking for it,” Kallio said, adding he wasn’t surprised by the demand for capacity on the line given growing gas supplies in the area.

Enbridge is also spending $500 million expanding its gas gathering system in the Montney and Duvernay in what it calls the Spruce Ridge project to boost pipeline capacity by 400 million cubic feet per day by 2018 and plans to expand its oil pipeline system as well.

Guy Jarvis, the company’s executive vice-president of liquids pipelines, said the replacement and restoration of its Line 3 pipeline, combined with upgrades and adjustments to other pipelines on its main line system, could add about 875,000 barrels a day of capacity.

“These solutions can be staged to meet industry’s needs through to about 2028,” Jarvis told investors.

The capacity increases would include 375,000 barrels a day from restoring the full capacity of Line 3, plus about 500,000 barrels a day of capacity elsewhere on the main line system that Jarvis said would require little to no regulatory permitting.

“There is still concern amongst our shippers about the viability of the competing pipelines getting approved, and if approved, getting built,” he said.

His comments come as the future of Kinder Morgan’s Trans Mountain project remains cloudy. The alliance between the B.C. Green and NDP parties has vowed to use all means available to stop the project despite it being fully permitted with a scheduled September construction start.

The company said it could start construction on the Canadian portion of Line 3 as early as this summer and expects U.S. regulatory approvals sometime in mid-2018.

Enbridge’s investor day, its first since the close of the Spectra deal, sees the company better diversified between oil and gas pipelines and a utilities business than it had been as recently as 2015.