LandKeepers News Archive
Pipeline Companies Experiencing Building Boom
January 06 2010 | News Articles | The Calgary Herald
Canwest News Service
CALGARY – They stretch the length and breadth of the continent, mostly hidden underground. But lately, they’ve come into the spotlight of a concerned public weighing in on the impact of oil and natural gas pipelines on the environment and society, with more to come.
More than $43 billion will be invested in Canadian pipelines over the next 15 years to feed an energy-hungry North America, most transporting bitumen from controversial oilsands projects to refineries in the United States and natural gas from shale plays in British Columbia to industries on both sides of the border.
Add Arctic natural gas, and the tab goes up to $85 billion, said Brenda Kenny, president of the Canadian Energy Pipeline Association.
“We are anticipating a need for the projects that are being done today, and a continual attention to the changes in developments led by producers, both in oilsands and in unconventional gas or remote supplies,” Kenny said. “There were a number of projects completed this year, and there are still a fair number of projects foreseen looking out over the next decade or so.”
More than 580,000 kilometres of steel pipeline crosses Canada, shipping approximately 2.65 million barrels of crude oil and equivalent per day travel and 17.1 billion cubic feet of natural gas per day.
The pipeline systems are the economic lifeline of oil and gas producers selling their product to markets at home, but mostly abroad, and are heavily regulated by federal and provincial agencies.
In 2009 the nation’s two largest pipeline operators, Enbridge Inc. and TransCanada Corp., experienced the biggest, most costly expansions to their intercontinental oil-and-gas networks.
Enbridge, which ships the bulk of crude exports to the United States, spent about $4.9 billion this year on capital projects, including wrapping up its $3. 7-billion Alberta Clipper expansion carrying crude oil from terminals in Hardisty, Alta. – about 200 kilometres southeast of Edmonton – to refineries in Wisconsin. The pipeline is expected to be online early this year.
It will also wrap up work on its $2.3-billion Southern Lights line, which will ship ultralight oil from the U.S. Midwest to northern Alberta, where it will be blended into heavy oil so it can flow on pipelines.
Heading west, Enbridge plans to file regulatory papers during the first quarter of 2010 on its controversial 1,170-kilometre Northern Gateway project linking Alberta’s oilsands with Asian markets via a deep sea terminal in Kitimat, B.C.
The 525,000-barrel-per-day Northern Gateway line is the biggest project on Enbridge’s table, with an eastbound adjacent line transporting 193,000 barrels per day of diluent used to thin heavy oil back to Edmonton. The last cost estimate for the line was $4.5 billion in 2005, a number that will be revised in the coming year, Enbridge said.
Added to the environmental concerns about pushing a line through the Rockies into northwestern B.C. are inklings of doubt the line will be economical. While several producers and refiners have committed $100 million toward funding the regulatory process, some analysts question if China, reputed to be Enbridge’s targeted customer, will buy higher-cost Canadian oil by the time Gateway is up and running.
The biggest challenge of investing in a multi-billion dollar project like a pipeline is ensuring it will still be needed and profitable by the time it’s completed, Kenny noted.
“You want to make sure the timing of the infrastructure matches up with other large capital projects on either end,” she said
Recently Enbridge chief executive Pat Daniel questioned how needed TransCanada’s Keystone XL project would be, given the cutbacks in oilsands project budgets.
For his part, TransCanada CEO Hal Kvisle questioned the Northern Gateway project, on the cost of building a line over the Rocky Mountains and associated tolls, successfully negotiating with local communities, and competing with less expensive crude from the Middle East.
Alberta’s oilsands surpassed conventional oil production in 2006, adding to Canada’s 2.4-million barrel per day volumes last year. Bitumen production is expected to grow from more than 1.2 million barrels per day in 2008 to approximately 2.2 million barrels per day in 2015 and to about 3.3 million barrels per day in 2025, according to the Canadian Association of Petroleum Producers.
TransCanada, which saw its earnings before interest, taxes, depreciation and amortization grow to $4 billion this year, started filling its $5.5-billion US Keystone crude oil line in December, and expects to be fully operational by the end of the first quarter of 2010.
The 435,000 barrels-per-day pipeline line is TransCanada’s first major foray into the oil transportation, a venture connecting Alberta oilsands to U.S. refiners and markets.
“One of the big differences from ‘09 to ‘10 is going to be Keystone coming into operation,” Kvisle said in a recent interview. “I’d say the last four months have been the busiest in the history of the company and certainly the busiest for me.”
A second Keystone phase is planned for 2010.
TransCanada has 11 major pipeline projects in its Canadian and U.S. books, including the Mackenzie and Alaska natural gas projects. The company has feelers stretching down to Mexico, and into shale gas plays on both sides of the border. But the recent economic downturn and soft natural gas prices have taken their toll on Canada’s largest natural gas pipeline operator.
At least two projects have been delayed due to lower demand and reduced need for additional capacity – the Horn River pipeline in northeastern B.C. and the proposed Pathfinder line in the U.S. Rockies.
“On the gas side, it’s a different and interesting picture,” Kenny noted. “We had forecasted for quite some time that there would be a need for infrastructure on the gas side related to new supplies, as conventional basin declined in supply. That part still stands, but the interesting part of story in last couple of years is the very significant change in the feature of shale gas, and what that means to gas going forward.”
Volumes on Canadian natural gas pipelines have been decreasing along with production for a number of years, prompting line closures and conversions to oil, as well as a recent 38 per cent toll hike on TransCanada’s main line system.
Exports to the United States fell nearly 11 per cent this year, the lowest since the board started keeping track of cross-border volumes, according to the energy watchdog.
“Partly it’s a function of production being lower in Western Canada than it has been in the past,” said Jim Davidson, natural gas team leader with the NEB. “And that’s really a reflection of the decline in activity because a lot of the conventional gas needs to be drilled on a continuous basis just to keep production up. And that, of course, has not been happening.”
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