Competitor to Keystone XL will add significant new capacity
By Markham Hislop
Two months ago President Barack Obama rejected the Keystone XL application, causing an almost existential crisis in Alberta. I wrote at the time that the decision was no big deal. Oil sands bitumen is headed to Texas refineries one way or another. Yesterday, Calgary-based Enbridge proved me right.
The pipeline giant announced yesterday it has secured capacity commitments from shippers to proceed with an expansion of the Seaway Pipeline that will more than double its capacity (to 850,000 barrels per day) by mid-2014.
Enbridge also announced plans to proceed with an expansion of its Flanagan South Project, which will add incremental capacity for shippers seeking transportation from Flanagan, Illinois, to the U.S. Gulf Coast, utilizing a portion of capacity on the reversed Seaway Pipeline System.
“Expansion of the Seaway Pipeline, along with Enbridge’s Flanagan South Project, will provide crude oil producers in the Bakken region and other emerging crude oil sources capacity to move secure, reliable supply to U.S. Gulf Coast refineries, offsetting supplies of imported crude,” said Pat Daniel, Chief Executive Officer, Enbridge Inc. “By leveraging existing infrastructure wherever possible, impacts to landowners, communities and the environment will be minimized.”
That industry will leverage existing infrastructure if Keystone XL is delayed was a point made over and over by Greg Stringham, VP oil sands and markets, during our interview. There is spare capacity in some of the numerous pipelines criss-crossing the American Midwest and south through Oklahoma to Texas. All it will take is construction of additional capacity in key areas to remove bottlenecks, such as the current one at the Cushing transportation hub.
Stringham made another important point: TransCanada has competitors, like Enbridge. While Keystone XL may have been the preferred low-cost route, there are alternatives, and plenty of companies who would like nothing more than to take advantage of their competition’s trouble with the U.S. Department of Justice, which must approve the cross-border application.
There are three immutable truths in the North American energy sector:
1. Oil isn’t going away any time soon. A Jan. 20, 2012 Beacon story noted that by 2030 oil would still account for 86 per cent of the world’s energy.
2. Texas refineries that process heavy oil are slowly losing their historical feedstock supply from Mexico (declining production) and Venezuela (political strategy by that country’s hard left Chavez government).
3. Alberta oil sands production is forecast to double to three million barrels per day by 2020.
There is far too much demand in the United States, both in the domestic market and for export, and far too much supply coming on stream, for the current impasse over Keystone XL to continue. Environmentalists and their Hollywood celebrities can chain themselves to pipelines and protest all they like, but nothing is going to stem the burgeoning tide of Alberta oil sands bitumen that will be flowing to Texas refineries in the very near future.
If you need proof of that argument, look no further than President Obama’s decision to push for speedy approval of the southern leg of Keystone XL from Cushing to the Gulf Coast. Only the approval of the U.S. Army Corps of Engineers is needed before TransCanada can proceed with its planned June construction start up.
“As long as I’m president, we’re going to keep encouraging oil development and infrastructure in a way that protects the health and safety of the American people,” said Obama at a photo op yesterday.
Alberta Chicken Littles need to take a Valium. There’s no need to panic, and certainly no need to ratchet up the rhetoric in support of the Northern Gateway pipeline or increased Alberta refining of oil sands bitumen (both topics for future columns).
The pipeline market is working just like markets are supposed. Perhaps it’s time pro-market, free enterprise Albertans let them do their job.