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Enbridge Venture Plans Pipes to Gulf as Keystone Blocked

Enbridge Inc. (ENB), the biggest Canadian pipeline company, and Enterprise Products Partners LP (EPD) plan to expand crude shipments to the U.S. Gulf Coast as supplies increase from Canada’s oil sands and the Bakken Shale in the Northern Plains.

Enbridge and Enterprise received enough shipper commitments to more than double capacity of the Seaway pipeline by mid-2014, according to a statement issued late yesterday. The companies will add 450,000 barrels a day to the system that links the U.S. oil trading hub at Cushing, Oklahoma, with the Gulf Coast. Enbridge also will expand its Flanagan South project linking Illinois and Cushing.

Enbridge’s system, once completed, “will allow Canadian oil-sands barrels to flow all the way to the Gulf Coast,” Jackie Forrest, senior director of global oil for IHS Cambridge Energy Research Associates, an industry consultant, said.

The decision to expand follows U.S. political opposition that has thwarted construction of TransCanada Corp. (TRP)’s Keystone XL pipeline, which would bring crude from Alberta’s oil sands to refiners on the Gulf Coast. At 850,000 barrels a day, the expanded Seaway line exceeds Keystone XL’s planned capacity of as much as 830,000 barrels.

“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,” Pat Daniel, chairman and chief executive officer of Calgary-based Enbridge, said in the statement.

Record Bakken Output

New technology has boosted output in the oil sands and Bakken Shale, which holds an estimated 3.6 billion barrels of crude, according to the U.S. Energy Department. North Dakota produced a record 546,047 barrels a day in January. A bottleneck at Cushing is keeping the price of North Dakota oil about 30 percent below West Texas Intermediate, the U.S. benchmark, the state’s Department of Mineral Resources said.

The Seaway system, which previously moved crude north from the coast to Oklahoma, is being reversed to ease the supply glut at Cushing, the delivery point for WTI crude futures.

The total cost of the Seaway reversal and expansion is $2 billion, which will be split evenly between Enbridge and Enterprise. Enbridge earlier paid $1.15 billion for ConocoPhillips (COP)’s 50 percent stake in the pipeline. Enbridge will spend $2.8 billion on the Flanagan South pipeline, the company said in a separate release yesterday.

Pump Upgrades

Enbridge and Houston-based Enterprise are scheduled to provide 150,000 barrels a day of capacity by June 1. That will rise to 400,000 barrels by 2013 after pump additions and upgrades, the companies said.

The companies may increase the twin line’s capacity beyond 450,000 barrels a day if enough shippers are interested, Rick Rainey, an Enterprise spokesman, said in a telephone interview.

Enbridge already has excess capacity on its mainline system, which runs from Western Canada to Illinois. Combined with the Seaway and Flanagan expansions, Enbridge will be able to ship an additional 500,000 barrels from Canada to the U.S. Gulf Coast, Vern Yu, vice president of business development and asset management at Enbridge, said in a telephone interview today.

Keystone Rejection

Oil production in North America is rising fast enough to support both the expanded Seaway and Keystone pipeline between Cushing and Texas, John Cusick, an analyst with Wunderlich Securities Inc. in New York, said in a telephone interview. Enterprise itself estimates that North American oil production could reach 6 million barrels a day by 2020, according to a presentation on the company’s website.

Owning an existing pipeline on the route “definitely gives them an advantage,” since the new Seaway pipeline can be built on existing right of way, said Cusick, who rates Enterprise a “buy” and owns none of its partnership units.

The response from shippers during an open season “supported expansion even before the initial 150,000 barrels per day came online,” Bradley Olsen, an analyst with Houston- based Tudor Pickering Holt & Co., wrote in a note to clients today.

Enbridge and Enterprise received pledges ranging from five to 20 years from customers to support building a 512-mile (824- kilometer) line parallel to the current route, according to the statement.

TransCanada’s Plans

Enbridge owns 15,200 miles (24,600 kilometers) of pipelines that ship more than 2.2 million barrels of crude oil and liquids a day, according to its website. The company has proposed building the Northern Gateway pipeline, a 1,180-kilometer project across the Rocky Mountains that would bring oil-sands crude to the coast of British Columbia.

The Seaway project will increase capacity to move oil from north to south after President Barack Obama blocked the Keystone XL pipeline in January. TransCanada said it wants to begin building a section of the Keystone line between Cushing and the Gulf Coast by June, and Obama said March 22 he wants to expedite any federal permits for that project.

Enbridge rose 0.6 percent to C$38.46 at the close in Toronto. Enterprise fell 0.2 percent to $50.80 in New York.

To contact the reporters on this story: Mike Lee in Dallas at mlee326@bloomberg.net; Bradley Olson in Houston at bradleyolson@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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