Could Prince Rupert Land Give Enbridge a Gateway Plan B?

Enbridge Inc. (ENB), facing resistance to the end point for its proposed Northern Gateway oil pipeline, could pursue another option thanks to its December purchase of a parcel of land close to the British Columbia port of Prince Rupert.

Changing the final leg of the route to the Pacific offers a way for Enbridge to demonstrate flexibility and possibly alter the debate around the pipeline, which a majority of British Columbians want to see blocked or delayed, according to a Bloomberg-Nanos poll released this week.

“Prince Rupert is probably a path of less resistance,” said David McColl, an analyst who covers Enbridge at Morningstar Investment Services Inc. in Chicago. “It has some challenges, but it’s an option I think they’re creating.”

The 64-hectare (158-acre) property is intended for a potential liquefied natural gas operation and not as a terminal for the C$6.5 billion ($6 billion) Gateway project, said Ivan Giesbrecht, a spokesman for the Calgary-based company. Enbridge paid C$20 million for the land.

Coastal aboriginal groups have been resolute in their opposition to Gateway’s planned terminus point in Kitimat, further south and more inland than Prince Rupert. They argue the 300-kilometer (186-mile) route between Kitimat and open sea would force oil tankers to navigate shallow, narrow channels prone to treacherous weather, raising the risk of oil spills.

Kitimat, a town of 9,000, voted against Gateway in a non-binding April plebiscite.

Gateway Ruling

Changing the pipeline’s destination is an option Enbridge has previously said it would consider if it’s shut out of Kitimat.

Enbridge fell 0.8 percent to C$51.23 at the close in Toronto. The shares have increased 10 percent this year.

The nation’s largest pipeline company, Enbridge is awaiting a ruling by June 17 from Prime Minister Stephen Harper’s cabinet on Gateway, a project the government has described as of vital national interest. Harper and industry players are seeking a means to move land-locked and price depressed output from Alberta’s oil sands to Asian markets, especially in the wake of delays to the proposed Keystone XL pipeline by TransCanada Corp.

With a decision just days away, Enbridge is still struggling to garner support in Canada’s westernmost province for the pipeline, which was first proposed a decade ago.

Fewer Hazards

Although Canada’s transportation department has found all three routes oil tankers would follow from the ocean to Kitimat to be safe, a coalition of environmentalists and aboriginals remain unconvinced. The Bloomberg-Nanos poll showed they have more credibility with British Columbians than either Enbridge or the Harper government. The prospect of an oil spill was the biggest concern related to Gateway.

The marine route into Prince Rupert, 60 kilometers south of the Alaska border, is 30 percent shorter than to Kitimat, according to figures compiled by Bloomberg based on a consultant’s study prepared for the Prince Rupert Port Authority. More importantly, the shipping lanes from the Pacific Ocean into Prince Rupert have no narrow sections and present no significant hazards, the port authority’s website says.

By rerouting to Prince Rupert, Enbridge would gain a fresh start with more moderate Gateway opponents, said Morningstar’s McColl, a Calgary native. The port’s location could be perceived to pose fewer risks of oil spills than the waterways into Kitimat, he said.

Rock Slides

Enbridge previously considered routing the pipeline to Prince Rupert and building a marine terminal there. In a regulatory filing in 2010, the company said Prince Rupert ranked second after Kitimat among more than a dozen potential marine terminal locations it studied from Alaska to Washington.

The company opted to bring Gateway to Kitimat because the pipeline path to Prince Rupert poses greater threats of avalanches and rock slides, and costs to mitigate the risks would have been high, Enbridge said in its submission.

Currently, the company is focused on Kitimat as the end point for the line after “tens of thousands of hours of research,” said Giesbrecht. “The route to Kitimat was the safest one.”

Enbridge bought the parcel of land in Grassy Point, just north of Prince Rupert, for future LNG opportunities, Giesbrecht said, declining to elaborate on potential plans. “There was no Gateway connection to this purchase at all.”

Avoid Skeena

The Grassy Point property is about one-third the size of the 220 hectares it set aside for a Gateway marine terminal in Kitimat. Since few LNG terminals will make it to the finish line, Enbridge should be able to acquire more land to turn the Grassy Point property into an oil terminal, McColl said.

Although Enbridge clearly prefers a Kitimat end point, Pat Daniel, Monaco’s predecessor as CEO, disclosed on a February 2012 conference call that the company had re-examined using a different route into Prince Rupert that would avoid the Skeena River. Kitimat was still considered the best choice from an engineering and environmental perspective, he said.

While a reroute to Prince Rupert might spare Enbridge the fierce Gateway opposition around Kitimat, it would also open the door to new foes.

“There’s no amount of money that would convince us to allow this pipeline to go through our territory,” said Wayne Drury, the administrator of the Lax Kw’alaams Band, an aboriginal community whose traditional lands lie around Prince Rupert. “There is no upside, only risk, for us.”

It is unclear if a route change would trigger a fresh regulatory review. Enbridge can ask to change Gateway’s proposed path with a so-called variance, without having to submit a new project application, said Sarah Kiley, a spokeswoman for the National Energy Board. The board would have to evaluate whether a reroute to Prince Rupert would qualify or require a fresh review, in the event the company makes the request, she said.

Either way, McColl said it could be a smart move to accept a potential one-year regulatory delay with a reroute, given that opponents to the Kitimat terminus could tie it up in the courts for years.

To contact the reporters on this story: Rebecca Penty in Calgary at rpenty@bloomberg.net; Jeremy van Loon in Calgary at jvanloon@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net; Edward Greenspon at egreenspon@bloomberg.net Edward Greenspon, David Scanlan

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