Enterprise, Enbridge Propose Keystone Pipeline Alternative
Enterprise Products Partners LP (EPD) and Enbridge Inc. (ENB) plan to build a 500-mile (800-kilometer) pipeline to move crude from a bottleneck at Cushing, Oklahoma, to refineries on the U.S. Gulf Coast.
The proposed Wrangler pipeline will be capable of moving as much as 800,000 barrels a day and may be in service by mid-2013, the companies said in a statement today. Bart Moore, a spokesman for Houston-based Enterprise Products, declined to say how much the project would cost.
The pipeline represents the first step in an effort by Calgary-based Enbridge to bring Canadian crude to the Gulf, Mark Chevalier, a senior consultant with Purvin & Gertz Inc., said in an interview today. The system would compete with TransCanada Corp. (TRP)’s proposed $7 billion Keystone XL pipeline, which would also take crude from Alberta’s oil sands to Texas refineries.
“What they’re trying to do is dominate that route to push all the other pipelines out,” said Paul Euseppi, an analyst with Dallas-based Swank Capital LLC, which manages about $1.5 billion and including stock in Enterprise and an Enbridge subsidiary. The pipeline may cost more than $1 billion, he said.
Technology to produce crude from U.S. shale-rock formations and Canadian oil sands has increased production and led to a glut at the Cushing storage hub. A lack of pipeline capacity to move the petroleum to refineries has caused the price of West Texas Intermediate crude, the U.S. benchmark, to trade at almost $27 less per barrel than imported oil.
Earlier Pipeline Plan
Enterprise Products called off a previous plan to build a Cushing-to-Gulf pipeline with Energy Transfer Partners LP on Aug. 19 after the proposal failed to draw sufficient commitments from shippers.
The difference between the two plans is Enbridge’s ability to attract interest from oil producers in Canada for a complete line originating in Alberta, Purvin & Gertz’s Chevalier said.
Enbridge announced in August that it is considering building a “Monarch North” pipeline that could move crude from Chicago to Cushing, as well expanding its existing ability to deliver oil from Alberta to Chicago.
Oil Sands Surge
The proposal may affect other pipelines between Cushing and the Gulf Coast. ConocoPhillips, which owns the Seaway pipeline jointly with Enterprise, may be pressured to reverse the line or sell its share, Bradley Olsen, a Houston-based analyst with Tudor Pickering Holt & Co., said in a note to clients.
“The cost of a Seaway reversal would be substantially lower than the new Wrangler pipeline,” said Olsen, who rates Enterprise’s units at “accumulate” and owns none.
Production from Alberta’s oil sands is expected to double to more than 3.7 million barrels a day by 2025, according to the Canadian Association of Petroleum Producers.
The Keystone XL, which is awaiting U.S. State Department approval because it crosses an international border, was intended to address that increase when it was proposed in 2008. The project is opposed by some environmentalists and landowners.
Enterprise Products fell 13 cents to $40.37 at 4:15 p.m. in New York Stock Exchange composite trading. Enbridge rose 33 cents to C$33.25 on the Toronto Stock Exchange.
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