Enbridge Sees Expansion Projects Eliminating Rail Advantage

Enbridge Energy Partners LP expects volumes on the North Dakota system to decline this year because of rail competition before rising as the company increases capacity to move crude to refineries.

Constraints on pipeline capacity have produced a glut of light crude oil in the U.S. Midwest that has widened the discount of West Texas Intermediate to Brent crude. That led refiners such as PBF Energy Inc. and Philadelphia Energy Solutions to pursue rail options for shipping Bakken crude, pushing down Enbridge’s volumes.

Volumes on the North Dakota system declined 16 percent in the fourth quarter and will slip to 190,000 barrels a day in 2013, Steve Neyland, Enbridge’s vice president of finance, said today on an earnings conference call. President Mark Maki said new lines and expansions will eventually allow Enbridge to move the crude at a lower price than rail does.

“You have a price that is constrained by pipeline market access at the moment,” Stephen Wuori, president of liquids pipelines for Enbridge Inc., told analysts. He said shippers are paying $12 to $17 a barrel to send oil by rail to coastal refineries.

By 2016, Enbridge plans to complete six projects or expansions in North Dakota and nearby states, according to its earnings presentation. Company executives said that will eliminate rail’s advantage.

“Pipe can live on a far lower-sustaining differential than rail can,” Wuori said. “So the wild differentials that are so attractive today, particularly out of the Bakken by rail, will inevitably close due to greater supply into those markets.”

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