Enbridge Inc. plans to boost pipeline capacity by some 825,000 barrels a day over the next five years – including roughly 400,000 b/d next year – as the company works to alleviate export bottlenecks that have depressed prices in the Western Canadian oil industry.
However, the company wants refiners and producers to commit under long-term contracts to ship specific volumes on its main export pipeline system, which currently carries 2.85 million barrels of crude a day to the United States.
At an investors' day conference in New York on Tuesday, the Calgary-based company said it expects oil sands companies to add more than one million barrels a day of production over the next decade, and that it intends to expand its export network to get more Canadian crude to markets in the U.S. Midwest and Gulf Coast. Enbridge is currently negotiating with oil producers and refiners to overhaul the way it provides space on its mainline system, with the intent of having 90 per cent of the volume covered by long-term contracts.
“We’re going as fast as we can,” Enbridge chief executive Al Monaco said on a call with reporters. “We understand the importance of capacity in the marketplace. We’ve been doing a lot of things on that front already. ... But we’re moving very, very quickly on whatever we can.”
Western Canadian oil producers have been forced to accept steep price discounts on their crude as pipeline and rail capacity has failed to keep up with surging production. The spread between Western Canadian Select, which is a benchmark for oil sands bitumen, and the North American benchmark West Texas Intermediate, widened to as much as US$50 a barrel this fall, although it has since narrowed to US$12.50 a barrel for January delivery, according to NetEnergy, a Calgary-based trading company. That improvement occurred after some major refineries in the Midwestern United States returned from maintenance shutdowns and after Alberta Premier Rachel Notley ordered an across-the-board cut in production of 325,000 barrels a day starting in January.
Enbridge quietly added 450,000 barrels a day of capacity on its mainline system to the United States over the past three years, even as it worked for regulatory approval for the renewal of its aging Line 3, which had been operating below its potential capacity.
The company won approval from the Minnesota public utilities regulator to proceed with its Line 3 upgrade, which would add 325,000 barrels a day of export volume from Western Canada, but it still faces appeals from Indigenous activists in the state. Guy Jarvis, president of Enbridge’s liquids pipeline business, said he is confident in completing that project by the end of next year.
As well, the company will add as much as 100,000 barrels a day in export capacity next year, largely by shifting North Dakota producers off its mainline system and onto other pipelines and by adding drag-resistance agents that will speed up the flow of the crude. Within five years, it expects to boost its mainline capacity by 450,000 barrels a day, in addition to the Line 3 work.
Enbridge shifted its focus somewhat to North American gas pipelines with its US$28-billion acquisition of Houston-based Spectra Energy Corp. in 2017, but on Tuesday it announced it was spending $1-billion to add liquids capacity. It is paying $265-million to acquire the Cheecham terminal and pipeline in northeastern Alberta from Athabasca Oil Corp., and US$600-million for a 22.75-per-cent interest in the Gray Oaks liquids pipeline, which will deliver light crude from the booming Permian Basin in West Texas to Corpus Christi, Tex. Enbridge is also working with partners to build an offshore crude export terminal, which would load North American oil on to Very Large Crude Carriers (VLCC) in the Gulf of Mexico.
In the presentation to investors, Mr. Jarvis said the new tolling method with its long-term contracts is still subject to negotiations with shippers and regulatory approval. He said Enbridge will protect smaller producers by offering easier terms than some of its competitors.
Mr. Monaco said North America’s energy infrastructure requires major investment to keep up with rapidly growing production of oil and natural gas, and that Enbridge is strategically positioned in the top markets for both commodities.
The company announced a 10-per-cent increase in its dividend for 2019, and expects another 10-per-cent increase in 2020.
Enbridge’s share price was virtually unchanged on Tuesday, edging up three cents to $42.12 on the Toronto Stock Exchange.