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Key Components of Strategy
- Develop Regional Oil Sands Infrastructure
- Expand Mainline Capacity
- Enhance Diluent Supply
- Develop New Market Access
- Develop Terminaling and Tankage Infrastructure
The Liquids Pipelines strategy is driven by the industry's need for export capacity alternatives, economic sources of diluent and U.S. refiners' need to maintain diversified sources of supply. The five key components of the Liquids Pipelines strategy are described below as well as progress made to date and future plans towards further advancing the strategy.
1. Develop Regional Oil Sands Infrastructure
Increasing oil sands production will require significant new infrastructure upstream of the mainline and the Company is developing a number of projects to support the development of the Alberta oil sands. Growth opportunities already secured include construction of the Waupisoo Pipeline and the establishment of agreements with Fort Hills Energy, L.P. to develop pipeline and terminaling facilities for the Fort Hills oil sands project.
Waupisoo Pipeline
The 30-inch diameter, 380-kilometre (236-mile) long crude oil pipeline from the Cheecham terminal on the Athabasca Pipeline to Edmonton received approval from the Alberta Energy and Utilities Board (effective January 1, 2008 the Energy Resources Conservation Board (ERCB)) in February 2007. The initial capacity of the line will be 350,000 bpd and is expandable to a maximum of 600,000 bpd with additional pumping units. Capital costs for the project are currently expected to approximate $0.6 billion. Capital cost risks are shared between the Company and the shippers. Construction is approximately 67% complete and the pipeline is expected to be in service mid-2008.
Athabasca Pipeline Expansion Projects
In April 2007, the construction and commissioning of the Athabasca Pipeline expansion projects were completed. These projects include the addition of pumping stations at Elk Point and Cheecham as well as modifications to existing pumping stations. The Elk Point expansion is in-service and the Cheecham expansion is awaiting production from the Long Lake Oil Sands Project.
Surmont Oil Sands Project
The Surmont Oil Sands Project consists of pipeline and tank facilities at the Cheecham Terminal on the Athabasca Pipeline. Enbridge has 25-year agreements with ConocoPhillips Surmont Partnership and Total E&P Canada Ltd. to provide pipeline transportation services on the Athabasca Pipeline with the flexibility for the Surmont Shippers to transfer their production to the proposed Waupisoo Pipeline to the Edmonton area. Enbridge has completed construction of the Surmont facilities and has placed them into service.
Long Lake Oil Sands Project
The Company has 25-year lateral agreements with Nexen Inc. and OPTI Canada Inc. to provide pipeline transportation services for the Long Lake Project. Under the terms of the agreements, Enbridge will construct, own and operate the pipeline and tank facilities required by the Long Lake Project as well as pipeline laterals and tank facilities at the Cheecham terminal on the Athabasca Pipeline. The construction of the laterals and facilities at Long Lake was completed in the first half of 2007 and shipments commenced in February 2008. The Company started collecting stand-by fees in 2007.
Fort Hills Pipeline System
The Company announced that it has entered into an agreement with Fort Hills Energy, L.P. to develop pipeline and terminaling facilities to meet the requirements of Phase 1 and subsequent phases of the Fort Hills oil sands project. The preliminary plan for the Fort Hills Pipeline System includes a diluted bitumen pipeline from the mine site north of Fort McMurray to the upgrader site northeast of Edmonton with a capacity of 250,000 bpd, and a parallel 70,000 bpd diluent return pipeline. The system will also consist of terminaling facilities at the mine site and the upgrader, and ancillary pipelines between the upgrader and the Edmonton pipeline hub. The estimated cost of the initial pipeline system and related facilities is approximately $2.0 billion, subject to finalization of scope and estimate refinement, with planned in-service dates in mid-2011. Construction of the Fort Hills Project including the associated pipeline facilities is subject to final approvals by the Fort Hills' partners and various regulatory approvals and permits.
2. Expand Mainline Capacity
The Chicago refining market is expected to remain a major destination for Western Canadian crude. The Company is working with shippers and refiners to further expand this market and markets beyond, both in Canada and the United States, through the Southern Access Mainline Expansion and the Alberta Clipper Project. The Line 4 Extension Project is a third, smaller debottlenecking project that has been undertaken to expand capacity.
Southern Access Mainline Expansion Project
The Southern Access Mainline Expansion Project is currently under construction and will ultimately add a total of 400,000 bpd incremental capacity to the mainline system. The U.S. segment of the expansion from the Canada/U.S. border to Flanagan, Illinois, is being undertaken by EEP and the Canadian segment from Hardisty, Alberta to the Canada/U.S. border is being undertaken by Enbridge. Tolling principles were approved by the Federal Energy Regulatory Commission (FERC) and the NEB in 2006.
Having completed phase one of the Canadian portion of this expansion in 2006, phase two construction activities are currently underway. These involve upgrades at 18 pump stations to improve pumping effectiveness.
In the United States, the expansion will be completed in stages, finishing in 2009. Currently, construction activities are underway on the 321-mile (517-kilometre) section from Superior to Delavan, Wisconsin with over 94% of welding completed. This first stage of construction of the U.S. portion of this expansion is on schedule for completion in the second quarter of 2008 and will add capacity of approximately 190,000 bpd.
Based on construction costs experienced on the initial phase of the project, the expected cost of the project has been updated to an estimated US$2.4 billion (Enbridge - $0.3 billion, EEP - US$2.1 billion). Tolls on the Canadian mainline will be fully adjusted for the actual capital cost of the expansion, while tolls on the U.S. mainline, held by EEP, will be adjusted for approximately 88% of the actual cost.
Alberta Clipper Project
The Alberta Clipper Project involves the construction of a new 36-inch diameter pipeline from Hardisty to Superior generally within or alongside Enbridge's existing right-of way. The Alberta Clipper Project will interconnect with the existing mainline system in Superior where it will provide access to Enbridge's full range of delivery points and storage options, including Chicago, Toledo, Sarnia, Patoka, Wood River and Cushing.
In the second quarter of 2007, Enbridge filed an application with the NEB to construct the 1,607-kilometre (1,000-mile) crude oil pipeline. The application includes a commercial settlement which sets out the tolling principles and risk and return parameters agreed to with shippers. The NEB hearings into the application concluded in the fourth quarter of 2007, and Enbridge expects a decision in the first quarter of 2008. Enbridge's affiliate EEP plans to file a similar application and set of toll principles with the FERC for the United States portion of the Alberta Clipper project. Subject to regulatory approval, Enbridge anticipates bringing Alberta Clipper into service in mid-2010. The project will have an initial capacity of 450,000 bpd, is expandable to 800,000 bpd and will form part of the existing Enbridge System in Canada and the EEP Lakehead System in the United States. Engineering, construction planning and procurement activities continue.
The Canadian segment of the line is expected to cost $2.0 billion (2007 dollars, excluding AFUDC) and the U.S. segment, to be undertaken by EEP, is expected to cost US$1.0 billion (2007 dollars, excluding capitalized interest). Enbridge will share in cost overruns or savings against estimates, for costs deemed to be controllable costs. Controllable costs comprise approximately 70% of the total cost estimate.
Line 4 Extension Project
In the second quarter of 2007, Enbridge filed a regulatory application with the NEB for the construction and operation of the $0.3 billion Line 4 Extension project. NEB hearings into the application were completed in January 2008 and a decision is expected in the second quarter of 2008. Subject to regulatory approvals, the project, involving construction of 136 kilometres (85 miles) of 36-inch diameter pipe to connect three existing 48-inch loops on the mainline system between Edmonton and Hardisty, would begin construction in 2008 and is expected to be in service in early 2009. Procurement of long lead items and detailed engineering for the pipeline and stations is proceeding.
3. Enhance Diluent Supply
Increasing heavy oil production in Alberta requires new supplies of diluent, which is needed to dilute heavy oils for transport through pipelines. The Company is developing projects to bring diluent to Alberta from the U.S. Midwest as well as imported diluent supplies from the west coast of British Columbia, as described in the Gateway Project.
Southern Lights Pipeline
When completed, the 180,000 bpd, 20-inch diameter Southern Lights pipeline will transport diluent from Chicago to Edmonton. During the first quarter of 2007, Enbridge filed for regulatory approval of the Canadian portion of the Southern Lights pipeline with the NEB, having obtained long-term commitments from shippers in 2006. In the fourth quarter of 2007, the Company completed the NEB oral hearing for the Canadian portion of the pipeline project. Enbridge received NEB approval in the first quarter of 2008. In the United States, various federal and state regulatory processes and related hearings are continuing. In concert with the Southern Access project, construction activities are nearly complete on the 321-mile (517-kilometre) section from Superior to Delavan, Wisconsin with over 95% of welding completed. The diluent line is expected to be in service in late 2010.
The Southern Lights Pipeline project involves reversing the flow of a portion of Enbridge's Line 13, an existing crude oil pipeline which runs from Edmonton to Clearbrook, Minnesota. In order to replace the light crude capacity that would be lost through the reversal of Line 13, the Southern Lights Project also includes the construction of a new 20-inch diameter crude oil pipeline from Cromer, Manitoba to Clearbrook, and modifications to existing Line 2. These changes to the existing crude oil system will ultimately increase southbound light crude system capacity by approximately 45,000 bpd.
Based on construction costs experienced on the initial phase of the project, the expected capital cost has been updated to an estimated US$2.2 billion (including AFUDC). Based on this level of costs, the project will earn a minimum return on equity of 10% plus a premium return which depends on the extent to which throughput on the line exceeds 90% of capacity.
4. Develop New Market Access
The Company is developing new options for expanding market access for Canadian crude oil. Specific initiatives include: extending the mainline south of Chicago to Patoka, Illinois; expansion of the Spearhead Pipeline from Chicago to Cushing; developing access to the U.S. Gulf Coast through a combination of existing infrastructure and new pipelines; and developing access to markets in Asia and California with the Gateway Project.
Southern Access Extension Project
The Southern Access Extension involves the construction of a new 36-inch diameter, 400,000 bpd pipeline extending the mainline from Flanagan to Patoka, Illinois at a cost of approximately US$0.5 billion to Enbridge.
A FERC Offer of Settlement, filed in September 2006, proposing a rolled in toll design, was not approved by the FERC. The revised tolling methodology application for the Southern Access Extension Project was filed with the FERC in October 2007 and a decision is expected in the first quarter of 2008. Subject to regulatory approval, tolls will be fully adjusted for the actual capital cost of the project and construction would begin in 2008 with an estimated in-service date of 2009.
Spearhead Pipeline Expansion
This expansion, to be effected through additional pumping stations, will increase capacity from Chicago, Illinois to Cushing, Oklahoma by 65,000 bpd to 190,000 bpd. The expansion is expected to cost US$0.1 billion and to be completed in early 2009.
The Company successfully completed the Spearhead Pipeline Expansion Open Season in the second quarter of 2007 and received FERC approval of its toll filing in December 2007. Of the 65,000 bpd increased capacity, 30,000 bpd was committed to new shippers. The remaining 35,000 bpd capacity is available for spot shippers unless the committed shippers exercise their preferential right to a portion of this capacity. Preliminary engineering design has been completed for this project and construction is scheduled to commence in early 2008.
Texas Access Pipeline
In December 2007, Enbridge and ExxonMobil Pipeline Company announced the two companies will conduct a Solicitation for Binding Shipper Commitment (Open Season) for the proposed Texas Access Pipeline. The proposed Texas Access Pipeline will transport crude oil sourced from the Canadian oil sands region in Alberta and from the upper U.S Midwest to the Texas Gulf Coast. The proposed project includes a new 768-mile (1,236-kilometre), 30-inch diameter pipeline with a capacity of approximately 450,000 bpd, which will extend from Patoka, Illinois southward to Nederland, Texas. Also proposed is an 88-mile (142-kilometre), 24-inch pipeline with a capacity of approximately 180,000 bpd to transport crude oil onward from Nederland to the Houston, Texas area. The Open Season is to determine shipper interest in executing binding commitments to transport specified volumes of crude oil on the new pipeline, which is expected to be completed in 2011. The results of the Open Season will guide and determine the further development of the proposed joint venture pipeline project.
Eastern PADD II / Eastern Canada
Enbridge is exploring options to provide incremental pipeline capacity to this market. Development of this project is ongoing and would be completed in stages, with up to approximately 100,000 bpd of incremental volume added by 2010. Additional access initiative discussions have commenced with area refiners to provide incremental infrastructure in the Eastern PADD II area for service in the 2013 timeframe.
Gateway Project
The Gateway Project includes both a condensate import pipeline and a petroleum export pipeline. The condensate line would transport imported diluent from Kitimat, British Columbia to the Edmonton area. The petroleum export line would transport crude oil from the Edmonton area to Kitimat. The condensate line is expected to have a 20-inch diameter and an initial capacity of 193,000 bpd. The petroleum export line would have a 36-inch diameter and an initial capacity of 525,000 bpd. Capital cost estimates will be completed once commercial terms are finalized. Enbridge has secured third party funding support to advance the regulatory process. Subject to continued commercial support, regulatory and other approvals, the Company estimates that the Gateway in-service date will be in the 2012 to 2014 timeframe.
5. Develop Terminaling and Tankage Infrastructure
Based on producer interest, the Company is increasing its investment in contract terminals. Upstream contract tankage projects include the Hardisty Terminal, the Stonefell Terminal near Fort Saskatchewan and expansion of the Athabasca Terminal. Downstream projects are under development or consideration by Enbridge or EEP at Flanagan, Patoka, Cushing and the U.S. Gulf Coast. The Company and EEP are also constructing significant additions to the capacity of the common carrier mainline terminals at Edmonton, Superior and Chicago.
Hardisty Terminal
Enbridge is building a $0.4 billion crude oil terminal at Hardisty with a tankage capacity of 7.5 million barrels. Enbridge has executed contracts for 100% of the capacity and it is expected that the terminal will be completed in phases from late 2008 through 2009. Civil construction of the 19 tank pads was completed at the end of September 2007 and tankage construction is underway, with 30% complete at year-end. Once complete, the Hardisty Terminal will be one of the largest crude oil terminals in North America.
Stonefell Terminal
BA Energy Inc. is building a bitumen upgrader near Fort Saskatchewan, Alberta for which Enbridge has agreed to provide pipeline and terminaling services. Based on initial scope and cost estimates, Enbridge expects to invest approximately $0.1 billion in new facilities to provide tankage services at a new satellite terminal to be developed adjacent to the upgrader. Enbridge will also provide pipeline transportation for the upgrader's output from the new terminal to a refinery hub near Edmonton.
Construction is approximately 50% complete on the six tanks and ancillary facilities that comprise the Enbridge terminal facilities being constructed for BA Energy. BA Energy has recently delayed the in-service date of their upgrader until the second quarter of 2009. As a result, construction has been slowed until the in-service date of the upgrader is clear and to further secure coverage of Enbridge's costs.
The Stonefell Terminal is strategically located adjacent to several other proposed or operating upgrading facilities and pipeline systems and will be a focus for further development of contract terminaling infrastructure.