Enbridge to expand U.S. pipeline

Calgary-based pipeline builder Enbridge Inc.is investing nearly $4 billionin a new round of construction that will increase the flow of oilsands crude to the U.S. Gulf and help ease a bottleneck that has led to a glut of supply in the Midwest.

Enbridge, Canada's largest transporter of crude, said early Tuesday it will expand its Flanagan South Pipeline from Flanagan, Ill. to Cushing, Okla. to a 36-inch diameter line with a capacity of 585,000 barrels per day.

The Flanagan pipeline, expected to be in service by mid-2014, will be built along the route of Enbridge's existing pipeline from southeast of Chicago to Oklahoma.

In a separate announcement, Enbridge said it will twin the jointly owned Seaway Pipeline from Cushing to the U.S. Gulf Coast at Houston, where crude is expected to start flowing in June.

The expansion, which includes an extension of the pipeline to Port Arthur-Beaumont, will add 450,000 barrels of capacity to that system.

Both projects will cost Enbridge $3.8 billion, including $2.8 billion for the Flanagan project and $1 billion for the twin line and extension of Seaway, which is partly owned by Enterprise Products Partners LP.

The new construction will relieve a supply glut of oil in the middle of the U.S. and boost prices and producers' bottom lines.

Oversupply at Cushing, caused by ever-increasing domestic supplies, has been eroding the value of North American crude.

Draining that oil to refineries along the coast would likely act to lift prices and increase producer revenue.

The construction also gives Enbridge an edge in the race to tap in to profits from domestic oil over rival TransCanada Corp., which is still waiting for U.S. State Department approval for its controversial Keystone XL pipeline.

"Enbridge's Gulf Coast Access projects give Bakken and Western Canadian producers timely, economical and reliable options to deliver a variety of crudes to refinery hubs throughout the heart of North America and now as far as the Gulf Coast," said Patrick Daniel, Enbridge's chief executive officer.

"The commitments secured in these open seasons will support additional infrastructure to meet the growing transportation needs of these producers and the U.S. Gulf Coast refiners, contributing to North America's energy security into the foreseeable future."

Scotia Capital Matthew Akman said the expansion could raise Enbridge's growth rate by as much as 15 per cent a year through 2015and also puts it in a superior position to TransCanada.

"We see the potential for Enbridge to announce success in its second Gulf Coast Access open season in the coming weeks, despite TransCanada's recent announcement of its own Cushing to Gulf Coast announcement," Akman said in a note to clients.

"And, while TransCanada's preliminary proposal for an East Coast oil pipeline stole investor attention last week, it is Enbridge that is better positioned for delivering Alberta volumes to Eastern Canada and the U.S."

Enbridge 'better positioned' than TransCanada

Enbridge said communities along the pipeline routes will benefit from higher property taxes, as well as from the creation of construction and manufacturing jobs.

Aside from Enbridge's extensive network of oil pipelines, oilsands crude can get to the U.S. market now through TransCanada's base Keystone system, which currently delivers crude to the U.S. Midwest and Cushing.

Crude from the oilsands and oil-rich states like North Dakota and Montana currently runs into a logjam at Cushing because of a lack of pipeline capacity and a limited number of rail cars that can transport the oil south to Texas refineries.

Oilsands producers say there's enough pipeline capacity from Canada to the U.S. for now, but their planned expansion in the years ahead depends on new pipelinesthe full Keystone XL or Enbridge's Northern Gateway pipeline across northern B.C. to the West Coast. Some have touted rail transport as a stop-gap solution.

TransCanadarecently announced plans to build the most urgently needed portion of its controversial Keystone XL oil pipeline as a $2.3-billion USstand-alone project.

Last week, U.S. President Barack Obama pushed for the speedy approval for the southern leg of TransCanada's Keystone XL pipeline as he insisted oil has an important place in his national energy plans.

The announcement came just a few weeks after Obama rejected the entire length of Keystone XL, a pipeline that would transport Alberta oilsands bitumen from the northern reaches of the province through six U.S. states to Texas.

The president said there wasn't enough time to review a new route around a crucial aquifer in Nebraska in order to meet a tight deadline imposed by congressional Republicans.

Enbridge operates about 24,613 kilometres of crude pipeline, delivering on average more than 2.2 million barrels per day of oil and liquids.