Seaway Expansion Gets Green Light

Enbridge Inc. and Enterprise Products Partners L.P. announced late Monday that they will proceed with plans to more than double the capacity of the Seaway crude oil pipeline, which extends from Cushing, Okla., to Freeport, Texas.

"Based on the tremendous response to the open commitment period, shippers have recognized the advantages Seaway offers in being able to provide a timely, economic and complete solution for relieving not only the bottleneck at Cushing but facilitating the development and delivery of North American energy reserves," Michael A. Creel, president and chief executive officer of Enterprise's general partner, said Monday in a company statement.

"In addition to promoting energy independence, the Seaway expansion will also offer economic benefits, including job opportunities during construction and at North American mills that we expect will provide the pipe for the project."

The Seaway expansion will increase the pipeline's capacity to 850,000 barrels per day by mid-2014. In addition to reversing the flow of the existing 512-mile pipeline, Enbridge and Enterprise will build another 30-inch diameter parallel "twin" pipeline along the Seaway route to add 450,000 bpd of capacity. The companies say the capacity can be expanded cost-effectively on a timely basis by adding and upgrading pump stations. The estimated price tag for the Seaway project is $1 billion.

Also on Monday, Enbridge announced that it will proceed with its Flanagan South Project from Flanagan, Ill., to Cushing, where it will tie into Seaway. In effect, the Flanagan South Project, which Enbridge is upsizing to 585,000 bpd will give Bakken oil producers a link to Gulf Coast refineries. The 36-inch diameter pipeline project is expected to cost $2.8 billion.

"Expansion of the Seaway Pipeline, along with Enbridge's Flanagan South Project, will provide crude oil producers in the Bakken region and other emerging crude oil sources capacity to move secure, reliable supply to U.S. Gulf Coast refineries, offsetting supplies of imported crude," said Enbridge CEO Pat Daniel in a company statement. "By leveraging existing infrastructure wherever possible, impacts to landowners, communities and the environment will be minimized."

The companies said the additional commitments obtained for the Seaway Pipeline System include five- and 10-year commitments for volumes originating at Cushing and 10-, 15- and 20-year commitments for volumes originating at Flanagan and transiting to the Seaway System via Enbridge's Flanagan South Pipeline.

Substantially all of the initial capacity of the Seaway System has reportedly been contracted for these terms. Enterprise and Enbridge are nearing completion of the first phase of the reversal of the Seaway Pipeline, which will provide 150,000 bpd of southbound takeaway capacity from Cushing to the Gulf Coast by June 1, 2012. Following pump station additions and modifications, which the companies expect to complete by the first quarter 2013, capacity would increase to 400,000 bpd, assuming a mix of light and heavy grades of crude oil.

The Inside Track?

What might Enterprise and Enbridge's announcements Monday mean for the southern extension of TransCanada's Keystone XL project, which would carry crude oil from Cushing to the Texas Gulf Coast? Last week President Obama announced that he is directing federal agencies to expedite permitting for that portion of Keystone XL, which would help to relieve the glut of crude oil at Cushing but would do nothing to transport production from the Bakken play or Alberta's Oil Sands.

"To be honest, I don't think the recently announced Seaway expansion will kill TransCanada's Cushing-Gulf project," said Rob Smith, Manager, Downstream and Petrochemicals with PFC Energy.

"It does, however, have the inside track in the race for south-flowing volumes." Smith explained that Enbridge's first expansion of Seaway is very likely to be completed on schedule in early 2013. In contrast, the earliest TransCanada's Cushing-Gulf project would be onstream is the second half of 2013.

"And there is certainly the potential that TransCanada's timeline will slip," continued Smith. He pointed out that Enbridge and Enterprise, because they are using an existing right-of-way for the Seaway project, can avoid potentially drawn-out legal battles with landowners in Texas and Oklahoma.

"President Obama may have recently given that project his personal seal of approval but that means nothing to the landowners along the pipeline's route," Smith said. "The right of eminent domain allows TransCanada to forcibly buy land for common-carrier pipelines but the process can still take time. In contrast, even the second Seaway expansion will be able to utilize the pipeline's existing right-of-way."

Nevertheless, Smith believes there will be enough incremental crude oil supply to warrant construction of all of the above pipeline projects.

"It may be some time before all these pipelines can be filled, but the production forecast for inland U.S. and Canada [primarily the latter] is rosy enough that both projects could do well," Smith said.

"For Canada, production could certainly rise 3.0 mmb/d by 2020! For the Bakken and other inland U.S. plays, growth is strong, but the volumes are significantly smaller in absolute terms. The point is that there is plenty of crude in the pipeline -- pun intended -- and no home for it within the inland markets of U.S. and Canada."

ECHO Open Season Underway

The Seaway partners also are holding an open season for a new 85-mile, 30-inch diameter pipeline that will be built from Enterprise's ECHO crude oil terminal southeast of Houston to the Port Arthur/Beaumont, Texas refining center. The open season, which is set to conclude on April 13, 212, is offering shippers 200,000 bpd of incremental capacity over and above volumes already subscribed to as part of the Seaway reversal.

The ECHO terminal project will give shippers access to heavy oil refineries on the Gulf Coast. Service on the pipeline to Port Arthur/Beaumont is expected to begin in early 2014.


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