Enbridge touts pipeline demand as review continues

Vancouver – Building a nearly 1,200-km-long pipeline is inevitably challenging, but putting one through two provinces, the territory of dozens of first nations and long tracks of wilderness, only to emerge in a highly contentious port location makes for a daunting task indeed.

But Enbridge (ENB-T, ENB-N) thinks it’s up to the task with its Northern Gateway pipeline, which could link the Alberta oilsands to the Pacific and the ravenous Asian markets beyond.

The $5.5-billion project, the biggest in Enbridge’s history, would allow the export of 525,000 barrels of crude a day from Bruderheim Alberta to the port of Kitimat, B.C., while a smaller parallel pipeline would bring 193,000 barrels of condensate, used to thin the unrefined heavy oil, from the port to Alberta.

The company maintains that there is clear demand for such an export option, as currently the only choice is to export crude oil to the United States. Just recently Enbridge announced it had already secured commercial agreements with Canadian producers and Asian refiners for the full capacity of the pipeline, long ahead of any Federal approval of the project.

“This support demonstrates the need for Northern Gateway and is a major step forward for the project,” stated Janet Holder, Enbridge’s Executive Vice President, Western Access of the agreements. Holder stated the project is important to Canada because it would ease the access to world markets and prices, referencing the growing spread between U.S.-focused West Texas Intermediate oil prices and the globally-focused Brent Crude prices.

Enbridge, however, has declined to name, or say how many, companies it made agreements with, while the deals also require no financial deposit and no penalties to withdraw from the agreements, leaving some to question the worth of such agreements. Alberta producers and Asian refiners have, however, put up $100-million of the $250-million Enbridge is spending on initial development costs for the project.

But before shipping any oil westward, Enbridge will of course have to first secure approval for the project. The project is currently the subject of a Federal Joint Review Panel, the most rigorous environmental review possible under the Canadian Environmental Assessment Act.

The process, involving primarily the National Energy Board and the Canadian Environmental Assessment Agency but also Transport Canada, Fisheries and Oceans, Indian and Northern Affairs and Natural Resources, takes roughly two years and is expected to wrap up in late 2012.

Public consultations for the process start in January 2012, but already numerous vocal opponents to the project have made their voices heard. Dozens of First Nations groups have declared opposition to the project, as well as numerous environmental groups.

Concerns centre around possible pipeline and tanker leakages, especially within the Great Bear Rainforest area and the corresponding coastline. Those opposing the pipeline point to several recent high-profile pipeline leakages in North America, as well as the wreck of the Queen of the North ferry in 2006 along the proposed shipping route, as examples of the danger the project poses.

Enbridge, however, is working hard to convince the dissenting groups that its pipeline and the shipping channels will be environmentally safe. The company will ensure only double-walled ships are used to export the oil, it will install a radar system in the narrow channels to ease navigation, and escort tugs will both help guide the super-tankers and be equipped for first response capabilities for emergencies.

Along with generally working to convince the public of the project’s worth, Enbridge has been busy courting the numerous First Nation groups on which the pipeline runs near. The company is promising upwards of a billion dollars in benefits, including a possible 10% equity stake in the project, hiring guarantees, and hundreds of millions of dollars in spending on aboriginal businesses.

At this stage it’s not clear just how many native groups are in favour or against the project, but there is certainly some which are adamantly opposed to the project and refuse to even meet with Enbridge representatives.  With the project running through so many unresolved land claims, disagreements on the project could well end up in the Supreme Court. When the Mackenzie Valley pipeline was proposed in the 1970s, a panel ruled that the project should be put on hold for a decade so that land claims there could be resolved.

But for now the company will continue to work to advance the project as the review process continues, highlighting the hundreds of jobs it will create, the billions in taxes it will pay and the many spin-off benefits a project of this scale creates.

Enbridge’s share price recently closed at $32.50, just off its 52-week high of $32.74.