Now that Enbridge is ramping up heavy Canadian crude volumes on its expanded Line 3 and Southern Access pipelines, the company said Nov. 5 it next aims to increase capacity on its systems that connect to the Texas Gulf Coast, including potentially building a pipeline linking the Houston area to its newly acquired crude-export hub at the Port of Corpus Christi.
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Enbridge is awaiting a major, regulatory contracting decision in late November on its Mainline crude pipeline system into the US, and plans to provide more details on future projects at its December investors event, including potential capacity expansions to its Southern Access Extension, Flanagan South and Seaway pipelines, the company said on its third quarter earnings call.
Enbridge is coming off of a noteworthy October that saw the startups of its Line 3 replacement project, which increased capacity from 390,000 b/d to 760,000 b/d from the Alberta oil sands to Superior, Wisconsin, and of its Wisconsin-to-Illinois Southern Access expansion, with capacity rising from 996,000 b/d to 1.2 million b/d. Enbridge also closed in mid-October its $3 billion acquisition of the Ingleside Energy Center, which is the US' largest crude-exporting hub by Corpus Christi, Texas.
"Returning the line to full capacity sets us up for downstream expansion to the US Gulf Coast," Enbridge CEO Al Monaco said of the Line 3 and Southern Access expansions on the Mainline network, promoting "full path access for Canadian heavy to the US Gulf Coast" as the world continues to recover from the ongoing pandemic.
Monaco has touted the demand for Canadian crude from USGC refiners configured to run heavier barrels than US shale, as well as from overseas markets that could import Canadian crude from Houston-area markets via tankers and VLCCs.
USGC refining margins strengthened during the third quarter, with coking margins for Mars crude averaging $14.35/b, up from $11.49/b in Q2, S&P Global Platts Analytics data shows.
Enbridge is looking at a series of optimization projects to increase crude capacity -- using more drag-reducing agents and pump stations -- such as adding another 200,000 b/d to the Mainline network; 100,000 b/d to the Southern Access Extension; 250,000 b/d to Flanagan South; and 200,000 b/d to Seaway, which stretches to Freeport, Texas and the Houston markets. The sizes of the capacity expansions are all subject to change.
"We do have a batting order of expansions – cost-effective ones – lined up," said Colin Gruending, Enbridge liquids pipelines president, during the earnings call.
"Potentially, down the road, we could connect Seaway over to Corpus," Gruending said. "So you're getting a sense of what we're trying to build out here."
Enbridge's new Ingleside Energy Center exports crude from the Permian Basin and Eagle Ford Shale, but does not have easy access to Canadian barrels or the Cushing, Oklahoma storage and pricing hub.
Enbridge executives also said they remain committed to the partnership with Enterprise Products Partners to build the crude-exporting Sea Port Oil Terminal, called SPOT, offshore of the Houston Ship Channel to better accommodate VLCCs without requiring reverse lightering.
With the capacity to ship more than 3.1 million b/d across 8,600 miles, Mainline is by far Canada's largest crude transporter and exporter, moving supplies from the Alberta oil sands to the Ontario and US Midwest refining markets -- and farther to the Cushing hub and to the USGC through Flanagan South and Seaway, respectively.
Mainline volumes averaged 2.67 million b/d in the third quarter -- up from 2.56 million b/d during the same quarter in 2020 -- and should average 2.95 million b/d in the fourth quarter and stay on track at an average of nearly 3 million b/d in 2022, Enbridge said.
From Illinois, the Southern Access Pipeline connects to Enbridge's Flanagan South line that moves crude to Cushing, and the Seaway Pipeline system runs from Cushing to the Texas Gulf Coast.
There also is the 300,000 b/d Southern Access Extension pipeline that stretches from Flanagan to Patoka, Illinois, which will have access to the Capline Pipeline reversal system that flows from Patoka to the Louisiana Gulf Coast. Capline will startup Jan. 1 at about 100,000 b/d of Canadian crude before capacity is ramped up over time.
Enbridge also is a part owner of Energy Transfer's Bakken Pipeline, including the recently expanded Dakota Access Pipeline, to Patoka and Nederland, Texas destinations.
But, before Enbridge reveals more specific plans, the Canada Energy Regulator is set to decide by the end of November whether it will approve Enbridge's years-long fight to change Mainline's monthly nomination system as a "common carrier" to long-term committed contracts with just 10% of capacity set aside for spot shipping. Enbridge contends the move is necessary for volume certainty and less month-to-month volatility, as well as stronger Canadian crude pricing.
The regulatory decision will help Enbridge finalize decisions on the scope and timelines of its next projects.
Enbridge has argued that basing the Canadian swing barrels on pipeline economics -- and not the more expensive crude-by-rail exports -- should tighten differentials and strengthen Western Canadian Select barrels by $5/b or so, leading to more production and Mainline expansions.
With the Line 3 replacement project now online, Platts Analytics sees the WCS price remaining in the pipeline economics range and not having to weaken to accommodate the extra cost of rail shipments. Platt's Analytics projects 1 million b/d of Canadian production growth over the next decade, meaning that more pipeline expansions eventually will be needed even after Canada's Trans Mountain Pipeline expansion, which is slated for an end-2022 completion, in the years ahead.