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Enbridge to swap 50,000 b/d of Bakken for WCS to ease Alberta's oil woes

New York — Enbridge's plan to swap 50,000 of North Dakota's Bakken barrels with Western Canadian barrels on its Mainline by mid-2019, after coming to an agreement with one of the shippers on the line, furthered strengthened Western Canadian crude prices.

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"Discussions are underway with our [Bakken] shippers to consider a temporary suspension of deliveries to Cromer [Manitoba] that would allow the Mainline capacity to be served from Edmonton," said Enbridge CEO Al Monaco at the company's analyst day in New York Tuesday.

Western Canadian Select crude prices strengthened further after the announcement. WCS ex-Hardisty for January delivery was heard traded at a $12.75/b discount to the NYMEX calendar-month average, Platts assessments showed, while December-delivery barrels were heard trading at a $20/b discount to the NYMEX calendar-month average.

This is sharply higher than the quarter-to-date average discount of $38.90/b discount, Platts assessments showed.

WCS prices have moved up recently, following the announcement of 325,000 b/d production cuts mandated by the Alberta government to begin in January.

Replacing Bakken with WCS would provide some incremental relief ahead of the start-up of Enbridge's Line 3 Replacement Project. Line fill on the Canadian part of the line, which runs from Edmonton, Alberta, to Superior, Wisconsin, will begin in July 2019, with US operations starting up in November 2019.

When fully operational, Line 3 will add 370,000 b/d of pipeline takeaway capacity for Western Canada's oil producers, buckling under oversupply and weak prices.

"Following completion of the Line 3 replacement, Mainline capacity will be restored to approximately 3.225 million b/d, 3 million of which can serve our extensive refining markets in the US, Monaco said.

MAINLINE OPTIMIZATION

After November's record 2.785 million b/d throughput on its Mainline system, which includes Line 3, Enbridge is also looking at additional optimization the line.

"Over the last four years, we've added almost 500,000 b/d very quietly of capacity through expansions and low-cost optimization initiatives," Monaco said. "Line 3 will then add 370,000 b/d, but the additional Mainline optimizations that are there total about 450,000 b/d, and they are gaining momentum as we speak."

"Longer term, we have two solutions that can provide another 250,000 b/d of incremental throughput," he added.

This includes restoring access to 50,000 b/d of the 75,000 b/d capacity on Line 4, which runs from Edmonton to Clearbrook, Minnesota; determining the optimal mix of drag reducing agents in the pipeline; and optimizing pump station design and configuration.

Monaco said Enbridge estimates that current Western Canada production exceeds local refinery demand and takeaway pipeline capacity by as much as 450,000 b/d, and expectations for growing production could add as much as 600,000 b/d of incremental production through 2025.

"As plans are developed for the required line fill and commissioning of tanks at Hardisty, it is estimated that as much as 4 million barrels will be required over a multi-month period," he added.

Enbridge is also looking at reversing the Southern Lights diluent pipeline to carry 150,000 b/d of crude from Canada to Patoka, Illinois.

"Looking at the expected timing to execute this project and taking into consideration the diluent market in Canada, we're currently targetning 2023 for this project," he said. -- Janet McGurty, janet.mcgurty@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com