Canada’s crude export pipelines clogged – by Nathan Vanderklippe (Globe and Mail – November 21, 2012)

Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

CALGARY — The surge in Canadian oil production must now face a new reality: The biggest mover of crude says the pipes out of the country are full.

In recent years, estimates by analysts and energy consultants predicted that Canada stood to run out of room on export pipelines some time between 2014 and 2018. And it has become clear that the pipes are filling, amid rising oil output from both the oil sands and fast-growing U.S. oil fields.

But Enbridge Inc. has now formally declared the pipes full, meaning that date has arrived far sooner than expected.

“All of the crude oil export pipelines are pretty much full, running at maximum capacity,” Vern Yu, a vice-president of business development and market development for Enbridge told a Petroleum Technology Alliance Canada conference in Calgary Tuesday. “And we’re not likely to see any meaningful capacity added to these networks until the end of next year.”

For the energy industry, the likelihood of choked market access for months to come stands to cut off billions in profits as oil shipments back up behind stuffed pipelines. A growing glut of product waiting for export is pressuring prices for Canadian crude.

The sudden roadblock comes as companies scramble to find new ways to market, largely by loading oil onto rail cars that are now carrying hundreds of thousands of barrels a day across the continent.

But the trains haven’t been able to erase the decreases in the price of Canadian oil that has come as the pipes fill. Canadian light oil is now selling for some $30 (U.S.) a barrel below comparable international crude; heavy oil faces a roughly $28 discount. If the pipes stand full for a year, the pain is likely to be significant. According to the Canadian Energy Pipeline Association, a $15-a-barrel discount decreases energy company revenues by $16.4-billion a year, and a $2.46-billion loss to governments. Today, the discounts are double that.

The paths out of Canada are full in part because there is so much oil, including increasing volumes of North Dakota crude, crowding onto Canadian-built pipelines. But Enbridge is also replacing parts of its U.S. system around the site of a major Michigan spill. In the meantime, it is restricting oil throughput – and the repairs aren’t expected to be complete until the third or fourth quarter of 2013.

The company – and the entire pipeline industry – is also scrambling to build other new pipes in hopes of alleviating the problem. Mr. Yu, for example, said Enbridge plans to apply to the National Energy Board this month to reverse the remainder of its Line 9, which would allow it to carry Western Canadian crude all the way to Montreal. It’s also working to pump as much oil as physically possible through its existing pipes, and is nearing completion of obtaining commercial support for a number of expansion measures.

For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/globe-investor/canadas-crude-export-pipelines-clogged/article5508840/%3bjsessionid=DBMyQssBvvXh9QyynpjVFbqVBPYSlvKyY3lkX9TX1pLPcwL1v3PQ!-335493428/