Enbridge to provide early access to Gulf Coast with new oil pipeline

By Rob Gillies ,AP

TORONTO — Enbridge Inc. said Wednesday it will provide access to U.S. Gulf Coast refineries with a new pipeline that will help unclog a bottleneck of oil in the Midwest, an announcement that helped oil prices hit US$100 per barrel in North America for the first time in nearly four months.

Calgary, Alberta-based Enbridge said it agreed to pay US$1.15 billion to buy half ownership in the Seaway crude pipeline system between Texas and Oklahoma from ConocoPhillips. Enbridge said they’ll reverse the direction of crude oil flows on the Seaway pipeline to enable it to transport oil from Cushing, Oklahoma, to the Gulf Coast. The news is a major development for the North American oil market. Oil companies are eager to ship oil to the massive refinery hub of Texas as oil is bottlenecked in Cushing because of a glut of supply that has driven down the price for oil in North America. A lack of infrastructure out of Cushing has led to a price differential between oil traded in North America and the rest of the world. The spread in prices between West Texas Intermediate and Brent, which is used to price many foreign oil varieties, narrowed after the announcement to US$8.92 from US$12.38 before the announcement. Enbridge CEO Pat Daniel said in a telephone interview with The Associated Press that he expects the spread to narrow further as the pipeline goes online next year. The announcement sparked a 3 percent jump in benchmark crude prices. WTI ended the day at US$102.59, the highest since May.

Enbridge’s announcement comes after the U.S. government delayed a decision on a federal permit for Enbridge rival TransCanada’s proposed pipeline that would take oil from the Alberta oil sands and Cushing to the refineries on the Gulf Coast. A decision on whether to allow it isn’t expected until the first quarter of 2013. Daniel said his new pipeline line could be online with an initial capacity of 150,000 barrels per day by the second quarter of 2012. That capacity would be expanded to 400,000 to 500,000 barrels per day in 2013. Daniel said the finalization of the deal and the U.S. announcement to delay a decision on TransCanada’s pipeline is “coincidental” but he acknowledged they are competing pipelines. Enbridge will become partners with Enterprise Products Partners LP. TransCanada said that it may be able to speed up the Cushing-to-Texas leg of Keystone XL, but that would require approval form the U.S. State Department.