Increase planned for Canadian oil export system

Aug. 28, 1995
Units of IPL Energy Inc., Calgary, have unveiled plans to give another big boost to Canada's crude oil export capacity to the U.S. by yearend 1996. Planning a coordinated project are Interprovincial Pipe Line Inc. in Canada and Lakehead Pipe Line Co. in the U.S.

Units of IPL Energy Inc., Calgary, have unveiled plans to give another big boost to Canada's crude oil export capacity to the U.S. by yearend 1996.

Planning a coordinated project are Interprovincial Pipe Line Inc. in Canada and Lakehead Pipe Line Co. in the U.S.

The proposed 120,000 b/d expansion is the latest project aired by companies developing crude pipeline corridors to supply U.S. refineries in Petroleum Administration for Defense Dist. (PADD) II. Refiners in PADD II's Upper Midwest region need more imported crude because production from inland U.S. fields is falling (OGJ, Nov. 21, 1994, p. 23).

Canadian producers in the first 5 months of 1995 shipped more than 1 million b/d of crude into the U.S., up from just 200,400 b/d in the same period of 1991. Producers in Canada and Latin America in the past 4 years have combined to account for nearly 78% of the increase in U.S. crude imports (OGJ, Aug. 21, p. 22).

Forecasts by Interprovincial, Edmonton, show western Canada's net supply of heavy crude, light crude, and natural gas liquids (NGLs) will increase by 120,000 b/d in 1997. Although net growth will be offset by light crude declines, Interprovincial predicts supplies from western Canada of blended heavy crude by 2000 will increase by 250,000 b/d and of NGLs by 20,000 b/d.

Interprovincial based its forecast on data gathered in a survey completed last June.

Case for expansion

Based on work earlier this year by a task force that included some of Canada's biggest producers, Interprovincial estimated it will need an 80,000 b/d expansion to transport crude from fields in the Edmonton area to U.S. refineries near Chicago.

However, the 120,000 b/d program will be a low cost way of adding pipeline capacity producers already are seeking for volumes expected to exceed Interprovincial capacity in only a few years.

Interprovincial this year completed a 170,000 b/d system expansion that created about 145,000 b/d of new crude capacity into the Chicago area. The company said the added capacity was needed because producers' requests to ship crude on Interprovincial's system into the U.S. for the previous 3 years had exceeded capacity by as much as 55%.

Increasing capacity by another 120,000 b/d, as proposed, will allow Interprovincial operating flexibility to help overall system efficiency.

"At forecast throughput rates, the program would result in about a 4/bbl toll increase on light crude deliveries to Chicago," an Interprovincial executive summary said. "Fully utilized, the program will result in no toll increase."

Interprovincial's total crude export capacity into the U.S. at completion of the expansion will climb to about 886,000 b/d.

The company in the next few weeks will ask Canada's National Energy Board (NEB) for a permit to construct facilities included in the Canadian portion of the program.

Meantime, Lakehead Pipe Line Partners LP, Duluth, Minn., will seek regulatory approval for work proposed in the U.S. Lakehead Pipe Line Co. Inc., a subsidiary of IPL Energy, owns an 18% interest in the Lakehead limited partnership and acts as general partner.

Together, Interprovincial and Lakehead operate the world's longest crude oil and hydrocarbon liquids pipeline system. The affiliates estimate the proposed expansion will cost about $170 million, including $60 million for U.S. facilities. The two companies will share costs equally.

Expansion components

Interprovincial and Lakehead plan to add most of the new crude export capacity into the U.S. by increasing horsepower at existing pump stations. But plans include laying a 27 mile Canada-U.S. pipeline link to ease a bottleneck at Cromer, Man.

As proposed, the expansion program includes pump horsepower additions on Lines 2 and 13 between Edmonton and Superior, Wis. Intermediate pump stations will be added on Lakehead's Line 6 between Superior and Chicago.

The new 27 mile pipeline link will connect Westspur Pipe Line Co. Inc. facilities at Steelman, Sask., with Portal Pipe Line Co. facilities at Lignite, N.D. The connection will provide producers in the Midale area of southern Saskatchewan an alternative way of delivering crude into the Lakehead system for shipment to the Chicago area.

Currently, to reach Lakehead, crude produced around Midale must first enter Interprovincial's system at Cromer by way of Westspur. But with the Westspur-Portal connection, Midale area crude can travel from Westspur, into and through Portal and enter the Lakehead system at Clearbrook, Minn.

Diverting Midale crude through Portal pipeline will alleviate the bottleneck at Cromer, effectively increasing capacity all along IPL Energy's Canada-U.S. crude pipeline system.

Benefits to producers

Interprovincial said the latest expansion will provide a cost effective way for producers in western Canada to compete with other U.S. imports for inland markets in the Upper Midwest region of PADD II.

Several companies operating crude pipelines originating in the U.S. Gulf Coast recently announced plans to adapt facilities to increase capacity to serve PADD II:

  • Mobil Oil Corp. about midyear began shipping crude to Patoka, Ill., from Nederland, Tex., through a reversed 20 in. pipeline.

  • ARCO Pipe Line Co. and Phillips Petroleum Co. early this year disclosed they had agreed to pool selected pipeline assets and reform them into a new system to ship imported crude from the Texas Gulf Coast to Cushing, Okla. (OGJ, Feb. 20, p. 35).

  • Trunkline Gas Co. and four oil companies last spring said they were studying a plan to reverse and convert to oil service a 26 in. gas pipeline between Lake Charles, La., and a major distribution point for Midwest refineries near Patoka (OGJ, May 1, p. 46).

In addition, Interprovincial is studying a plan to reverse its Montreal-Sarnia, Ont., crude oil pipeline as a way of delivering waterborne imports into U.S. and Canadian markets.

Interprovincial said producers in western Canada will benefit from the proposed 120,000 b/d expansion's low cost and the flexibility it could provide for bigger volumes of western Canadian crude seeking U.S. markets. Perhaps most important, all capacity added by the program will allow producers access to markets around Chicago, which normally offer the highest netbacks.

Interprovincial said producers in western Canada should have adequate capacity on existing pipelines well into the next century to serve regional markets around Denver and Salt Lake City.

Competing proposal

The expansion plan by Interprovincial competes with a proposal by Alberta Energy Co. Ltd. and partner Trans- Canada PipeLines Ltd. to build the Express pipeline to move crude from Alberta to a terminal at Casper, Wyo. The Express line is to have an initial 170,000 b/d capacity.

Interprovincial and Alberta Energy also had rival pipeline proposals in 1993, but Alberta Energy shelved its plan when producers supported an Interprovincial expansion that is now complete.

A spokesman for Interprovincial said crude oil demand continues to grow in the U.S. overall but not in Rocky Mountain states, target market for the Express line.

Alberta Energy says it has much stronger producer support for its project than it did 2 years ago. The company said Rocky Mountain crude oil production is falling significantly, and the Express line will be required for adequate supply.

Alberta Energy in September will seek firm commitments from shippers. NEB has scheduled hearings on the Express line Oct. 23.

NEB and the Canadian Environmental Assessment Agency set up a joint panel at Ottawa's request to review the project.

The Express line would use the same right-of-way as the proposed Altamont natural gas pipeline from Alberta to Wyoming via Montana.

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