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Bakken Crude and Canadian Oil Sands Battle for Space on U.S. Pipelines

Dispute between Enbridge and small U.S. pipeline operator offers glimpse of the industry’s future as North Dakota oil booms.

Aug 9, 2012
(Page 2 of 3 )
The Bakken oil patch in North Dakota.

From 1991 to 2009, the State Department issued a series of cross-border permits to Enbridge with the understanding that the company would operate its U.S. pipeline system as a "common carrier." Federal regulations grant common carrier pipelines sweeping powers in securing land rights-of-way for construction. In return, common carriers must operate as a kind of public pipeline utility, providing all customers with equal access to their facilities.

Enbridge Energy Partners LP, the U.S. affiliate of Calgary, Alberta-based Enbridge Inc. has a strong financial interest in carrying Canadian crude. Together, the two Enbridge pipeline systems deliver 60 percent of this country's oil imports from Western Canada – or 13 percent of total U.S. oil imports, according to company figures.

Enbridge rejects the notion that it prefers carrying Canadian crude over the U.S. domestic variety. The company operates the only existing pipeline that carries the Bakken oil to the company's Lakehead system, and in its statement to InsideClimate News said it has invested $1 billion in Bakken-related infrastructure over the last seven years, "which is contrary to the unfounded allegations that we favor one product type over another."

Enbridge also has two pipeline projects in development that would carry more Bakken oil to the Lakehead system. High Prairie claims those Enbridge-owned projects don't have to meet the conditions Enbridge is trying to impose on High Prairie.

High Prairie Line Would Help Bakken Oil Compete with Canadian Oil

High Prairie's 450-mile pipeline would carry up to 150,000 barrels per day of Bakken light crude oil to Clearbrook. Once there, the Lakehead system pipelines would take it to U.S. markets that are currently dominated by heavy crude from Canada's oil sands.

Since negotiations for an interconnection deal fell apart, Enbridge and High Prairie have have issued dueling statements about the causes of the impasse. In addition to its petition to the State Department and its complaint before federal energy regulators, High Prairie has a complaint pending before the U.S. Forest Service. FERC declined to comment on the case; the State Department and Forest Service did not respond to requests for comment.

In its FERC complaint, filed in May, High Prairie alleges that Enbridge's behavior violates its common carrier status because it has provided or intends to provide its own affiliates with additional capacity on the disputed pipeline.

"Enbridge clearly has no problems with accepting increased barrels of crude oil at Clearbrook, provided that those barrels come in from Enbridge-owned pipeline facilities," Ward said.

Evidence in the FERC case includes a voicemail message that Steve Cabana, an Enbridge business development executive, left for High Prairie in April. In it, Cabana explains that "...at this point, it doesn't look feasible" for High Prairie to connect in Clearbrook. He says the desired hub could probably handle High Prairie's oil when it begins to flow in late 2013, but that "there will be no capacity to sustain those type of volumes beyond – call it 2016." That's when some analysts expect the growing wave of Canadian oil to overwhelm existing U.S. pipeline capacity.

Cabana said he would work on a possible connection for High Prairie at Enbridge's Superior, Wis. hub, which is more than 200 miles southeast of Clearbrook. High Prairie contends that would force it to lengthen and re-route its pipeline, delaying the project and boosting its cost.

Larson, the Enbridge spokeswoman, didn't answer questions about the Superior alternative or the voicemail. But in its formal response at FERC, Enbridge denied the discrimination and other claims, and characterized High Prairie's allegations as "unfounded." In the filing, the company also argued that common carrier non-discrimination rules apply only to shippers and not to the pipelines that carry their products—an argument that, if successful, could give pause to investors in pipeline projects that will require connections to the nation's existing pipeline network.

A U.S. Congressman and a handful of refiners and oil producers have urged FERC to make sure Enbridge provides equal access to its common carrier pipeline.

In a July letter to FERC, Rep. Collin Peterson, D-Minn., noted the critical need for additional pipelines in the region. With common carrier pipelines, "all market participants should have confidence that they are operating on a level playing field," Peterson said.

North Dakota's Mandan, Hidatsa & Arikara Nation, which hopes to send its oil through the High Prairie line, urged FERC and the U.S. Forest Service to ensure that the MHA Nation's oil "is not stranded as a result of a common carrier granting undue preference to affiliated entities transporting foreign tar sands oil."

AttachmentSize
Rep.PetersonlettertoFERCINSIDECLIMATENEWS.pdf60.81 KB
HighPrairieFERCFiling5.17.12INSIDECLIMATENEWS.pdf444.86 KB
Hig PrairieForest ServiceFiling6.1.12INSIDECLIMATENEWS.pdf1013.96 KB
StateDepartmentApplicationforAmendmentINSIDECLIMATENEWS.pdf186.24 KB
EnbridgeAnswerFERCINSIDECLIMATENEWS.pdf605.59 KB
PBFcomplaintoildsandsINSIDECLIMATENEWS.pdf2.74 MB
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