UPDATE 2-Enbridge plans huge Canada, US pipeline expansion

Wed May 16, 2012 8:53pm EDT

* C$2.6 bln for Eastern Access, C$600 mln for mainline

* Canada, North Dakota oil would flow to Eastern refineries

* Adds to Gulf Coast expansion

By Jeffrey Jones

CALGARY, Alberta, May 16 (Reuters) - Enbridge Inc kicked off one of the most sweeping expansions in its history on Wednesday, a C$3.2 billion ($3.2 billion) series of projects across its pipeline system aimed at moving western Canada and North Dakota oil to Eastern refineries and eliminating costly bottlenecks in the U.S. Midwest.

Enbridge, the largest transporter of Canadian oil exports, said C$2.6 billion worth of the new work would support a reversal in flow direction of a pipeline between Sarnia, Ontario, and Montreal to move Alberta oil sands and North Dakota Bakken shale oil to refineries that are now captive to foreign suppliers.

It would also spend about C$600 million expanding its mainline in Canada and the United States, which now moves more than 2 million barrels a day, to get more crude into the Chicago area for shipment South and East. Pending approval, the expansions could be in service in 2014, the company said.

These are the latest in a raft of proposals to open up new markets for oil sands-derived crude with production slated to nearly double this decade. Other initiatives involve moving large volumes to Texas via TransCanada Corp's controversial Keystone XL pipeline, and to Asia via Canada's West Coast on Enbridge's equally contentious Northern Gateway proposal.

TransCanada has also proposed moving Canadian crude to refineries in Ontario, Quebec and the Maritime provinces by switching one of its natural gas pipelines to oil service.

"The timing is driven by what is really a pretty significant change and a very fast change in the supply and demand fundamentals on this continent," Al Monaco, Enbridge's president and incoming chief executive, told Reuters.

"Basically, you've got a massive increase in oil sands and shale oil volumes, which is totally different from just two years ago when people thought we were in decline. A lot of that increase is for light oil."

The surging supplies have led to a glut in the U.S. Midwest and Midcontinent regions and depressed prices for the North American oil against world crudes, chewing into corporate returns and the revenues of governments such as Alberta's.

Part of the aim with expansion of existing infrastructure is to avoid the lengthy regulatory reviews and environmental battles that have led to delays Keystone XL and Northern Gateway because there would be no need to acquire new rights-of-way across lands, Monaco said.

The new plans are in addition to Enbridge's expansions in the U.S. Gulf Coast region, including the reversal of the Seaway pipeline between Cushing, Oklahoma, and Texas, due to start draining off a glut of supply at the storage hub this month. Anticipation of that project has already helped to shrink the discount on North American crudes versus world benchmark Brent.

"That was existing pipeline and it allowed us to hit a window very quickly when the market wanted that capacity," Monaco said.

As part of new initiative, dubbed Eastern Access, Enbridge would expand a pipeline between Michigan and Ohio and reverse the flow of the 240,000 barrel a day Line 9 between Sarnia and Montreal back to the West-East direction it was initially designed for in the 1970s.

The company also said it will bolster the capacities of its Spearhead and Line 6B pipelines in the Midwest, currently the largest market for Canadian oil, to get more crude to Line 9.

Much the impetus for the push Eastward is a shift in demand for various crude crudes, said Steven Paget, analyst with FirstEnergy Capital Corp.

The retooling of some major U.S. refineries, including Phillips 66 and Cenovus Energy's Wood River, Illinois, plant and BP's Whiting, Indiana, facility, is creating large demand for Canadian heavy crude. They have added coking units that break the gooey oil down. The light oil they previously processed, meanwhile, is being displaced.

Those barrels will now be able to flow eastward to such plants as Suncor Energy's 130,000 barrel refinery in Montreal, which now runs more pricy imported oil, Paget said.

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