Maine pipeline eyes plan to ship Canada oil sands crude

Wed May 22, 2013 1:12pm EDT

* Maine pipeline plan hinges on flows to Montreal

* Recent spills inflame Canadian oil debate

* Towns oppose oil sands, line passes through tourist zone

By Dave Sherwood

SOUTH PORTLAND, Maine, May 22 (Reuters) - The little-known operator of a pipeline linking Montreal and Maine is studying how to make the line the first route to get Canadian oil sands crude to an Atlantic deepwater port, but the plan relies on supplies that may not be available for years.

The Portland-Montreal pipeline - principally owned by top Canadian oil refiners Suncor Energy Inc, Imperial Oil Ltd, and Royal Dutch Shell Plc - has already spent about $6.5 million to prepare for a reversal of the line so it can carry heavy oil sands crude from Quebec to Maine's biggest city, according to regulatory filings from 2011. The pipeline now mainly carries imported crude to Canadian refineries.

The plan to reverse the 236-mile (378-kilometer) duct has already made New England green groups and some lawmakers bristle, opening up an eastern front in the national energy and climate change debate. But its fate may hang more heavily on the availability of oil sands crude from points west than it does on local support.

"This is not something that's going to happen overnight," said Larry Wilson, chief executive of the Maine-based Portland Pipe Line Corp, citing the need for enough supply reaching Montreal and demand along the Eastern Seaboard.

"But we are currently operating under capacity, and looking for every opportunity to maximize use of our assets, including reversal," he said of the pipe, which was designed to move as much as 240,000 barrels per day.

Canadian pipeline company Enbridge Inc - operator of the world's largest pipeline system - has proposed reversing its so-called 'Line 9' pipeline between Sarnia, Ontario, and Montreal, to get Alberta oil sands crude into Quebec.

That would eventually allow it to supply Quebec with just 300,000 bpd, too little to sate Quebec's oil refineries and fill the line to Portland at the same time.

"Our intention is to feed those two refineries but I guess they'll still be a little bit short," Al Monaco, Enbridge's chief executive, told reporters earlier this month when asked if the company had mulled supplying crude to the Portland line.

LOCAL RESISTANCE

Canada's oil sands are seen as a secure source of oil for the United States, but they are located in landlocked northern Alberta.

Canadian oil sands producers and Canadian authorities are keen to move more oil to U.S. and overseas markets, but plans, including TransCanada Corp's Keystone XL pipeline to the Gulf of Mexico and Enbridge's Northern Gateway to the Pacific, have been delayed by controversy and political rancor.

Some oil sands crude does move to Vancouver on Canada's Pacific Coast, however, on Kinder Morgan Energy Partners LP's Trans Mountain pipeline.

Opposition to pipeline projects has stiffened after recent spills of oil sands crude on lines in the middle of the United States, including one outside Little Rock, Arkansas, in March, and another in 2010 that poured 20,500 barrels into a waterway near Kalamazoo, Michigan.

In Maine, several communities have passed nonbinding resolutions expressing opposition to transporting oil sands crude through the Portland pipeline, which passes through the Sebago Lake watershed, a regional tourism hub and the source of water supply for Portland, Maine's largest city.

"There's so much to lose that Maine people aren't willing to sit on their hands and wait until the company decides they are ready to propose something," said Dylan Voorhees of the Natural Resources Council of Maine.

U.S. Senator Angus King, an independent who caucuses with the Democrats, has called the company a "sound environmental steward" for its good record on spills. But he wrote in a recent constituent letter that he would request that any proposal to transport heavier-grade diluted bitumen on the line face full federal permitting and environmental scrutiny.

In 2008, the pipeline company submitted a proposal to reverse the flow and transport Canadian crude - though the plan was later ditched for economic reasons.

At the time, the U.S. State Department determined the project "did not constitute a substantial change in scope..." from the original permit, according to documents obtained by Reuters.