* 50-50 project to cost C$2.4 bln-$3.4 billion
* To move up to 660,000 bpd of oil to Louisiana
* In service target 2015
* Fourth-quarter profit drops 8 percent
By Jeffrey Jones
CALGARY, Alberta, Feb 15 Enbridge Inc
said on Friday it is teaming up with Dallas-based Energy
Transfer Partners in the latest conversion of a natural
gas pipeline to transport oil, a $3.4 billion project to move
large volumes of Canadian crude to Louisiana refineries.
Calgary-based Enbridge, which also reported an 8 percent dip
in fourth-quarter profit, said the conversion should help reduce
the deep discount on heavy Canadian crude that has pressured
producer profits and hurt the economies of Alberta and Canada.
That wide spread between the price of Alberta's oil
sands-derived crude and U.S. benchmark light oil is due to
growing production and limited capacity to move the crude to
Under the plan, the 50-50 partners would ship
420,000-660,000 barrels a day of Canadian and North Dakota oil
to St. James, Louisiana from Enbridge's pipeline network in
southern Illinois. That system is undergoing C$15 billion ($15
billion) worth of expansions.
"We're taking advantage of existing pipe in the ground, so
not only are we minimizing the environmental footprint, but we
can get it flowing to market sooner, that's very important in
terms of the price disparities we're talking about,and at a
lower cost than a new build," Enbridge Chief Executive Al Monaco
said in a conference call.
The project would extend about 700 miles (1,130 km) and
could be in service by 2015, pending U.S. regulatory approvals.
Rival TransCanada Corp converted a stretch of
Canadian natural gas line to oil use for its initial Keystone
pipeline to the U.S. Midcontinent from Alberta, which started in
2010. It plans a similar project for a new oil route to Quebec
and Eastern Canada.
Regulatory delay and intense pressure from environmental
groups on major long-haul proposals, such as TransCanada's
Keystone XL pipeline in the United States, make incremental
additions using existing pipelines attractive, said UBS
Securities analyst Chad Friess.
"Anything that's already in the ground is a lot easier to
get done than something that needs to get built. There seems to
be a bit of a trend there," Friess said.
"With natural gas, a lot of the new production is coming
from where it is typically consumed or prospectively exported,
so in some cases existing natural gas pipelines are no longer
needed....They are available for conversion to crude oil service
at fairly cheap cost."
Enbridge has already expanded access to the western U.S.
Gulf refining region by reversing the flow direction, then
expanding, the Seaway pipeline between Cushing, Oklahoma and the
Houston area, in partnership with Enterprise Products Partners
Canadian oil producers now have little access to the large
Eastern Gulf area, which would be served by what the companies
call the Trunkline conversion.
The Gulf Coast, with about half of U.S. refining capacity,
offers higher returns than Canada's traditional markets, such as
the U.S. Midwest. This is shown by the smaller discounts on
other crudes used in Texas and Louisiana that have similar
qualities, such as Mexican Maya.
"The refinery area in the Gulf Coast is configured very
nicely for heavy crude, and of course, that market is screaming
for heavy and will continue to do so in the future, particularly
given the decline in Mexican and Venezuelan crude," Monaco said.
Enbridge's system moves more than 2 million barrels a day of
Canadian and North Dakota oil to the Chicago area, other parts
of the U.S. Midwest and Midcontinent and into southern Ontario.
Later this year, it will boost capacity in the Midwest by
80,000 barrels a day. It will add another 600,000 bpd of
capacity to Texas next year and 300,000 bpd between North Dakota
and the Patoka, Illinois, pipeline hub by 2015.
These expansions are taking place as Enbridge waits for
regulators to make a decision on the contentious C$6 billion
Northern Gateway pipeline between Alberta and the Pacific Coast.
That is expected by the end of 2013.
PROFIT REDUCED BY CHARGES
In the fourth quarter, Enbridge's earnings fell to C$146
million, or 18 Canadian cents a share, from year-earlier C$159
million, or 21 Canadian cents a share.
The result included a C$105 million impairment charge on two
Gulf of Mexico gas pipelines and a C$56 million tax charge.
Excluding unusual items, adjusted earnings were C$327
million, or 42 Canadian cents a share, lagging an average
estimate among analysts by 2 Canadian cents a share, according
to Thomson Reuters I/B/E/S.
Revenue dropped 2 percent to C$7.2 billion.
Enbridge's Canadian Mainline transported 1.6 million barrels
of petroleum a day during the quarter, up 2 percent from a year
Shares of the company, which has a market value of about
C$35.5 billion, were up 38 Canadian cents at C$44.51 on the
Toronto Stock Exchange. The stock has gained 13 percent in the