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Summit News

Enbridge sees Midwest as best market

CALGARY, Alberta (Reuters) - The U.S. Gulf Coast, once seen as the largest new market for expanding production from Canada's oil sands, may not need as much oil as thought, Steve Wuori, executive vice-president of pipeline operator Enbridge Inc ENB.TO said on Tuesday.

Enbridge INC's Executive Vice President of Liquids Pipelines Steve Wuori gestures during the Oilsand Summit in Calgary, Alberta, March 23, 2010. REUTERS/Jack Cusano

Wuori told the Reuters Canadian Oil Sands Summit that the Gulf of Mexico region, the largest concentration of refineries in North America, will likely replace declining heavy oil supplies from Mexico and Venezuela with crude from Brazil or new deepwater fields in the Gulf of Mexico.

That will push new Canadian supply to the U.S. Midwest, which already takes the bulk of Canada’s oil exports. A series of refinery expansion and conversion projects in the region is increasing the appetite for heavy crude from the oil sands of northern Alberta. As well, refineries in the region are under less threat from new high-volume refineries in Asia and elsewhere that are looking to export refined products to the United States.

The Midwest “has probably the safest refineries in terms of the threat of offshore refined product imports,” he said. “I think you’ll see that that is really the epicenter of where most of the Canadian heavy (oil) growth needs to be.”

Canadian producers have been pushing to get additional access to the Gulf Coast market, which had offered premium prices for heavy oil. About 100,000 barrels a day of oil sands crude now reaches that market, Wuori said.

Enbridge's larger rival, TransCanada Corp TRP.TO, is proposing the Keystone XL line, which will bring 500,000 bpd of oil sands crude to the Gulf.

Wuori said new Canadian supplies could also flow to the company’s planned Northern Gateway pipeline, which will run from the oil sands to a deepwater port on British Columbia’s Pacific Coast.

Enbridge expects to file for regulatory approvals for the 525,000 bpd line by mid-year and expects a decision from regulators to take 18 months or more. The line would not be in service before 2015. Wuori said.

Wuori also said that Enbridge expects to begin filling the newly completed 450,000 barrel per day Alberta Clipper pipeline with oil in early June.

Up to 1.5 million of the 6 million barrels needed to fill the line, which runs from the Edmonton, Alberta, region to Superior, Wisconsin, will come from an existing pipeline being converted to ship ultra light crudes to the oil sands.

Tolls to cover the cost of the new line will begin to be applied to all customers on Enbridge’s lines to the Midwest, raising the ire of producers who say the new pipe is unnecessary because Canadian oil production has not risen as much as earlier forecasts predicted.

Suncor Energy Inc SU.TO, Imperial Oil Ltd IMO.TO and other Enbridge shippers are asking the U.S. Federal Energy Regulatory Commission and Canada's National Energy Board to halt the additional tolls to cover the new line, arguing that Enbridge shouldn't have built the line when a host of oil sands projects were delayed by the recession.

However Wuori said Canadian producers had initially agreed the line was needed and requested it be open to all shippers as a common carrier -- with tolls spread among all the pipeline system’s users, instead of operating on long-term contract.

While some have suggested that making Alberta Clipper a contract line may offer a resolution to the dispute, Wuori said he preferred to see it remain a common carrier.

“We’ve built it as a common carriage system,” he said. “We like the status that it has.”

The addition of Alberta Clipper’s capacity will boost tolls for Canadian companies moving heavy oil from Alberta to the Midwest by about 78 cents per barrel, to $3.80 per barrel, when combined with another 20 cent increase requested by Enbridge.

Enbridge, Canada’s No. 2 pipeline company, is known for its massive oil pipeline system to the United States from Canada, which ships about 2 million barrels a day.

Editing by Peter Galloway

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