By Christopher M. Matthews and Lynn Cook
Some of North America's biggest new pipeline projects are
already in the ground.
As environmentalists and local activists make it extraordinarily
difficult to build new oil and gas lines, energy companies are
working around the opposition by supersizing old pipes that already
crisscross parts of the continent.
Executives at some of the biggest pipeline operators in the U.S.
and Canada, including Enbridge Inc. and Kinder Morgan Inc., say
they pivoted to the strategy as plans for new pipelines came under
attack.
For decades, new pipeline projects rarely drew attention, much
less ire. "We used to just show up with a map," said Al Monaco,
president and chief executive of Enbridge. "Now we engage with the
local communities and indigenous groups early and often."
In recent years, groups with a goal of keeping fossil fuels in
the ground have joined forces with Native American activists,
landowners and other local opponents to stall numerous projects,
Most notable among these was TransCanada Corp.'s much-debated
Keystone XL pipeline.
Skipping new lines -- and the environmental reviews and taking
of land by eminent domain that they often require -- and instead
working under existing permits and rights of way is just common
sense, pipeline executives say. Mr. Monaco said the expansions also
minimize impacts to land and the environment in addition to being
cheaper.
"Once the pipe is in the ground, you can do a lot of things:
reverse flows, expand it, optimize it," he added.
Pipeline expansions may help explain why, despite the Trump
administration's recent approval of the Keystone XL pipeline,
Enbridge competitor TransCanada has yet to make a final decision
about moving forward.
By contrast, Enbridge quietly cobbled together two existing oil
lines to create the first sizable spigot to bring Canadian crude to
Texas while Keystone XL was stranded in regulatory limbo for a
decade. Its retooled network can move nearly 600,000 barrels of oil
a day to Gulf Coast refiners and foreign buyers.
Enbridge is also pursuing a combination of other pipeline
expansions that together could add another 800,000 barrels a day of
capacity to bring Canadian crude south at a cost of just $1.3
billion. That is roughly the same volume Keystone XL would carry --
at a price tag more than 80% lower.
Further east, Enbridge is also supersizing its natural-gas
network across the northeastern U.S. from the shale fields of
Pennsylvania to Boston to Halifax, in Canada. Where there was once
a 26-inch-diameter pipeline carrying shale gas into New England,
there is now a new, 42-inch pipeline in a right of way the company
secured by buying out rival pipeline operator Spectra Energy Corp.
last year.
The pipeline expansion, which runs under New York state,
happened despite concerns raised by state and federal elected
officials.
Investors want cheaper and faster pipeline expansions because
demand for moving fuel around North America is increasing, and
companies' returns have fallen short of shareholder
expectations.
Kinder Morgan had to abandon its $3.3 billion Northeast Energy
Direct gas project in 2016 after environmentalists and elected
officials opposed it and regulatory hurdles prevented the company
from lining up funding. The route would have laid more than 400
miles of new gas pipes from Pennsylvania to New York and
Massachusetts.
Instead, Kinder Morgan completed several expansion projects in
the region last year, adding 532,000 million British thermal units
of gas delivery. Enbridge forged ahead with two big expansions,
digging up old pipes and replacing them with bigger lines to add
474,000 million Btu of capacity. Combined, the additions can power
more than 5 million homes in the Northeast.
The supersizing strategy has obvious limitations. It is a boon
to companies with assets in the right places, boosting their value,
but of little use to those without. Some parts of the country
simply need more pipelines, including areas that didn't previously
produce much oil and gas where fracking has unlocked new
supplies.
And expansions haven't eliminated gas shortages, at least in New
England. This year's winter weather has been so frigid that heating
demand spiked and caused wholesale gas prices in Boston to soar to
more than $400 per million Btus during some peak hours. By
comparison, the benchmark U.S. gas price at the time in Louisiana
was less than $3 per million Btus.
Expansion projects aren't limited to the Northeast or natural
gas. From North Dakota to Texas, some companies are shying away
from building new oil pipelines in favor of goosing the volumes
they can push through aging ones.
A consortium headed by Marathon Petroleum Corp. has floated a
plan to reverse the flow of crude oil on one of America's biggest
pipelines. For several decades, the Capline system carried oil
pumped in the Gulf of Mexico and foreign crude imported via
Louisiana north to refineries in Midwest. The amount of oil moving
through the line has dwindled as U.S. frackers have drilled more
and imported less.
If enough customers sign up for space on the reversed Capline,
the pipe could start transporting U.S. and Canadian crude from an
Illinois storage hub south to fuel factories and export docks along
the Gulf Coast by 2022.
Getting creative with old pipes makes economic sense, even if
building brand new ones might be safer, said Justin Carlson,
managing director at East Daley Capital Advisors. After years of
taking on heavy debt loads to pay for new pipes, investors want
companies to shun high borrowing costs and live within their
means.
"This is a market that is been beaten up," he said. "Quite
frankly it's not cheap to build new stuff."
Pipeline expansions often come with controversy. Pennsylvania
regulators halted construction of Energy Transfer Partners L.P.'s
Mariner East 2 expansion earlier this month amid stiff local
resistance.
Plans for the bigger line call for shipping more natural gas
byproducts to an export facility outside Philadelphia. Part of the
fight against the project centers on where the fuel is going --
overseas instead of to help satisfy U.S. demand. But some arguments
against expansion projects are the same as those against new
pipelines, from the need to wean America off fossil fuels to
perceived threats to water quality.
Energy Transfer is having success with another big revamp on its
Trunk line and Panhandle pipelines to send natural gas from huge
deposits in Pennsylvania and Ohio to the Gulf Coast. The expansion
will cost $51 million and nearly pay for itself in the first year,
generating around $43 million annually, according to one analyst's
estimates.
Write to Christopher M. Matthews at christopher.matthews@wsj.com
and Lynn Cook at lynn.cook@wsj.com
(END) Dow Jones Newswires
January 17, 2018 12:56 ET (17:56 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
Enbridge (NYSE:ENB)
Historical Stock Chart
From Apr 2024 to May 2024
Enbridge (NYSE:ENB)
Historical Stock Chart
From May 2023 to May 2024