U.S. pipeline challenges “pretty disturbing” for oil producers in Canada

By Kevin Orland and Robert Tuttle on 7/7/2020

CALGARY (Bloomberg) --This week’s escalation of American pipeline setbacks is heightening concerns among Canadian oil producers who export almost all of their crude to the U.S.

Alex Pourbaix, the chief executive officer of Cenovus Energy Inc., called a ruling temporarily shutting down the Dakota Access pipeline on Monday “pretty disturbing” in its implications that existing conduits may now be at risk. His concerns were echoed by the CEOs of Suncor Energy Inc. and Exxon Mobil Corp.’s Imperial Oil Ltd.

“If that would be the new standard, I think it’s going to be incredibly difficult for anybody to invest in any kind of infrastructure,” Pourbaix, who formerly served as chief operating officer of pipeline giant TransCanada Corp., said Tuesday during a Toronto-Dominion Bank conference. “If there’s an opportunity to come back on those regulatory decisions years after the fact, I think that’s a real significant problem.”

Crude from the oil sands, a landlocked area of northern Alberta that holds the world’s third-largest crude reserves, is almost entirely shipped through U.S. pipelines to refineries in the Midwest and Gulf Coast. The lack of enough shipping capacity has been the dominant problem facing the industry for the past several years.

On Sunday, U.S. power company Dominion Energy Inc. and partner Duke Energy Corp. said they’re killing the controversial Atlantic Coast gas pipeline, citing ongoing delays and uncertainty on costs. The next day, a U.S. district court ruled that Energy Transfer LP’s Dakota Access pipeline will have to shut down in about a month because a federal permit for the line fell short of environmental requirements. Later that day, the U.S. Supreme Court left in force a lower court order that blocks construction on TC Energy Corp.’s Keystone XL pipeline.

Canada’s oil-sands industry was counting on recent momentum on key projects like the Trans Mountain expansion that links the oil sands to the Pacific Coast, and the replacement and expansion of Enbridge Inc.’s Line 3, which links Hardisty, Alberta, to Superior, Wisconsin. While producers had grown used to delays on new projects, the ruling on the Dakota Access line was particularly worrying because it had already been operating for three years.

Similarly, Canadian producers have also had to deal with a temporary shutdown of Enbridge’s Line 5, which helps carry crude and natural gas liquids to refineries in eastern Canada. A Michigan judge ordered the full line shut down last month after damage was found on a portion of it running through the Great Lakes. While Enbridge was allowed to restart the line a week later, Michigan’s governor and attorney general still are working to force the line to cease operations.

Imperial has been looking at using ships and rail to supply Ontario refineries in case the line has an extended shutdown, CEO Brad Corson said Tuesday at the TD Securities conference.

“The team worked quite proactively over the last couple of weeks to make sure we had adequate contingency plans in place should Line 5 be interrupted for an extended period of time,” he said.

Suncor CEO Mark Little said his company also relies on Line 5 to supply its refineries in Sarnia, Ontario, and Montreal. The company can use rail, ships or a Maine pipeline to supply those facilities, but those are costlier methods, and a shutdown of the line would be a “huge potential threat” and could increase the price of oil products like gasoline in the U.S. and Canada, Little said.

“This is something that would impact consumers in all of those markets,” he said.

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