Bottleneck hampers N.D. oil

  • Article by: DAVID SHAFFER , Star Tribune
  • Updated: June 3, 2012 - 10:52 AM

A pipeline project is stalled as companies argue whether it should be allowed to connect to a Minnesota oil terminal.

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Getting oil from wells like this one near Watford City, N.D., costs more if it has to be shipped by truck or rail.

Photo: Glen Stubbe, Star Tribune file

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A bottleneck at a large oil terminal in northwestern Minnesota is keeping North Dakota oil from being piped cheaply to market.

The problem has provoked a legal feud between two pipeline companies that serve the Bakken oil fields in western North Dakota.

High Prairie Pipeline, which operates about 250 miles of pipeline in the southwest part of North Dakota, has proposed building a $650 million pipeline 450 miles across that state to deliver oil from the Bakken region to a terminal at Clearbrook, Minn., 90 miles east of Grand Forks, N.D..

But the company says the project is stalled, and may be canceled, because Enbridge Energy, the Canadian company that owns the terminal and operates more than 8,000 miles of oil pipelines in Canada, North Dakota, Minnesota and other states, won't allow it to connect to the Clearbrook terminal.

Enbridge, whose U.S. headquarters is in Superior, Wis., denies any blame and says the oil boom in Canada and North Dakota has simply created a bottleneck at Clearbrook and an outbound pipeline to Superior. That line is at full capacity, Enbridge says, and needs an upgrade before new feeder pipelines, including its own, can bring more Bakken oil to Minnesota.

The dispute has landed before the Federal Energy Regulatory Commission (FERC), where High Prairie is charging that Enbridge engaged in discriminatory business practices by not allowing its requested connection to the terminal. FERC regulates "common carrier" pipelines that transport oil for other shippers.

In an interview, an executive of the North Dakota pipeline charged that Enbridge is favoring tar sands oil, which is carried across a long Canadian segment of its pipeline system to Clearbrook. "Enbridge is the back-door means for the tar sands to make it into America," said Greg Ward, vice president and general counsel of Saddle Butte Pipeline of Durango, Colo., the parent company of High Prairie Pipeline.

But Enbridge officials denied that Canadian oil is pushing aside North Dakota oil, saying the company relies on separate lines for heavy crude from Canada and the lighter oil from the Bakken.

"We would call it a bottleneck," said Mike Moeller, head of Enbridge's North Dakota operations.

Moeller said Enbridge, which also is planning a major west-east pipeline in North Dakota, faces the same problem as High Prairie. He said the parent company is negotiating with several pipeline companies that want to connect at Clearbrook over how to deal with that cost.

High Prairie's proposed pipeline would carry 150,000 barrels per day, or about a quarter of current production in North Dakota, now the nation's No. 2 oil producing state behind Texas. Ward said it could be completed by late 2013 if the connection issue is resolved.

Much Bakken oil now is being shipped by truck and rail car, which is more expensive than pipelines. Because of the extra transportation cost, Bakken oil producers make less money.

"Any time there is not enough pipeline capacity out of the Bakken, producers will be required to take lower prices," said oil industry analyst Rusty Braziel, owner of RBN Energy in Houston.

Braziel said he is not familiar with the High Prairie-Enbridge dispute, but noted that High Prairie's is one of several proposed pipelines and rail terminals in North Dakota.

"Just because High Prairie doesn't get built doesn't mean that the other projects out there are not going to get built," he said. "High Prairie is not necessarily the linchpin that will cause a lot of these producers to be able to get higher prices."

High Prairie has argued to federal regulators that Enbridge, as a common carrier, has an obligation to allow other pipelines to connect to its system, and that the Canadian company has done so for a pipeline operated by its North Dakota subsidiary.

But oil industry analyst Randy Brown said it can be hard for smaller players like High Prairie to force a large, established pipeline company to allow a connection to its system.

"Pipelines always allege themselves to be common carriers, but they tend to take care of their own issues first," said Brown, whose firm, Tremont House, is based in Fort Worth, Texas.

Anthony Swift, an attorney with the Natural Resources Defense Council International Program, which opposes Canadian tar sand oil development, said the dispute over High Prairie's domestic pipeline underscores that Canadian companies' pipelines mainly serve that country's oil fields.

"All of these pipeline systems are designed to move tar sands oil to refiners, and if there's extra space on them they may acquiesce to move [U.S.] domestic production," he said. "There is real danger in relying on these Canadian pipeline systems to move domestic crude, and this Enbridge situation clearly demonstrates that."

But Enbridge's Moeller said the company has upgraded its North Dakota pipelines and terminals, investing more than $1 billion that will boost capacity nearly sixfold. Another proposed project that has not been widely discussed publicly, the Sandpiper pipeline across northern North Dakota, would add to the capacity, he said.

David Shaffer • 612-673-7090

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