Getting beyond an oil bottleneck

  • Article by: DAVID SHAFFER , Star Tribune
  • Updated: November 7, 2012 - 11:59 PM

A 618-mile pipeline would carry oil from western North Dakota across Minnesota to a terminal in Superior, Wis.

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Only 43 percent of North Dakota’s gusher of oil is shipped now via pipeline. The rest is shipped via rail, a more expensive proposition.

Photo: Glen Stubbe, Star Tribune

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More of North Dakota's oil bounty will be flowing across northern Minnesota in the years ahead if a new $2.5 billion pipeline project wins approval.

Enbridge Energy, the Calgary, Alberta-based pipeline company that already owns five cross-state oil pipelines, recently disclosed details about its latest project -- a proposed 618-mile pipeline known as Sandpiper.

If completed, the Sandpiper would carry oil from the booming Bakken oil fields in western North Dakota, across Minnesota to Enbridge's terminal in Superior, Wis.

Coupled with Enbridge's existing pipelines and other expansion projects, the Sandpiper line would create the capacity to ship roughly half of North Dakota's projected oil output to Minnesota and Wisconsin in 2016.

"This is an encouraging step toward moving future production," said Justin Kringstad, director of the North Dakota Pipeline Authority, a state economic development agency that has worked to encourage pipeline development. The project will require approvals from state and federal regulators, which could take months.

North Dakota, which this year became the No. 2 oil-producing state behind Texas, had a record output of 701,000 barrels of crude oil per day in August and is forecast to exceed 1 million barrels per day by 2016.

Yet only 43 percent of that crude oil currently is shipped to market by pipelines. Enbridge's existing system brings oil to the company's oil terminal at Clearbrook, Minn., 95 miles east of Grand Forks, N.D. Much of the rest is shipped elsewhere in railroad tank cars, a more expensive method.

When the oil pipelines reach Clearbrook, they hit a bottleneck. Despite five eastbound pipelines owned by Enbridge to the company's large oil terminal in Superior, the company says it's short of capacity to deliver all the oil shippers want transported.

The proposed 24-inch Sandpiper line is a major part of Enbridge's solution. The line's $1 billion, 233-mile segment from Clearbrook to Superior would have even greater capacity than the inbound segment from North Dakota. It would be the sixth crude oil pipeline to span northern Minnesota.

Separately, Enbridge is proposing to expand the capacity of an existing pipeline that starts in Canada and brings oil to Superior. When these two expansion projects are completed, the pipelines through Clearbrook, in northwestern Minnesota, would have the capacity to transport about 16 percent of the oil used in the United States.

With the Sandpiper line, oil companies in the Bakken region would get a direct shipping route to Superior and connections to refineries in the East, Midwest and South.

"We are reconfiguring the system to go all the way to a hub [Superior] to bypass a bottleneck in our system," Denise Hamsher, director of major project planning for Enbridge in Superior, said of the Sandpiper project.

That should help North Dakota oil producers avoid extra shipping costs by rail, said Randy Brown of Tremont House, a Fort Worth, Texas, oil and gas futures advisory firm.

"If I am an oil producer in North Dakota, I would be jumping up and down," he said.

Brown said the new pipeline, even while benefiting North Dakota oil interests, could also reduce the price of crude oil to some refineries.

Objection raised

Enbridge filed commercial details about the Sandpiper project Friday with the Federal Energy Regulatory Commission, which sets pipeline rates. The filing included letters from 15 North Dakota oil shippers who said they would pay a surcharge, estimated initially at $1.90 per barrel, to fund the segment into Superior. Enbridge asked the commission for expedited approval of the plan.

Not everyone likes the surcharge, including Flint Hills Resources, which buys North Dakota oil and transports it via pipeline from Clearbrook to its refinery in Rosemount. North Dakota barrels shipped to Flint Hills would be slapped with the surcharge even though the oil would not flow through the new line.

"We believe the tariff structure Enbridge is proposing to finance the project could be harmful to the marketplace, especially to Enbridge's existing shippers and customers," Flint Hills spokesman Jake Reint said in an e-mail late Wednesday.

Enbridge still will need approval from state regulators, including the Minnesota Public Utilities Commission, which oversees pipeline routing. Hamsher said the Minnesota segment may be built at least partly on a new right of way. A project of that size typically would employ about 1,000 construction workers, she added.

Yet another pipeline across North Dakota proposed by a Durango, Colo., company remains in limbo. The proposed High Prairie Pipeline, which would ship Bakken oil east via another route, has been locked in a legal battle with Enbridge over a proposed connection to the Clearbrook terminal.

Greg Ward, general counsel for High Prairie, said the Sandpiper project, with the promise of more capacity across Minnesota, "creates another avenue for a solution" to he dispute.

Separately, Enbridge reported a $190 million third-quarter profit Wednesday, citing higher revenue from pipelines and lower losses on hedging transactions. The company had a third-quarter loss last year.

David Shaffer • 612-673-7090 • @ShafferStrib

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