North Dakota is having an oil boom, but pipelines have not kept pace — and Friday’s regulatory decisions won’t speed things up.
Two proposed pipelines to ship North Dakota’s oil bounty to Minnesota and beyond got adverse rulings from federal regulators on Friday, leaving the projects’ next steps uncertain.
The Federal Energy Regulatory Commission, which regulates interstate pipeline rates, rejected the rate structure for the $2.2 billion Sandpiper Pipeline proposed by Enbridge Inc. and separately threw out a case concerning the $650 million High Prairie Pipeline.
The regulatory actions could delay, though not necessarily kill, the two pipelines designed to transport 375,000 barrels per day of crude oil from the Bakken region in western North Dakota to oil terminals in Clearbrook, Minn., and Superior, Wis., that feed other pipelines.
North Dakota is now the nation’s No. 2 oil-producing state, behind Texas. But construction of pipelines to carry away the crude hasn’t kept up, depressing prices at the wellhead. Producers have turned to railroads instead: Tank cars now haul away two-thirds of North Dakota’s oil — a business that stands to gain from Friday’s rulings.
Enbridge spokesman Larry Springer said the Edmonton, Alberta-based pipeline company still plans to go ahead with the 618-mile Sandpiper line, but will reconsider its rate plan and submit it to the commission. “It really does not affect our planning and timetable,” he added.
Greg Ward, vice president and general counsel for High Prairie Pipeline, said the Durango, Colo.-based company still is reviewing what’s next for the proposed 450-mile, 150,000-barrel-per-day line. Construction hasn’t started because High Prairie complained that Enbridge sought unfair terms to connect the line to Enbridge’s Clearbrook terminal — a charge that company denies.
The commission concluded that it was premature to act on the High Prairie complaint because the two companies were still negotiating over the terminal connection. But Ward said High Prairie and Enbridge haven’t talked in months.
11 months, then no decision
“It is very frustrating that it took the commission 11 months to say that the parties are still negotiating, and thus it is premature and they can’t make a decision,” Ward said in an interview.
Enbridge’s Springer said High Prairie was given proposals not only to connect at Clearbrook, but also to tie into the planned Sandpiper line. “We believe we left the ball in their court,” he said.
Sandpiper has had its own controversy. The proposed rate structure provoked protests from Minnesota oil refineries and others who would be slapped with a $1.45-per-barrel surcharge to finance a section of pipeline to Superior that they wouldn’t use.
“We are not opposed to the project, just with how Enbridge intended to pay for it,” said Jake Reint, spokesman for the Flint Hills refinery in Rosemount.
In its order, the commission said Enbridge hadn’t submitted enough information for the rate structure, but the order didn’t directly address protests that Enbridge was trying to shift onto shippers much of the pipeline’s financial risks.
Friday’s regulatory actions don’t affect two other pipeline projects, TransCanada’s Keystone XL, which would cross Montana, South Dakota and Nebraska, and Enbridge’s plan to boost capacity on its Alberta Clipper pipeline from Edmonton to Clearbrook and Superior.
The U.S. State Department recently completed an environmental review of Keystone XL, and has started one for the Alberta Clipper.
Enbridge recently disclosed that its existing North Dakota pipeline — once oversubscribed for oil shipments — has lost business to railroads. Even Enbridge has jumped aboard the crude-to-rail boom, recently expanding its tank-car loading terminal in Berthold, N.D.
But Springer said pipelines remain the long-term, lower-cost solution — and a way to eliminate the price discount for North Dakota crude vs. other oil.
“Sandpiper is a good project,” he said. “Once the pipeline infrastructure is in place you are going to see the differentials that producers are receiving start to tighten up ... and it is going to be a better market out there.”
David Shaffer • 612-673-7090