Enbridge pipeline joins Keystone XL in wait for U.S. permit

Reuters

By Scott Haggett

CALGARY, Alberta, Feb 14 (Reuters) - A second Canadian pipeline project to the United States is now facing delays as operator Enbridge Inc awaits a U.S. presidential permit, a development that may strain prices for Alberta oil sands crude and relations between the two countries.

Enbridge, Canada's largest pipeline company, said it no longer expects to get the permit amendment it needs to expand its Alberta Clipper line in time to start pumping extra oil on it at midyear as it had planned. It applied for the permit in November 2012.

"Based on where we see things at the moment and over the last few weeks, we feel the permit amendment will take longer than midyear issuance that we had expected," Enbridge Chief Executive Al Monaco said on a conference call. "That being said, we are undertaking some temporary system optimization efforts that pretty much mitigate any impact on throughput."

Enbridge's plan to increase capacity on its existing Clipper line by 120,000 barrels per day (bpd) in the initial stage is a far smaller project than rival TransCanada Corp's controversial Keystone XL oil pipeline from the oil sands to the U.S. Gulf Coast.

But it has recently started to face opposition from environmental groups that hope that blocking exports will slow expansion of the oil sands, where they say production is carbon-intensive.

In Washington, an official at the State Department said the delay is procedural, not political. The original contractor who was to conduct the necessary environmental impact study withdrew, and a search for another contractor is underway, the official said.

Enbridge said it can tweak its massive mainline system, which delivers the bulk of Canada's oil exports to the United States, to handle additional shipments until it has the permit in hand.

But a lengthy delay could further pressure Canadian crude prices, which trade at a discount to U.S. grades, as rising production of crude from the oil sands is running up against limited pipeline capacity. That discount stood at $25.25 below the U.S. West Texas Intermediate benchmark price on Friday.

It could also further strain relations between the two nations, with Canada already lobbying Washington heavily to reject the appeals of environmental groups and approve Keystone XL, a move that Canadian Prime Minister Stephen Harper said is "a no-brainer".

However, opponents of the two projects again called for the U.S. administration to refuse approvals.

"Secretary of State (John) Kerry and President (Barack) Obama can determine the fate of future tar sands expansion and of our climate by holding true to President Obama's own climate protection test and denying the Keystone XL and Alberta Clipper pipelines," Jim Murphy, senior counsel at the National Wildlife Federation, said in a statement.

Enbridge is no longer saying when it expects to get the go-ahead for the project, which involves adding pumping capacity to the existing Alberta Clipper line, which now carries 450,000 bpd from Hardisty, Alberta, to Superior, Wisconsin.

TransCanada has waited more than five years for the Obama administration to decide if it will approve the Keystone XL project. Analysts, however, don't expect Enbridge's expansion to attract the same level of attention from opponents that Keystone XL has received.

"There's nothing that's getting us as concerned as we are with other projects such as Keystone," said David McColl, an analyst at Morningstar. "Enbridge's projects have managed to avoid the same level of activist scrutiny."

Enbridge wants to expand the Alberta Clipper line to be able to handle 800,000 barrels per day so that it can move rising volumes of crude from the Alberta oil sands. It had expected the first phase of the expansion to be complete at midyear, while a second, 230,000 bpd, phase had been scheduled to be wrapped up next year.

The company said it can handle the additional crude expected for the initial phase by adding chemicals that reduce drag, allowing more oil to be shipped on existing lines, and through other measures until it has the permit in hand.

HEDGING LOSSES

Enbridge reported a lower-than-expected adjusted profit in the fourth quarter, mainly due to losses on hedging contracts.

Enbridge posted a net loss of C$267 million ($243 million), or 32 Canadian cents a share, compared with a profit of C$146 million, or 18 Canadian cents a share, a year earlier.

The loss was mainly driven by a C$337 million loss at its energy services business due to a fall in the fair value of its unrealized derivatives.

Excluding one-time items, Enbridge earned 44 Canadian cents per share, below the average estimate of analysts of 46 Canadian cents, according to Thomson Reuters I/B/E/S.

Enbridge had warned in December that 2013 earnings would be at the low end of its target as it completed an expansion of its pipeline network.

Revenue, however, jumped more than 18 percent to C$8.29 billion in the quarter as higher volumes were pumped though its Canadian Mainline and other new pipeline systems.

Analysts were expecting revenue of C$7.94 billion.

Enbridge shares, which have gained 8 percent in the last six months, were up 43 Canadian cents at C$47.80 on the Toronto Stock Exchange.

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