Sandpiper Crude Oil Pipeline Project Gains Major Investor and Anchor Shipper

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Efforts to transport more light sweet crude oil from the Bakken Shale formation to refiners across North America took a big step forward late last year when Marathon Petroleum Corporation (NYSE:MPC) (Findlay, Ohio) became an anchor shipper. Marathon agreed to fund 37.5% of the $2.6 billion Sandpiper Pipeline Project, which is being developed by Enbridge Incorporated (NYSE:ENB) (Toronto, Ontario).

Click on the image at right to see a proposed route map for the Sandpiper Pipeline Project.

"The Sandpiper Project provides much-needed pipeline capacity to enable rapidly growing Bakken crude oil production ... to access premium markets in eastern Canada and the U.S. Midwest," said Stephen J. Wuori, president of Enbridge Liquids Pipelines and Major Projects, while announcing Marathon's commitment to and investment in Sandpiper on November 25.

Marathon's "shipping commitment demonstrates the economic attractiveness of establishing a low-cost, reliable pipeline solution for Bakken producers to access the premium North American markets for light crude oil," Wuori said.

"With the growth in Bakken crude oil production, the Sandpiper Project will provide needed pipeline takeaway capacity for crude oil transportation out of the region," said Mike Palmer, Marathon Petroleum's senior vice president for supply, distribution and planning, in a statement last November. "This project further strengthens our ability to transport Bakken crude oil by pipelines and benefits MPC by providing additional access to this resource at a competitive cost of transportation."

Crude oil production in the Bakken Shale has soared, reaching nearly 1 million barrels per day (BBL/d) at year-end 2013, roughly double the daily production level of late 2011. Rapid production growth has overwhelmed outbound transport capacity, putting pressure on pipeline companies, railroads, trucking firms and logistics companies to get the crude oil to markets, where it can be refined. For more on this issue, see September 25, 2013, article - Gas-Gathering Network is Achilles' Heel for North Dakota Energy Industry.

"The Bakken has a lot of infrastructure projects being built and under development, but most of those projects are rail-related, and the majority of those projects are being built by smaller companies," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. For more on that trend, see December 26, 2013, article - Bakken Shale Development Sees Small Players Doing Big Things.

"Who knows--Sandpiper could be an inflection point in the Bakken, where pipelines recapture outbound transportation market share," Davis said. "There's certainly plenty of crude trying to get to market."

In recent years, pipelines in the Williston Basin have lost significant outbound market share to railroads, which offer shorter lead times and greater flexibility than pipelines. Currently, about 75% of Bakken crude oil is transported by railroads, according to industry estimates. For more on this issue, see May 7, 2013, article - Crude-by-Rail Surges, Dominating Outbound Transportation from Williston Basin.

With the Sandpiper project, Enbridge is looking to change some of that. The company is nearing the end of an "open season" for crude-oil transportation commitments on Sandpiper, a two-part project that will stretch about 620 miles from western North Dakota to Clearbrook, Minnesota, and on to Superior, Wisconsin.

"Another interesting aspect of the Sandpiper project is Enbridge's decision to manage risk by having an anchor shipper as an equity owner," Davis said. "Building a pipeline is an expensive and high-risk endeavor, as we saw when ONEOK Incorporated (NYSE:OKE) (Tulsa, Oklahoma) cancelled its proposed Bakken Express crude oil pipeline in November 2012. Having an anchor shipper that's also an owner provides added assurance the project will continue to move forward."

One part of the Sandpiper project entails construction of 375 miles of 24-inch diameter pipe from Beaver Lodge, North Dakota, to Clearbrook, Minnesota. That leg will add about 225,000 BBL/d to Enbridge's existing crude-oil pipeline transportation capacity. Sandpiper's second leg is 233 miles of 30-inch diameter pipe connecting Clearbrook to a mainline terminal in Superior, Wisconsin. That leg will add about 375,000 BBL/d of new transportation capacity to the Enbridge system.

Both projects will parallel existing Enbridge pipelines or utility rights-of-way. The Sandpiper project also will include construction of new pumping units, storage tanks and metering facilities. Construction is scheduled to begin in late 2014, and oil is scheduled to begin flowing in early 2016, the company said.

As big as Sandpiper is, it is only part of a broader pipeline construction program, which Enbridge calls its Light Oil Market Access Program. The $6.2 billion strategy was unveiled 13 months ago.

Last August, Enbridge held eight town hall meetings in North Dakota, Minnesota and Wisconsin to inform the public about Sandpiper and answer any questions the public had about the project, Enbridge Community Relations Manager Katie Haarsager told Industrial Info. She estimated 500 people attended those meetings. Attendees were interested in a wide variety of issues, she said, ranging from jobs and safety, to construction techniques and environmental protection.

"At the town hall meetings, we said that pipelines are the safest way to transport crude oil," Haarsager said in an interview. Enbridge officials have estimated the pipelines in North Dakota will prevent about 866,875 long-haul truck trips per year, which lowers the risks of accidents, prevents air pollution and reduces the wear and tear that heavy trucks inflict on North Dakota's roads.

"We aren't slowing down in our efforts to provide more infrastructure for moving North Dakota crude out by the safest means possible," Enbridge's Wuori said last August at a public event in Berthold, North Dakota.

At the town hall meetings, Haarsager said Enbridge officials emphasized their commitment to safety, environmental stewardship, and being a good neighbor in communities where it operated. "The meetings had very positive feedback on the project," she said.

Enbridge has been ranked as one of the "Global 100 Most Sustainable Corporations in the World" for the past five years, as was named one of Canada's greenest employers for 2013.

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