Big Canada Pipelines, Line 3: The Rookie Sensation Surpassing its Predecessor Pipeline Proposals

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Researched by Industrial Info Resources (Sugar Land, Texas)--The mission to get western Canadian sour (WCS) crude oil out of Alberta and to its refinery or exporter customers has been a long one. While the region currently has sufficient capacity to get average daily production out smoothly, pending no unforeseen changes in demand or pipeline capacity, it lacks enough "spare" capacity to maintain a stable price in the face of change. While the region supplements its pipeline capacity with crude-by-rail to meet demand, it is only a stopgap measure until pipeline takeaway capacity can be brought online.

However, this stopgap is turning into a longer-term necessity as many projects remain mired in permitting and regulatory procedure. This has led to a very creative solution by Enbridge Incorporated (NYSE:ENB) (Calgary, Alberta): rather than build all-new, replace the old.

WCS takeaway pipeline projects have been around for more than a decade. The earliest takeaway pipeline project that was, and still is, being tracked by Industrial Info is Enbridge's 525,000-barrel-per-day (BBL/d) Northern Gateway pipeline, which has been followed by Industrial Info since 2003. The next-oldest project is the controversial Keystone XL (KXL) project by TransCanada Corporation (NYSE:TRP) (Calgary, Alberta), which has been tracked by Industrial Info since late 2008, and would carry an initial 500,000 BBL/d of WCS out of Alberta toward the Gulf Coast refining market.

Next is the Trans Mountain Expansion project (TMEP 890) by the Canadian arm of Kinder Morgan Incorporated (NYSE:KMI) (Houston), formerly known as the TMX-2 project. While TMEP 890 is called an expansion, it actually involves building a new line next to the existing one for much of its length, making it more new-build than simple expansion.

The three major projects above--the "old guard" of takeaway capacity projects--have been in regulatory limbo for years. Multiple requests for information, landowner and aboriginal engagement issues, politics and the sheer volume of information in the application documents make the process long and difficult. So long and difficult, in fact, that TransCanada and Enbridge have both proposed new projects to serve as alternatives to the old guard.

TransCanada's 1.1 million-BBL/d Energy East project has been tracked by Industrial Info since 2013, and Enbridge's 760,000-BBL/d Line 3 reactivation has been tracked since early 2014. While both were meant to be brought online within the next three years, Energy East has encountered hurdles that have pushed it out to 2020. On the other hand, the younger and less divisive concept of replacing an existing pipeline that is the scope of the Line 3 reactivation has not seen as many hurdles thrown in its way, and looks like it may overtake even some of the old guard projects. While Line 3 is, mile-for-mile, longer than the TMEP 890, it faces different regulatory hurdles than its Kinder Morgan counterpart, due to Line 3's lack of new-build construction.

Energy East includes conversion segments as well; however, a significant portion of the project is new-build construction, and the project passes through provinces in Canada that are less experienced with crude oil pipelines Thus, while it is not entirely new-build, it still falls into the regulatory trap.

Permitting has become the major X factor in a pipeline project's forward motion. With its different approach to permitting, Line 3 addresses the permitting issue by going around it. Should things go according to plan, Line 3 is set to overtake the old guard, and be the first line of the bunch to be brought online in late 2017.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and ten international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.