Enbridge's Sandpiper Pipeline Deferred, but Maybe not Quite Dead

Researched by Industrial Info Resources (Sugar Land, Texas)--Enbridge Incorporated's (NYSE:ENB) (Calgary, Alberta) decision to put its proposed Sandpiper Pipeline on indefinite hold doesn't bode well for the project, but it may not necessarily be a final death sentence, given the vagaries of the oil market. Enbridge announced last week it would withdraw regulatory applications pending with the Minnesota Public Utilities Commission for the Sandpiper Pipeline Project. The proposed 616-mile pipeline would move Bakken light crude oil from Enbridge's Beaver Lodge Station, near Tioga, North Dakota, to Enbridge's Superior Terminal, near Superior, Wisconsin. Enbridge first announced the project in 2013, but the dramatic downturn in oil prices has since resulted in a drop in production from North Dakota.

Enbridge announced last week it would withdraw regulatory applications pending with the Minnesota Public Utilities Commission for the Sandpiper Pipeline Project. The proposed 616-mile pipeline would move Bakken light crude oil from Enbridge's Beaver Lodge Station, near Tioga, North Dakota, to Enbridge's Superior Terminal, near Superior, Wisconsin. Enbridge first announced the project in 2013, but the dramatic downturn in oil prices has since resulted in a drop in production from North Dakota.

Enbridge Energy Partners, part of the Enbridge group, said the project "should be delayed until such time as crude oil production in North Dakota recovers sufficiently to support development of new pipeline capacity. Based on updated projections, EEP believes that new pipeline capacity will not likely be needed until beyond the Company's five-year planning horizon." Before last week's announcement, Enbridge had said it didn't expect construction of the Sandpiper Pipeline to begin until 2019.

Some news reports said Enbridge has essentially pulled the plug on the $2.6 billion project, but Industrial Info's Chris Easley, research manager of North American Oil & Gas, offers a different point of view. The announcement of the delay "follows suit for most of the large-capital companies in the oil and gas business," he said. "Drilling has fallen drastically from 2014 levels due to the price of oil, so too the demand for product transmission. But as soon as oil is priced in the $60-$80 per barrel range, then I would bet Enbridge will refile the regulatory applications for the pipeline. Once drilling rises, the need for pipelines will return."

However, recent news that Enbridge plans to partner with Marathon Petroleum Corporation (NYSE:MPC) (Findlay, Ohio) to buy a 36.75% stake ($2 billion) in the soon-to-be-completed Bakken Pipeline System could drive a stake in the heart of any future plans to revive the Sandpiper project. Enbridge said last week it had made a funding arrangement to enable the purchase of the stake in the Bakken Pipeline, which will transport Bakken crude oil from North Dakota to Patoka, Illinois.

Enbridge Energy Partners Chief Executive Officer Al Monaco said last week the Bakken Pipeline System "connects the prolific Bakken formation to eastern PADD II and the U.S. Gulf Coast ("USGC")" adding, "In light of the deferral of Sandpiper, our investment in the Bakken Pipeline will accelerate cash flow generation from our Bakken assets and help alleviate the funding drag associated with a large greenfield project..." The Bakken Pipeline System is expected to be open for service late this year.

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