Enbridge line shutdowns sap output as U.S. crude gains on Europe

An Enbridge Inc. oil pipeline sits under construction near Fort McMurray, Alberta, Canada. Brett Gundlock/Bloomberg

Enbridge Inc. (ENB)’s shutdown of Alberta pipelines capable of moving 1.17 million barrels a day toward U.S. markets is shrinking output and boosting U.S. crude to the highest level against Europe’s benchmark oil since 2011.

The company’s Athabasca and Waupisoo lines, carrying oil from northern Alberta’s rapidly expanding oil-sands operations to hubs farther south, remained closed today, with the exception of a segment from Cheecham to Hardisty. Nexen Inc. and Suncor Energy Inc. (SU), facing transportation limits, cut output.

Restricted pipeline flows to the U.S., dependent on Canada for 25 percent of oil imports, are buoying U.S. benchmark West Texas Intermediate crude to the highest level against European counterpart North Sea Brent in almost 30 months. A prolonged outage would support a further narrowing of the WTI-Brent gap, already forecast to shrink to $5 a barrel this year as new conduits bring Canadian and U.S. shale oil to the Gulf Coast.

“It’s still unclear how long they’re going to be completely down,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by telephone yesterday. “Every additional day that Enbridge Canada is down supports the WTI price.”

Alberta, where oil output is on course to more than double to 3.8 million barrels a day by 2022, sent 1.7 million a day to the U.S. in 2011, provincial government figures show. Kinder Morgan Inc. (KMI)’s Trans Mountain and TransCanada Corp. (TRP)’s Keystone pipeline expansions are being proposed to help move Alberta’s growing oil volumes to markets elsewhere in Canada and the U.S.

West Texas Intermediate for August delivery on the New York Mercantile Exchange climbed 14 cents to settle at $95.32 a barrel yesterday. The oil’s discount versus Brent narrowed 4 cents to $5.94, the smallest since January 2011, and was back above $6 in electronic trading late yesterday.

WTI Rises

The WTI-Brent gap will narrow to $5 by the end of 2013 as pipeline capacity moving oil from Canada and U.S. shale plays to the Gulf Coast increases and demand for the crudes rise, Vikas Dwivedi, a Houston-based global energy strategist for Macquarie Group (MQG), said in a research note June 24.

“Fast-moving, bearish macro factors and corresponding central bank responses are pushing Brent crude fundamentals to the sidelines this summer,” he said. “The WTI-Brent spread will continue to tighten on supply-demand and logistics fundamentals.”

TransCanada’s Keystone project, facing opposition from environmental groups and under review by the U.S. State Department, will be built only if it doesn’t “exacerbate” carbon emissions, President Barack Obama said yesterday at Georgetown University in Washington.

Obama’s Stand

“The net effect of the pipeline’s impact on our climate will be absolutely critical to determining whether this project is allowed to go forward,” he said.

Enbridge, the largest transporter of Canadian crude to the U.S., shut the Athabasca and Waupisoo systems after finding a 750-barrel spill on June 22 from Line 37, a link on the Athabasca system serving Nexen’s Long Lake oil-sands complex.

The shut lines restricted Suncor’s ability to move product out of the region, Chief Executive Officer Steve Williams said in a statement June 24. Canadian Natural Resources Ltd. said yesterday that operations are stable.

Nexen is running the Long Lake complex at reduced rates as the company works with Enbridge to determine when repairs on Line 37 will be completed, Patti Lewis, a Nexen spokeswoman in Calgary, said by e-mail June 24.

Startup Plan

Enbridge will need to submit a startup plan to the Alberta Energy Regulator before returning Line 37 to service, Darin Barter, a spokesman for the agency in Calgary, said by e-mail yesterday. The company restarted the southern section of the Athabasca system from Cheecham to Hardisty late June 23.

Operations on the system north of Cheecham remain down, the company said yesterday.

Enbridge’s Ozark pipeline from the oil hub of Cushing, Oklahoma, to Wood River, Illinois, has been shut for maintenance that was extended to June 29, mitigating the effect of the Canadian constraints on WTI, Lipow said.

“Every day that the Ozark pipeline is down has a countervailing effect,” he said.

Enbridge said June 24 that it may clear the Waupisoo line to Edmonton from Cheecham for startup as early as yesterday. The Long Lake lateral may be down for an “extended period” because of wet conditions, the company said in a statement.

Long Lake

“Other options to support the Long Lake project’s requirements are being evaluated,” Enbridge said.

Western Canada Select strengthened a second day against the U.S. benchmark WTI, gaining 25 cents to a discount of $16.50 a barrel yesterday, its highest level in almost a week, according to data compiled by Bloomberg. Syncrude also advanced 25 cents versus WTI yesterday, to a premium of $3.50.

Suncor said it doesn’t expect the temporary output reduction to affect annual production. Oil-sands output will total 350,000 to 380,000 barrels a day this year, with Syncrude output totaling 34,000 to 38,000, the company said April 29.

Flooding in Alberta may have affected the integrity of Line 37, according to Enbridge. Line 36, which parallels Line 37, was already shut at the time of the leak, Whelan said by e-mail June 22.

Athabasca Line

The 30-inch Athabasca pipeline, also known as Line 19, has a capacity of 570,000 barrels a day, depending on the viscosity of the crude flowing through it, according to the company’s website. The line runs from the Athabasca terminal to the Hardisty terminal.

The 237-mile (381-kilometer) Waupisoo pipeline, operating since June 2008, runs from Enbridge’s Cheecham terminal to Edmonton. The line, also known as Line 18, has an annual capacity of 600,000 barrels a day depending on the viscosity of the crude load, Whelan said.

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