10/6/2006 by Wayne Nelson

With Canadian crude oil becoming a far larger part of the future U.S energy supply landscape, the principal oil and gas pipeline system connecting the two countries is rapidly rebuilding its presence in Superior.

Houston-based Enbridge Energy Partners, LP (NYSE: EEP), has roughly tripled the workforce at its regional operations center in Superior this year to 135 employees, said spokeswoman Denise Hamsher. The company also has hired 60 contract employees — many of them engineers and other pipeline design professionals — as Enbridge begins the first of three major projects that will expand its pipeline capacity between Western Canada, Chicago and downstate Illinois.

The rapid staff expansion at Enbridge in Superior is a reverse image of its predecessor company’s final months in Duluth just five years ago.

In May 2001, top management at Enbridge Inc. in Calgary, Alberta announced it was merging its Lakehead Pipe Line Co. headquarters in Duluth with a newly acquired natural gas firm in Houston. Thirty of 110 headquarters employees were moved to the Superior operations office at 119 N. 25th St. E. The rest lost their jobs or like, Hamsher, were reassigned to Houston.

Fast forward to 2006 and Enbridge is fully occupying its own building.

Hamsher said the company also is leasing additional space in nearby Mariner Mall and at Superior City Center, the former city-county building at 1409 Hammond Ave. that A&L Development renovated in 2005.

Southern Access expansion

In February, Enbridge Partners and its Canadian affiliate, Enbridge Inc. (TSX:ENB; NYSE:ENB), announced its Southern Access Expansion, a plan to replace a 30-inch pipeline between Superior and Chicago with a larger 36-inch line. Construction of the 321-mile first stage — between Superior and Delavan, WI, near Whitewater — will begin this fall and is scheduled to begin operating in early 2008. The portion in Northwest Wisconsin will be built in the existing Enbridge corridor, and includes additional pump stations.

Stage 2 of the Southern Access Expansion will begin in 2008 with construction of a new 133-mile pipeline between the Delavan pumping station and Flanagan, IL, where it will interconnect with Enbridge’s Spearhead System. It transports crude oil from Texas and Oklahoma to refineries in Chicago. Enbridge also will extend the system to its petroleum transportation hub at Potoka in southern Illinois. The Stage 2 expansion will be operational in early 2009.

When finished, the expansion will provide 400,000 barrels per day of additional crude oil capacity between Alberta and Chicago. The project is part of a broader plan that Enbridge has developed with shipper-members of the Canadian Association of Petroleum Producers and Chicago area refiners.

One of those big refiners, BP America, Inc., announced Sept. 20 it has entered the final planning stage in a $3 billion investment in Canadian heavy crude oil processing at its Whiting Refinery in northwest Indiana.

BP America Chairman and President Robert Malone said the company intends to reconfigure its Whiting Refinery so most of its feedstock can be heavy Canadian crude oil. Reconfiguring the refinery will increase the refinery’s Canadian heavy crude oil processing capability by about 260,000 barrels per day, and boost output by about 15 percent, he said. Pending regulatory approvals, construction is tentatively scheduled to begin in 2007 with completion by 2011.

The Enbridge Southern Access project also sets the stage for the second of three Enbridge expansions that collectively carry a price tag estimated in 2005 at $1.2 billion. Enbridge calls the second project “Southern Lights.”

Southern Lights

Oil deposits in the tar sands of Western Canada are heavier and more difficult to refine than the “lighter, sweeter” grades of crude oil produced in the U.S. Southwest. The heavier oils also are more difficult to ship.

Enbridge’s planned Southern Lights expansion, scheduled to begin in 2008, will address the challenges in delivering heavy crude from Alberta to refineries in the Midwest. Some segments of its existing 30-inch pipeline system between Alberta and Chicago will be reversed to pump from south to north. Those segments will carry light hydrocarbons called “diluents,” produced at Midwest refineries and supply centers, to the oilfields in northern Alberta where they’ll be used to dilute heavy crude oil and “bitumen” to a consistency thin enough for transport south via pipeline to refineries.

Bitumen is the thick, tar-like oil in three oil sands deposits, about 300 miles north and east of Edmonton. A separate diluent-only pipeline is planned between Edmonton and Fort McMurray.

With Southern Lights operational, the crude supply from the Western Canada oil sands is expected to grow as much a 1.8 million barrels per day by 2015. With that increased production, the bottleneck in Enbridge’s pipeline system to the Midwest will become its 30-inch line between Alberta and Superior that crosses North Dakota and northern Minnesota.

Alberta Clipper

With completion of its Southern Access program in 2009, Enbridge proposes to build an additional pipeline in its existing 1,000-mile corridor between Hardesty, Alberta and Superior called the “Alberta Clipper.”

Hamsher said new oil sands extraction technology, the uncertainty of future access to Middle East oil and the expectation that high prices are permanent have combined to shift the focus of future U.S. oil supplies to Canada. The higher extraction costs for heavy oil and bitumen is outweighed by relatively lower exploration costs, she said.

It’s hard not to find oil in the three oil sands areas in northern Alberta that collectively hold about 14 percent of the world’s known oil reserves, roughly equivalent to those in Saudi Arabia, the world’s No. 1 producer.

About $80 billion in exploration and development projects are planned or underway in those oil sands. The imminent shift of Midwest refineries to handle more heavy crude positions Enbridge as the transporter.

“We’re the connection . . . and a very busy bunch,” Hamsher said.

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