May 2008 Update

In the news...

• Grain Gives Way to Fuel (5/14/2008) ......... ....................... All across the U.S. ethanol plants are consuming more and more of the nation's corn crop. This year, around a quarter of all corn farmed in the U.S. will go to feeding ethanol plants instead of livestock. "The price of grain is now directly tied to the price of oil," says Lester Brown, president of Earth Policy Institute, a Washington research group. "We used to have a grain economy and a fuel economy. But now they're beginning to fuse." Iowa, one of the two largest corn-exporting states in the U.S., now has 28 ethanol plants with dozens more under construction. Two pipeline companies, Magellan Midstream Partners and Buckeye Partners, are exploring if it is feasible to build a $3 billion pipeline to transport up to 3.65 billion gallons of ethanol from the Midwest to distribution points in Ohio and mid-Atlantic states. As a result of this new domestic demand stockpiles are dwindling and Iowa's exports of corn are expected to be less than half of current levels in a few years. [More here]

• TransCanada, Enterprise Products and Quicksilver Gas Services Sign Agreement for Equity and Pipeline Capacity in Pathfinder Pipeline Project (5/12/2008) Affiliates of Enterprise Products Partners L.P. and Quicksilver Gas Services LP have signed a Memorandum of Understanding to acquire up to a total of 50 percent ownership of TransCanada's proposed Pathfinder Pipeline project. Enterprise would own up to 40 percent and Quicksilver the remaining 10 percent. Both companies committed to ship a total of 500 million cubic feet of gas per day for a 10-year period. TransCanada will own the remaining portion and be responsible for developing, constructing and operating the pipeline project. Phase one of the Pathfinder Project plans to install a 915-mile natural gas pipeline from Meeker, Colorado through Wamsutter, Wyoming to the Northern Border Pipeline Company system by 2010. Initial capacity is expected to be 1.2 billion cubic feet per day. A second phase will extend the pipeline to Emerson where gas can be shipped to Eastern markets or stored using the Great Lakes Gas Transmission system and TransCanada's Canadian Mainline system. Phase two could be in service as early as the fourth quarter of 2011. [More here]

• Premier Counters Dirty Oil Threat (5/09/2008) ....... Alberta's premier, Ed Stelmach fended off an attempt by an environmental coalition's campaign to get the U.S. Congress to prohibit the use of "dirty oil" - from Alberta's oilsands - by American government agencies. The premier said if the U.S. does not want to utilize Alberta's oilsands - the second largest oil reserves in the world - the province will look to other countries. "We will not only depend on the American market. We will expand markets. If that means building a pipeline to the coast and selling oil to another country, we will," Stelmach told reporters Thursday. "We have options and we'll continue to pursue options." He added later it will be up to companies to decide if they should build a pipeline to the coast. "If there's further resource development and other parts of the world are crying for energy, the companies in the pipeline business, I'm sure, will determine that and make that decision," he said. The veiled threats came a day after the Natural Resources Defense Council and 26 other U.S. and Canadian environmental groups sent a letter to U.S. Congress men and women urging them to reconsider the use of oilsands-derived energy. Less than a week earlier, 500 ducks died in a toxic tailings pond near Fort McMurry - a loss condemned by both the prime minister and environmental groups - tarnishing Alberta's environmental image around the world. [More here]

• With Billions of Dollars at Stake, TransCanada Pitches Pipeline (5/8/2008) Calgary, Alberta-based pipeline operator TransCanada Inc. is waiting to see if Gov. Sarah Palin's administration will forward its pipeline proposal to the Alaskan Legislature for approval during the week of May 19. If approved, the company - the only one to meet the state's Alaska Gasline Inducement Act (AGIA) requirements - potentially qualifies for $500 million in state subsidies. In the meantime, competing oil companies ConocoPhillips and BP have put forth their own proposal called the "Denali Alaska Gas Pipeline." The companies argue they are better suited to build the pipeline because they hold rights to much of the North Slope's gas. Tony Palmer, vice president of Alaska Development for TransCanada, said that outside of Alaska, "It's not the norm for producers elsewhere to own pipelines." ConocoPhillips and BP have suggested, along with ExxonMobil Corp., they wouldn't make their gas available to competing pipelines. Palmer said TransCanada spent years developing rights of way for the gas pipeline through Canada - the same route proposed by BP-ConocoPhillips - and the company will defend those rights. [More here]

• Enbridge Has $15 Billion in New Projects Under Consideration CEO Says (5/8/2008) Enbridge Inc.'s CEO Patrick Daniel told shareholders at their annual meeting that the company has $15 billion of new projects under consideration to expand their network of pipelines. One proposed project is the $2.6 billion Texas Access pipeline it plans to build with ExxonMobil Corp. to bring Alberta oil down to the refining hub of Port Arthur, Texas. The pipeline would connect to Enbridge's mainline in Patoka, Illinois and have a capacity of 400,000 barrels by 2012. Enbridge also plans to file an application for construction of its Gateway pipeline to Kitimat, B.C. by 2009. The oil pipeline would open up new markets to California and East Asia. The company is currently in discussions with several undisclosed Canadian oil producers about the pipeline. [More here]

• Federal Government Grants Rehearing of Pipeline Tariffs (5/7/2008) The Federal Energy Regulatory Commission (FERC) agreed to give more time to reconsider tariffs it granted to Western Refining Pipeline Co. to ship crude oil in the company's 414-mile pipeline. The Navajo Nation and Resolute Natural Resource Co. objected to the tariff's - which range from $6 to $7.50 a barrel and went into effect on March 10 - on grounds that they were discriminatory and harm producers in the Four Corners region. "In order to afford additional time for reconsideration of the matters raised or to be raised, rehearing of the commission's order is hereby granted for the limited purpose of further consideration," Nathaniel Davis Sr., deputy secretary of the commission, wrote in the order. Although the Navajo Nation currently does not ship on Western's pipeline, it plans to do so in the future. The tribe claims the price Western offers for crude oil produced by Navajo Nation Oil and Gas Co. will reduce revenues by $4.2 million and lose about $6 million in royalty and tax revenues each year. Western Refining spokesman, Gary Hanson declined comment on the claim, only saying, "I'll let the previous ruling stand for itself". [More here]

• Crude Costs Pump Oil Pipeline Capacity (5/7/2008) Canada's National Energy Board (NEB) said in its annual report that surging crude oil prices are responsible for a big shift to oil pipelines. Last year, NEB considered applications for almost one million barrels per day (bpd) of new oil pipeline capacity versus just a total of 40,000 bpd in 2006. "Without a doubt, the National Energy Board shifted into high gear throughout 2007," said NEB chairman and CEO Gaetan Caron. Applications included TransCanada Corp.'s Keystone pipeline that will transport 590,000 bpd when completed in 2009 and grow to 1.3 million bpd by 2013-14. NEB also reviewed Enbridge Inc.'s Alberta Clipper that will initially move 450,000 bpd before expanding to 800,000 bpd. Only one major gas project - the proposed MacKenzie Valley natural gas pipeline - was brought before the board last year. The project is still awaiting NEB's approval, but a final decision is expected in June. [More here]

• Pipeline Giant Eyes Expanded Project (4/26/2008) .... Although TransCanada is about to start construction of its $5.2 billion Keystone oil pipeline, it is already planning a massive expansion. Once the first phase is completed in 2009, the new expansion will add a second 36-inch pipeline that takes a different route by going from Alberta's pipeline hub at Empress to Port Arthur on the Gulf Coast of Texas. The second pipeline would add another 750,000 barrels per day (bpd) for a total combined capacity of approximately 1.3 billion bpd. ConocoPhillips, which has committed to be a shipper on Keystone's first phase, has a 50 percent stake in the new project. Texan refineries can better handle the heavier oil blends from Alberta because of their experience with similar heavy oil traditionally used from Venezuela. TransCanada's CEO Hal Kvisle said, "Both projects (Keystone one and two) are in the broad public interest of Alberta and Canada," because higher volumes of Alberta oil will spur demand in North America's largest refining market. The resulting demand will narrow the price differential between Alberta wellhead prices and Texas refineries. [More here]

• Oil Giants Push for Pipeline in Congress (4/21/2008) ...... Two of Alaska's North Slope biggest oil producers - BP and ConocoPhillips - were in Washington, D.C. pushing their plan to build a $30 billion pipeline to carry natural gas to the continental U.S. BP Alaska president Doug Suttles and Jim Bowles, chief executive of ConocoPhillips' Alaska operations, met with the Federal Energy Regulatory Commission and members of Alaska's congressional delegation. Sen. Lisa Murkowski, R-Alaska, said she left her meeting with Suttles and Bowles “feeling good about the future of the state.” Sen. Ted Stevens, R-Alaska, said “We’re looking now at certainty that we’re going into a period of real development, I think that changes the dynamic of the Alaska economy.” The project, named Denali Pipeline by the ConocoPhillips-BP partners, would deliver 4 billion cubic feet of gas per day or around 8 percent of the nation's current demand. The companies say they have the experience and capital required for the pipeline. Their plan calls for a 48-inch diameter pipeline from Prudhoe Bay that would follow the existing trans-Alaska oil pipeline corridor to Fairbanks where it would split off alongside the Alaska Highway before ending in Alberta. Existing pipelines will be used to ship the gas onto the Lower 48 states. Bowles and Suttles said each of their companies approved $300 million to spend over the next two summers to get the project to open season. State officials who are considering TransCanada's proposal - the only one approved by Gov. Sarah Palin's administration - welcomed the announcement, but said more information is needed to properly evaluate it. Gas could flow down the pipeline beginning 2018 if project stays on schedule, according to Bowles. [More here]

• TransCanada, Enbridge Ready to Work with Oil Majors (4/20/2008) After North Slope producers BP and ConocoPhillips announced plans to build a $30 billion gas pipeline and preparations for a 2010 open season, TransCanada Corp. and Enbridge said they are ready to work with them. Tony Palmer, TransCanada's vice president for Alaska development, said, “We believe we are the best independent pipeline to pursue the project because our proposal to the state meets every one of its goals,” and allows for equity participation by producers. However, Enbridge Vice President Ron Brintnell said his company has years of experience building pipelines in northern climes adding, “We have $12 billion in current projects under way, which gives us current knowledge with construction and steel costs. No one can touch Enbridge's experience with current construction.” State legislators were encouraged by the announcement, but Alaskan House Speaker John Harris expressed concerns about how to maintain a sense of competition if only one producer pipeline is moving forward. [More here]