Analysis: Canada's "Cushing moment": A northern pipeline crisis looms

Thu Mar 29, 2012 1:32am EDT
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By Scott Haggett

CALGARY, Alberta (Reuters) - Oil traders still grappling with an unprecedented pipeline bottleneck in the U.S. Midwest that roiled global energy markets last year should beware: Canada may be next.

The pipelines that carry crude from Alberta's oil sands and the Bakken shale fields of North Dakota to U.S. refiners may run out of capacity as soon as 2015, some analysts now warn.

Fears that the export of Canadian crude will be constrained have risen recently as a result of pipeline project delays and the unyielding growth of North Dakota output. Any resulting glut could weaken Canadian oil prices, depress profits for producers like Suncor Energy Inc and Cenovus Energy Inc and choke growth in the largest source of U.S. imports.

A crisis could be avoided, though. Major pipeline operators like Enbridge Inc say they're confident that an estimated 1 million barrels per day (bpd) of idle capacity on existing Canada-to-U.S. lines is more than enough for up to five years, sufficient time to complete new lines or add pumps.

That view is by no means unanimous.

"New capacity is needed by the 2014-2015 period or we're really going to be squeezed," said Steve Fekete, managing consultant at international oil consultancy Purvin & Gertz, which completed a major pipeline study last autumn.

"Tight oil out of North Dakota (is) rapidly increasing and could chew up capacity perhaps more quickly than our forecast," he said, referring to the crude oil prised from shale by injections of water and chemicals.

Call it a "Cushing moment" for Canada, the world's No. 6 oil producer -- a dire scenario in which surplus crude would start to pile up in the storage tanks of Hardisty, Alberta, like the glut that developed in the U.S. oil crossroads of Cushing, Oklahoma, a year ago.   Continued...