March 3, 2006

Pipeline Reversal: Canadian Oil Flows South to Cushing

By Robert Evatt, Tulsa World, Okla.

Mar. 3--CUSHING -- For years, the 650-mile stretch of pipeline shipped oil originating in Oklahoma and surrounding regions from Cushing to Chicago.

On Thursday the direction -- and the role -- of the pipeline officially reversed as the first barrels of Canadian oil arrived in Cushing.

The delivery marked the first fruit from the $122 million purchase of the pipeline by Calgary, Alberta-based Enbridge Inc. from BP Plc three years ago.

Oil from a staggeringly large -- 1.7 trillion to 2.5 trillion barrels -- reserve in Alberta will come slowly at first. But Richard Bird, executive vice president of liquid pipelines at Enbridge, said the pipeline should be pumping 125,000 barrels of oil a day to Cushing in a matter of months.

"This is the dawning of a new era of North American crude supply," Bird said during a press conference commemorating the oil's arrival through the newly named Spearhead Pipeline.

But the 125,000 barrels isn't the limit. Bird said capacity could be boosted to 190,000 barrels per day simply by increasing the pumping power, and a possible addition of looping pipelines could provide an additional 100,000 barrel per day.

"We'll respond to the needs of the marketplace," he said.

Mayor Loren West said the pipeline's reversal, as well as expansion of the Cushing terminal, will help the area prosper.

"It's a lot of money flowing into the local economy, and it looks like they'll be growing for several years," he said.

The Canadian oil will be stored in tanks at Enbridge facilities in Cushing, which have a capacity of 10.3 million barrels. Nine tanks are under construction and are expected to add 3.2 million barrels of storage.

During the press conference, Lt. Gov. Mary Fallin read a proclamation from Gov. Brad Henry declaring Thursday as "Enbridge Spearhead Pipeline Day."

In December, Enbridge officials announced that the company would spend $20 million on the project to ship Alberta oil to Cushing.

Though Oklahoma was the site of many oil discoveries in the past century, the Alberta Oil Sands is a relatively new find, not to mention a huge one. Bird estimates that the area has 14 percent of the known oil reserves in the world.

But getting the oil to market isn't easy. As the name suggests, the crude in the Alberta Oil Sands is mixed in sludgy sand, making its extraction much more difficult than simply tapping a traditional liquid crude reserve, Bird said.

To remove the oil, workers dig up the sand, pulverize it and mix it with hot water in a centrifuge. Once the oil is removed, the drained sand is put back into the ground.

"It's a relatively new technology that has taken pioneer companies a few years to prove," Bird said.

It's also an expensive technology. Originally, the extraction process itself cost more than the price of finished oil, he said. But once crude oil prices began to rise two years ago, the extraction began to turn a profit.

Bird said oil companies expect prices to remain high, so production should only increase. He estimates that 1.6 million barrels of oil now comes from Canada per day. That figure could double within 10 years.

Though Canadian oil just arrived for delivery to the southern United States Thursday, it had already been piped to the northern part of the country through Enbridge's existing 1,565-mile pipeline from Edmonton, Alberta, to Chicago.

With the additional 650-mile Spearhead Pipeline, oil takes about 47 days to move from Edmonton to Cushing.

Though the Canadian oil will provide additional stock for U.S. refineries, Bird said he does not expect the increased use of Canadian oil to significantly affect oil prices by itself. The market is driven by production, refining and events throughout the world, he noted.

Thursday on the New York Mercantile Exchange, light sweet crude for April delivery rose 98 cents to $62.95 a barrel.



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