California-based Pacific Energy Partners L.P. plans to transform its two newly purchased regional pipeline systems in Alberta into a mainline to ship growing quantities of oilsands crude to refineries throughout the western United States.
Earlier this week, Pacific Energy finalized its $31.5 million acquisition of the Mid Alberta Pipeline from Imperial Oil. In May, the company completed a $156 million deal for BP Canada's Rangeland oil pipeline system.
Long Beach, Ca.-based Pacific Energy intends to combine the two lines, which are currently a gathering network serving declining conventional crude oil production in central and southern Alberta.
The company will convert this new Alberta system into a mainline that accesses synthetic oilsands crude oil in Edmonton and takes it to the U.S. border, where it will link up with the company's Rocky Mountain pipeline that accesses 14 refineries in the United States.
"Producers in Alberta and refiners in the U.S. Rocky Mountain region have already shown great interest in this new pipeline corridor," Pacific Energy chief executive Irv Toole said in a release.
Over the next year, Pacific Energy plans to construct a new initiating terminal facility with multiple pipeline connections in Edmonton.
"Producers have a need to find additional outlets for their growing oil sands production, and refiners need to replace supplies of conventional crude oil that are declining."
Toole noted that oilsands producers have already made "significant investments" to upgrade and customize their synthetic crude oil blends in order to enable to meet the specifications for refineries in the western U.S.
"We expect this new pipeline corridor to be successful because it will allow Pacific Energy to participate in a meaningful way in meeting the increasing crude oil requirements of U.S. Rocky Mountain refineries by accessing new synthetic oil supplies in Edmonton."
A report released last month by Alberta's energy regulator said oilsands production in the province exceeded conventional crude oil production by more than 50 per cent last year.
And with several new, large-scale facilities under construction in northern Alberta that use steam-assisted technology to coax out bitumen reserves from deep underground, production is expected to increase. Within the next decade, oilsands output is expected to make up at least 80 per cent of Alberta's total oil production..
Canada's oilsands reserves, located in northern Alberta, contain an estimated 174.5 billion barrels of bitumen or oilsands feedstock, making Canada one of the world's largest holder of energy reserves. So far only two per cent of these reserves have been produced.
Almost every large energy company involved in Canadian oil production is looking at new oilsands facilities while companies that are already there are constantly expanding. As such, there is a growing need for pipeline solutions to take the extra oilsands production to energy-thirsty U.S. markets.
One of the largest oilsands players, Suncor Energy (TSX:SU), bought its own refinery in Denver last year and is currently retrofitting the plant to be able to refine bitumen.
And Canada's largest oil pipeline companies are all entertaining major expansion plans and new routes over the next few years.
Calgary-based Enbridge (TSX:ENB) plans to build a new $650-million Southern Access Pipeline that would move Canadian oil to other major U.S. market hubs. And it is also looking at building a new line to take oilsands crude to the West Coast to access the California or Asian markets.
But ultimately, it is the oilsands producers that will decide which pipeline routes go-ahead. Earlier this spring, Enbridge had to shelve its so-called Spearhead plans that involved taking a newly-purchased $122-million US line and reversing the flow to take oilsands crude to Cushing, Okla.
This is because producers balked at the cost and would not support the plans by committing to long-term shipping agreements.