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Enbridge Energy Inc. (ENB-T) wants to build a new pipeline to shuttle oil to refineries on the Texas Gulf Coast from Oklahoma - a proposal that comes as its competitor faces sharp resistance to its plan to construct a line that would get Alberta's bitumen to the Gulf Coast.
Enbridge, along with partner Enterprise Products Partners LP (EPD-N), on Thursday said the proposed Wrangler pipeline would transport 800,000 barrels per day of oil, with the potential to expand.
Because Wrangler does not cross international boundaries, it would not need approval from the Obama administration, which TransCanada Corp. must secure in order to build its $7-billion controversial Keystone XL project. That effort is designed to get oil sands crude to refineries in Texas.
Cushing, Okla., is a North American oil hub. It has been oversupplied lately, meaning companies which process crude there receive a lower price compared to the oil processed on the Gulf Coast. Enbridge and Enterprise believe Wrangler will ease the discount.
The proposed line will be able to handle all grades of crude, the companies said in a statement.
"The Wrangler Pipeline will offer flexible solutions to shippers seeking to move crude oil out of the Cushing hub, solving the current lack of transportation options following recent changes in supply routes in North America," Pat Daniel, Enbridge's chief executive officer, said.
The companies did not detail the proposal's costs. Chad Friess, an analyst at UBS Securities, expects the project to cost $1.5-billion on a gross basis.
He is not convinced Wrangler would push the price of West Texas Intermediate crude higher.
"Cushing inventories are now at their lowest level since March 2010, yet the WTI discount persists," Friess said in a research note. "We believe the greater purpose of Wrangler is to deliver burgeoning U.S. Mid-continent crude oil supplies from emerging plays like the Bakken and Niobrara."
Wrangler would start at Enbridge's existing Cushing terminal and stretch 800 kilometres south to a storage facility controlled by Enterprise in Harris County, Texas. The line would "closely" follow existing pipeline corridors, the pair said. New storage and a 137-kilometre pipeline to the Beaumont/Port Arthur refining centre are also part of the joint venture.
Friess believes there is room for both of Canada's largest pipeline companies to build projects that would ship oil to the Gulf Coast.
"In our view Wrangler and [TransCanada's] Keystone XL can coexist," he said. Keystone's initial shipments will largely be Canadian heavy oil, leaving room for Wrangler to transport lighter oil from mid-continent plays in the United States.
But Enbridge and Enterprise are not backing away from the Canadian market.
"Another important driver of this project is the demand by Gulf Coast refineries for Western Canadian crude oil supplies, which have been growing since Alberta oil first accessed the Cushing hub over the last decade," they said in a statement. "The Wrangler pipeline will be designed to accommodate quality-controlled batches of a variety of grades and sources of crude oil, providing options for economical, efficient and safe transportation of crude oil."