Enbridge sees future in shale


By Dina O'Meara, Calgary HeraldJune 12, 2009 8:30

EnbridgeCALGARY - The future of the world's longest oil pipeline operator is in natural gas, specifically shale and even more specifically in the United States, says Enbridge's Steve Letwin.

Letwin, managing director of Houston-based Enbridge Energy Co. Inc. was in town this week for several corporate functions and gave the Herald a few moments to discuss Calgarybased parent Enbridge Inc.' s strategic expansion into the U. S. gas pipeline market.

The company, better known as Canada's largest oil pipeline operator, is proposing the $1.5-billion LaCrosse Pipeline, which would link shale gas producers in the Fort Worth basin, Barnett and Haynesville regions of Texas and Louisiana to growing markets in Florida.
Enbridge hopes to break ground on the smallish but significant 480-kilometre, one-billion-cubic-feet-per-day pipeline by the first quarter of 2011 and to be shipping commercial gas within a year. The company expects to make a final decision on the project by the first quarter of next year.

Q: What is the attraction of natural gas for Enbridge?

A: The view is that we're going to be able to replace the growth that we once thought would come from the crude oil side with the gas growth. For example, Alaska has reserves of 35 trillion cubic feet of natural gas--shale gas in North America is an estimated 1,200 tcf. This is not to take away from our crude oil pipes--which are our crown jewels, and always will be--but natural gas is our future.

Q: Shale gas plays can be prolific but seem to have an accelerated depletion rate. How concerned is Enbridge the project might run out of gas before the pipe goes online?

A: It is a concern. In terms of depletion, our pipe doesn't just access the Haynesville, we'd be able to draw on the Barnett as well. We think the Haynesville is a very prolific play, and has a lot of upside, but we're not going to make our bet totally on that.

Q: Enbridge is used to being a long-haul transporter. Why choose a short route in an area already crowded with pipelines?

A: There's lower risk involved in the smaller pipe, and there's access to extensive existing pipeline systems connecting to major natural gas consumers in the U. S. northeast and southeast. Depletion is another reason we're planning a shorter pipeline and one that goes into the Florida region, which has very high energy demand, rather than further north where there could be more competition from the Marcellus shale play.

Q: What kind of reaction have you gotten from producers in the region?

A: Our biggest challenge today, because of credit issues, and so on, is getting contractual commitments. Producers in the region are mostly smaller independents who want the pipe, but don't want the long-term commitment that we need to step up and put the pipe in the ground.

Q: Where do prices have to be to make LaCrosse economically viable?

A: The average gas to oil ratio since 2000 has been 8:1; today it's at 16:1. That's because shale gas is in such abundance, it's hard to see the prices move to the $10 level and, unless it moves up, the amount of drilling activity will be hard-pressed to come back. What do we need to do to change that? We need to increase the use of natural gas, either through power generation replacing coal, or natural gas vehicles.

domeara@theherald.canwest.com