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Enbridge buys into Dakota Access Pipeline, Sandpiper future unclear

The Dakota Access Pipeline, pictured under construction on Friday, July 29, 2016, in northwest North Dakota, is expected to be complete by the end of 2016. photo by Eric Hylden/Forum News Service1 / 2
Hundreds of miles of pipe sit in storage in Newton, Iowa. Energy Transfer Partners is in the process of securing land for its pipeline project and preparing to build the Dakota Access Pipeline. (2015 file / Andy Abeyta / The Cedar Rapids Gazette)2 / 2

Enbridge, which has been battling for approval of a Bakken crude oil pipeline across northern Minnesota, has announced it will invest in a different pipeline from North Dakota, leaving the future of its Sandpiper line unclear.

Enbridge Energy Partners and Marathon Petroleum Corp. plan to acquire a portion of the Dakota Access pipeline in a $2 billion deal that would leave Enbridge’s Sandpiper pipeline without an anchor customer.

Enbridge and Marathon, which previously planned to partner on the Sandpiper to transport crude oil from northwest North Dakota to Superior, Wis., expect to terminate their Sandpiper agreement later this year.

Once the deal is finalized, expected in the third quarter of this year, Enbridge said it plans to evaluate the timing and the scope of the Sandpiper project.

“We continue to believe that the Bakken is highly productive and a significant area of potential that requires pipeline capacity,” said Katie Haarsager, an Enbridge spokeswoman. “We’re still looking at the Sandpiper as a viable solution for moving Bakken crude.”

Marathon had committed to fund 37.5 percent of the construction of the $2.6 billion Sandpiper project. The pipeline was initially expected to be in service in 2016, but regulatory delays in Minnesota have prevented construction from starting.

Andy Lipow, president of Lipow Oil Associates consulting firm in Houston, said he thinks the announcement by Enbridge and Marathon puts the future of Sandpiper in doubt.

“My personal opinion is that this transaction makes it less likely that the Sandpiper pipeline will proceed, especially as we see oil prices hover between $40 and $50 a barrel,” Lipow said. “Should oil prices recover and drilling and production increases once again the Bakken, we might see a revival of this pipeline project.”

The Friends of the Headwaters environmental group based in Park Rapids, Minn., said they considered the news a “soft victory” for members who have opposed locating the pipeline near the Mississippi Headwaters and other sensitive water bodies in northern Minnesota.

"This project would have put many miles of wetlands, lakes, rivers, streams and wild rice waters at risk of a catastrophic oil spill, and if this project does not move forward, it is a victory for clean water in Minnesota,” said Richard Smith, president of the group.

However, the group remains cautious because the deal is not yet final and they are anxious to hear what Enbridge will tell Minnesota regulators, Smith said. In addition, the group remains concerned about Enbridge’s Line 3 Project also proposed for that area.

Enbridge said Sandpiper would not be ready until 2019 after environmental groups pushed for an environmental impact statement, which led the Minnesota Court of Appeals to overturn the Minnesota Public Utilities Commission’s permit for the Sandpiper. That environmental study is now in its initial scoping phase.

The 225,000-barrel-per-day Sandpiper project has commitments from other shippers, but Marathon was the anchor shipper, Haarsager said.

Meanwhile, construction for the Dakota Access Pipeline is well underway and will transport crude oil from the Bakken to Patoka, Ill. The pipeline will initially transport 450,000 barrels per day with potential to be expanded to 570,000 barrels per day.

The deal announced this week means that Enbridge Energy Partners and Marathon Petroleum will own a minority interest in both the Dakota Access Pipeline and the Energy Transfer Crude Pipeline, jointly referred to as the Bakken Pipeline System. Both projects are expected to be complete later this year.

The Energy Transfer Crude Pipeline is a converted natural gas pipeline that will transport crude oil from Patoka to the Gulf Coast.

With the slowdown in the oil industry and the addition of the Dakota Access Pipeline, the Sandpiper would not be needed for several years, Lipow said.

“These low oil prices have impacted production up in the Bakken and as a result, we don’t need as much pipeline takeaway capacity as had been previously thought when oil prices were $100 a barrel,” he said.

North Dakota produced a record 1.23 million barrels of oil per day in December 2014, but that has been on the decline since low oil prices prompted companies to cut back on drilling and postpone well completions. The state produced just under 1.05 million barrels per day in May.

Pipeline capacity is now about 850,000 barrels per day and will expand to 1.3 million barrels per day in 2017 after the Dakota Access Pipeline is online, according to the North Dakota Pipeline Authority.

Next year will be the first time in the history of the Bakken development that pipeline capacity will exceed the state’s oil production, said Justin Kringstad, director of the Pipeline Authority.

However, North Dakota oil production is expected to climb again with projections of between 1.3 million and 1.8 million barrels per day.

“With the expected growth in oil production over the long-term, we’re still expecting the need for additional pipeline capacity out of the region,” Kringstad said.

The deal announced this week involves Enbridge paying $1.5 billion and Marathon Petroleum paying $500 million to Energy Transfer Partners and Sunoco Logistics Partners for a minority stake in the holding company that owns 75 percent of the Bakken Pipeline System. Phillips 66 owns the remaining 25 percent of the Bakken Pipeline System.

Enbridge would not play a role in the construction or management of the Dakota Access Pipeline, Haarsager said.

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