Dispute between Enbridge and small U.S. pipeline operator offers glimpse of the industry’s future as North Dakota oil booms.
North Dakota’s unexpected oil boom has triggered a surprising development that people outside the industry have yet to grasp: U.S. domestic crude oil must now compete with Canadian imports for space on the nation’s pipeline system.
That new reality is at the core of an escalating battle between Canadian pipeline giant Enbridge Inc. and a tiny U.S. pipeline operator that’s trying to get North Dakota’s newfound oil riches to more U.S. refiners.
High Prairie Pipeline LLC wants to build a pipeline to carry oil east out of North Dakota’s prolific Bakken oil formation. Oil producers there outgrew North Dakota’s few pipelines long ago, and the bottleneck is forcing them to use pricier rail cars and truck fleets to deliver their crude. That limits their potential customers and cuts into profits.
For High Prairie’s $650 million project to succeed, it must connect with Enbridge’s 1,900-mile Lakehead system, which carries oil to refineries in the Midwest and to pipelines headed farther south. According to complaints High Prairie has filed with the Federal Energy Regulatory Commission and two other federal agencies, Enbridge initially said it had enough capacity to accommodate High Prairie oil at its hub in Clearbrook, Minn. But later Enbridge said it didn’t have room for the oil and would allow the Clearbrook connection only if, among other things, High Prairie assumed the financial risk of a $1 billion expansion on a section of the pipeline system, according to the FERC complaint.
“It’s clear that the country is in need of additional pipeline infrastructure, but building the pipeline infrastructure doesn’t get you very far if you cannot then connect with the other pipeline infrastructure, and that’s exactly what’s happening here,” said Greg Ward, general counsel for Durango, Colo.-based Saddle Butte Pipeline LLC, High Prairie’s parent company. “There’s more and more domestic production being discovered all the time. This is going to be an issue that’s going to pop up over and over again.”