Unconventional Oil

[Tackler]

Canada to face oil pipeline shortage: regulator

Fri Jul 27, 5:32 PM

CALGARY, Alberta (Reuters) - Canada's crude-oil pipelines may have to ration space as early as this autumn because of a surge of new oil production from the Alberta oil sands, the country's energy regulator said on Friday.

The National Energy Board said the pipeline industry may face a capacity crunch as oil output this year rises to 2.9 million barrels a day, 9 percent more than in 2006.

Almost all new Canadian oil supply comes from the oil sands region of northern Alberta, where more than C$100 billion worth of projects to exploit reserves second only to Saudi Arabia are planned or under way.

Most of the that production is destined for the huge U.S. market and a number of new pipelines are on the drawing boards to handle the expected flood of oil.

However none of those new lines, which include projects planned by Enbridge Inc. and TransCanada Corp. , is expected be completed before 2009.

Without that new capacity, pipeline firms may have to periodically resort to apportionment -- rationing available space -- as soon as the fourth quarter, with restrictions remaining in place for 18 months until new lines are built, the regulator said.

The NEB's assessment contrasts with a study released by the Canadian Association of Petroleum Producers last month.

CAPP, the oil industry's main lobby group, said it believes there is enough oil transport capacity in place or being built to handle rising output through 2012.

But CAPP said developers must now concentrate on a new round of expansion beyond that period, given how long regulatory and construction phases take.

It predicted Canadian crude oil output could hit 5.3 million barrels a day by 2020, double the current amount.

In the 1990s, pipeline apportionment was a big issue as capacity lagged demand for crude movement on Enbridge's major artery to the U.S. Midwest.

Shippers over-nominated for space in efforts to reserve as much capacity as possible, creating what the industry termed as "air barrels."

Since then, Enbridge and other operators have added capacity as production, especially from the Alberta oil sands, has climbed. Numerous expansions to U.S. and West Coast markets are on the drawing board or under way.