Pembina Pipeline Corp. has reached binding commercial agreements to proceed with constructing approximately $2 billion in pipeline expansions in western Canada. The Phase III Expansion is underpinned by long-term take-or-pay transportation services agreements with 30 customers in Pembina’s operating areas and is expected to be in service between late 2016 and mid-2017, subject to environmental and regulatory approvals. The 540-km project will follow and expand upon certain segments of the company’s existing pipeline systems from Taylor, British Columbia, southeast to Edmonton, Alberta, to fulfill capacity needs for Pembina’s customers, with priority being placed on areas where “debottlenecking” is essential.
The core of the Phase III Expansion will entail constructing a new 270-km, 24-in. diameter pipeline from Fox Creek, Alberta, to the Edmonton area, which is expected to have an initial capacity of 320,000 barrels per day (bpd) and an ultimate capacity of more than 500,000 bpd with the addition of midpoint pump stations. Once complete, Pembina will have three distinct pipelines in the Fox Creek-to-Edmonton corridor.
With the company’s existing pipelines and current expansions, these three pipelines are expected to have the designed capacity to transport up to 885,000 bpd if fully expanded. The Phase III Expansion could also entail increasing pipeline interconnectivity between Edmonton and Fort Saskatchewan, Alberta, including Pembina’s Redwater and Heartland Hub sites, as well as third-party delivery points in these areas. This interconnectivity will provide the option for customers to access a broad variety of delivery points including fractionators, refineries and storage hubs, as well as increased access to pipeline and rail take-away capacity.
“We initiated our previously announced open season in March to identify producers’ pipeline capacity requirements beyond our expansions that are already underway,” said Mick Dilger, president and chief operating officer of Pembina. “The Phase III Expansion, which is the largest expansion of Pembina’s systems in the company’s history, is the result of that process. The project provides customers an inclusive solution, as it will increase crude oil, condensate and NGL take-away capacity from northwestern Alberta and northeastern British Columbia to markets in the Edmonton and Fort Saskatchewan areas. When complete, it will also create operational efficiencies and improved customer service by reducing the need for us to batch products throughout our systems.”
The contracts underpinning the Phase III Expansion are 10-year transportation services agreements for volumes that average more than 230,000 bpd, or approximately 75 percent of the initial capacity, providing estimated earnings of $270 million to $300 million per year. Pembina anticipates securing further pipeline transportation commitments over the next six to nine months while it refines the project scope, according to a Dec. 16 company statement. Any additional commitments made before the company begins to order long-lead equipment would support increasing the design capacity of the expansion project.
The Phase III Expansion follows a series of growth projects on Pembina’s conventional pipeline infrastructure resulting from the ongoing successful development by oil and gas producers of resources plays in the Montney, Duvernayand Deep Basin Cretaceous formations.
With the addition of the Phase III Expansion, Pembina’s previously announced 2014 capital spending plan will increase from $1.5 billion to $1.7 billion. Pembina expects the majority of spending associated with this project will occur during the main construction periods from 2015 through 2016.
“This is a watershed event for Pembina,” said Bob Michaleski, CEO at Pembina. “We are about to embark on the largest expansion the company has ever undertaken, a project which will form the foundation for our company’s growth for years to come. I have always maintained that if we could build our assets again, we would build them in the same location they are today, except we would build them larger. The Phase III Expansion supports this sentiment and demonstrates Pembina’s continuing ability to leverage its existing asset footprint to satisfy customer needs and drive long-term shareholder value.”
Pembina is committed to achieving excellence in every aspect of its business, from how it designs, constructs and operates its pipelines and facilities to how it interacts with community neighbors, customers and employees. For the Phase III Expansion, Pembina will consult with applicable regulatory authorities, First Nations, landowners and other stakeholders on the project plans. Activities related to obtaining regulatory approvals are underway and Pembina will commence First Nation consultation and its public involvement program for the Phase III Expansion in early 2014.