1. North American Oil and Gas Pipelines: Redrawing the Map
27th USAEE/IAEE North American Conference
September 16 – 19, 2007
Conference Theme: Developing and Delivering affordable energy in the 21 st Century
Panel Theme: Managing the Risks of Infrastructure Development?
Your topic: The relevance of your topic:
You will discuss how relevant the panel topic is since there are thousands of miles of pipe to be built in the next few years to due the changing location of sourcing supply within North America
Stephen J.J. Letwin
Executive Vice President

2. Agenda Enbridge Overview Crude Oil Pipeline Story
Natural Gas Pipeline Story
New Pipeline Construction Risks
First you will give an overview of Enbridge to establish yours and Enbridge’s credentials about the changing map that is under way in North America.
Then you will give a brief review of how the the crude oil pipeline map is set up, the reasons it is undergoing change and what those changes might be.
You will then do a similar review for gas
Finally, given all this construction, you will discuss the risks midstream companies face in taking on these types of projects and talk a little about how to mitigate those risks.

3. Energy Delivery Liquids and Natural Gas
Liquids pipelines
Gas Pipelines
Gas Distribution
Gathering & Processing
Wind Power
International
Inuvik
Norman Wells
Zama
Fort St. John
Fort McMurray
Edmonton
Hardisty
Seattle
Portland
Regina
(Selected info to choose from to give a brief overview on Enbridge)
Approximately 55% from liquids and 45% from gas. Important to offset oil and gas cycles.
Gas: Alliance, Vector Enbridge operates, in Canada and the U.S., the world's longest crude oil and liquids pipeline system. Liquids major conduit between growing Western Canadian supply and US oil demand. Offer diversity, flexibility and economies of scale with 5 (and soon to be 6) parallel lines into the US. The company owns and operates Enbridge Pipelines Inc. and a variety of affiliated pipelines in Canada, and has an approximate 15% interest in Enbridge Energy Partners, L.P. which owns the Lakehead System in the U.S. These pipeline systems have operated for over 55 years and now comprise approximately kilometres (8,500 miles) of pipeline, delivering more than 2 million barrels per day of crude oil and liquids. Enbridge is also the sponsor and manager of the Enbridge Income Fund.
Enbridge is also involved in liquids marketing and international energy projects and has a growing involvement in the natural gas transmission and midstream businesses, through the Alliance and Vector pipelines and and Enbridge Offshore (deep water GOM production) and EEP’s exposure to Texas basins that transport, gather, process and market natural gas and other petroleum products.
As a distributor of energy, Enbridge owns and operates Canada's largest natural gas distribution company, Enbridge Gas Distribution, which provides gas to industrial, commercial and residential customers in Ontario, Quebec and New York State. Enbridge distributes gas to 1.8 million customers and is developing a gas distribution network in New Brunswick. Continues to grow at 45,000 plus customers per year.
The company employs more than 5,000 people, primarily in Canada, the U.S. and South America. Enbridge Inc. common shares trade on the Toronto Stock Exchange in Canada and on the New York Stock Exchange in the U.S. under the symbol "ENB".
Clearbrook
Saint John
Superior
Montreal
Ottawa
Casper
Toronto
Salt Lake City
Sarnia
Buffalo
Chicago
Toledo
Spain
Kansas City
OCENSA
Bogotá
Covenas
Patoka
El Dorado
Wood
River
Cushing
Liquids Pipelines
Houston
Gas Pipelines
Gas Distribution

4. Crude Oil Pipline Story
First discuss the changes affecting North American Crude Oil Pipelines

5. North American Crude Oil Pipelines
Map of the major crude oil pipelines. The White blocks, (difficult to read on this map which is normally a map list all the refineries that receive crude oil.
Pipeline dominate through the middle of the continent and the east coast gets its crude oil from offshore, and california gets local crude, alaskan crude and offshore crude oil. US gulf coast is dominant refining region with 7 million b/d of crude refining capacity, Central states have 3.5 million b/d capacity
US runs about 18 million b/d and only produces 6 million b/d

6. Historical Flow Pattern
Shows main flow patterns for central and eastern region. California disconnected gets crude above local supply from offshore (Alaska or imports)
W. Canada has always been long crude oil delivering surplus to the US. PADD IV used to be long crude shipping east. And west texas was major supply source for years delivering to Chicago and to US gulf coast refineries.
Gulf of Mexico refineries run offshore GOM crude oil and imports. Offshore crude and imports delivered a lot up to Illinois, Ohio and Michigan.
Line 9 build during embargo 70’s delivered east for a while but now is reversed bringing in offshore crude oil to Ontario.
However, US Lower 48 crude oil in decline particularly west texas and Padd IV. Deep offshore Gulf of Mexico has some potential to grow.

7. Western Canadian Oil Production Market Unconstrained Case
Historical
Forecast
2007 CAPP Pipeline Planning Case
2007 Potential
Raw Bitumen
The new supply story that will altar the map is coming from Canada.
Oil sands, which can be upgraded on sight to synthetic oil, or shipped to refineries as diluted bitumen is taking off.
Our forecast has WCSB production rising to 4.4 mMb/d by 2016, double today’s production. If all projects announced proceeded,we would get to 6 mmb/d.
The risk in this forecast is the time and cost to build the plants necessary.
To paraphrase Carl Sagan this is Billions and Billions of dollars (cost of 100,000 b/d of upgraded production rising to $10 billion of capital) bitumen is less. But $100 billion to create this volume.
Greenhouse gas emissions are a challenge for these projects as well.
Synthetic Light
Synthetic Heavy
Conventional Heavy
Pentanes Plus
Conventional Light

8. + - - + Future Flow Pattern
With increasing supply in Western Canada combined with declining supply and growing demand in the US, the drive will be to increase the flow of crude oil south out of Canada. Before Spearhead was reversed, the null point was in the Chicago and Wood River region. Now Canadian crude oil is getting to Cushing and the US gulf coast to the large refining centers. The flow of oil will only increase based on the previous graph resulting in a need for much greater capacity than currently exists. These are large diameter long distance projects given that Fort MacMurray to Houston is over 2000 in a straight line.
Enbridge eventually sees the need to get new outlets for WCSB oil in the Eastern US and off the West Coast see next slide
Of course Enbridge has several ongoing projects and future proposals, but wwe face competition from TransCanada (Keystone) and Kinder Morgan (Express) - +

9. Liquids Strategy Broadening Market Access
Norman Wells
Enbridge/Lakehead System
Other Pipelines
Refineries:
Canadian Supplied
No/Limited Cdn Supply
Zama
Fort McMurray
Tanker Port
Need infrastructure but oil must move to new markets to avoid price erosion. (alleviate Chicago supply trap).
Extend traditional markets
New Asia/Pacific/California
US Refineries - Strategy is turn yellow stars into red stars
New markets in US midcontinent, Eastern PADD II, USGC
Still not enough. Producers ultimately need Gateway to realize fair value for crude oil production (quality differential).
Edmonton
Hardisty
Puget Sound
Great Falls
Clearbrook
Billings
Mandan
Superior
Montreal
Salt Lake City
Casper
Toronto
Sinclair
St. Paul
Buffalo
Detroit
San Francisco
Cheyenne
Chicago
Toledo
Lima
Canton
Denver
McPherson
Wood River
Robinson
Bakersfield
El Dorado
Coffeyville
Patoka
Los Angeles
Ponca City
Catlettsburg
Cushing
Tulsa
Memphis
Artesia
Borger/Sunray
Ardmore
El Paso
Big Spring
Houston
Port Arthur
Texas City
Lake Charles
Freeport
New Orleans
Corpus Christi

10. Liquids Strategy Major Projects Proceeding
Major Projects Proceeding Cost In-Service
Contract Terminaling
Hardisty (Upstream) $ 0.4B 2008
Stonefell (Upstream) $ 0.1B 2008
Cushing (Downstream) $ 0.1B 2007
Other $ 0.2B
Regional Infrastructure
Athabasca $ 0.2B 2007
Waupisoo $ 0.5B 2008
Southern Access
Expansion $ 2.2B
Extension $ 0.4B 2009
Spearhead Expansion $ 0.1B 2009
Alberta Clipper $ 2.9B 2010
Southern Lights $ 1.4B 2010
Line 4 $ 0.3B 2008
Total Capital $ 8.8B
Contract Terminaling
Fort McMurray
Edmonton
Regional Infrastructure
Hardisty
Kerrobert
Regina
SOUTHERN LIGHTS
REVERSED LINE 13
Cromer
SOUTHERN LIGHTS
LIGHT SOUR CRUDE
(new construction)
Gretna
Clearbrook
SOUTHERN LIGHTS
(new construction)
Montreal
Superior
Casper
Toronto
Buffalo
Lockport
Sarnia
Detroit
Toledo
Contract Terminaling
Flanagan
Chicago
Canton
As discssed, our strategy to broaden access to markets. Spearhead catalyst (125 kbpd initial capacity) followed by Southern Access/Alberta Clipper. Ultimate incremental capability to move 1.2 million bpd into Chicago with relief valves into Patoka, Cushing.
Southern Lights Diluent Line with capacity to move 180 kbpd diluent from Chicago to Edmonton.
Contract Terminalling, Regional infrastructure
C$9 billion of projects currently moving forward (visible organic growth).
Lima
Wood River
SPEARHEAD
Patoka
Catlettsburg
Exxon Mobil
Enbridge Liquids System
Alberta Clipper
Southern Access Extension
Southern Access
Spearhead Expansion
Mid Valley
Cushing
Capline
Corsicana
Beaumont
Houston

11. Natural Gas Pipeline Story
Big changes on the North Amercian gas map as well

12. North American Gas Pipelines
Gas map is more complex than the oil map. Gas goes to way more outlets than oil. However the supply basins have been similar. South Central US (Texas Oklahoma, GOM, The WCSB. However the demand side is different with the main drive to get the gas to the North and Northeast for heating.
Texas is highest user but still a net exporter.
Much less offshore with LNG accouting for less than 10% of North American demand though
De,mand side shifting slightly with Increase electric.

13. Natural Gas Supply Changes+ +
Alaska
Mackenzie
Supply to meet this demand will come from:
LNG delivered to North America from various world supply points.
From non-conventional supply sources in the Midcon and Rockies basins.
Some increase in Appalachian gas.
Towards the end of the time horizon in this chart there is the potential that Mackenzie gas might flow but the unofficial word is that the Mackenzie project will be cancelled due to high cost; and,
Mexico production is expected to grow and start fulfilling the growing demand in that country.
Supply contractions are anticipate from:
Western Canada where rapid declines and rising cost will reduce available supply.
From the offshore Gulf of Mexico where conventional resource depletion and cost are expected to result in decline, especially in the shallow water.
The deep water is somewhat of a wildcard in the Gulf as there is little history to tell us how these plays will perform. Some parties, such as EIA expect deep water production to add to total GOM production. While other parties such as PIRA are more conservative in their assumptions, predicting that the deepwater growth will not be able to offset declining shallow water Gulf.
In terms of transport flow of these supplies major anticipated trends are:
Increasing supply from non-conventional gas in the Mid-con and Gulf LNG will partially be consumed in the US South but net surpluses will flow east into the growing South East Markets. Some supply may continue on North to address part of the US NE demand growth.
East Coast LNG will mostly be consumed in the region. Canadian LNG will flow south to US Northeast Markets
Gas from the Rockies will flow into the Midwest, displacing gas from the Mid-continent and pushing that gas east and perhaps south into the West Coast
Ontario growth will be met by more supply from the US Midwest
West Coast LNG will be consumed in Mexico and California and may reduce Rockies flow to the West Coast
WCSB -
Rockies +
Increased Flow + +
Decreased Flow +
Appalachia +
Supply Increase
Midcon/ Permian
LNG -
Supply Decrease + + +
Increased LNG -
LNG +
GOM

14. Gas Pipelines Proposed/Under Construction
The near term potential in the Rocky Mountains led to the development of Rocky Mountain Express. It is going direct to US northeast market
The increase in tight sands and shale gas in texas has led to the other pipes down South. That gas is moving to the Texas Gulf coast for industrial load and to Louisiana to get into the large interstates bound for the Northeast which have seen supply from the shallow offshore GOM decline. Some will get over to the US southeast for the substantial electric load growth as people move to the sunbelt and add air conditioners in the summer.
We of course tried to build Beacon and are building Clarity
Rocky Mountain Express
Midcontinent Express
Ozark Express
Gulf Grossing
Clarity
Others

15. Gas Strategy Asset Positioning
Inuvik
Alaska Pipeline
Mackenzie Delta
Fort St. John
Rabaska
Edmonton
Alliance Pipeline
Quebec City
LNG
Toronto
Gas Storage
Sarnia
Mid-term visible growth is in liquids but cycles will turn eventually - need to be positioned when gas once again comes to the fore.
Happy with current operations and positioning:
Alliance/Vector – North as well as North East BC
Enbridge Offshore – deep water Kaskida/Jack
EEP – Anadarko, Bossier, Barnett
Gas Distribution:
Stable, low-risk business profile (cost of service regulation)
Incentive regulation (2008) and market based storage development
Market size can be a lever into future upstream projects (say Alaska, coal bed methane, NEBC)
Chicago
Kansas City
Enbridge Inc.
Pipelines
Gas Distribution
Enbridge Energy Partners
Enbridge Income Fund
Potential Projects
Vector Pipeline
East Texas Expansion
New Orleans
Houston
Neptune
Shenzi
LNG

16. Pipeline Project Risk
Companies that build these projects under take risks

17. North American Pipeline Construction
Potential Pipeline Requirements*
In total on the previous discussion requires thousands of large pipes to be added to meet these needs. These numbers are only the beginning since they don’t get you to the gulf coast for oil nor Arctic Gas to market,
* Estimate as of Jan ‘07

18. New Pipeline Project Risks
Supply/Demand
Construction costs
Environment
Competition
Regulatory
Operating
The fundamental risk with pipelines begins with supply demand. A pipeline is a long life asset with its costs having to be recovered over 20 to 35 years. If the basis need for that pipe is not there for the physical life it could be a bad investment. Long term demand not so volatile thought refineries can be shut down. (More on this the next 2 slides)
Construction costs can be volatile (More later)
Environment: Assessments for new pipe are taking longer and more complex leading to longer time from conception to in service. Also increasing operating costs and will affect future demand for oil and gas
Competition:
Many companies are competing to build these lines. The result is that producers/customers can negotiate to push more of the risk on the pipelines. It may also lead to overbuilt capacity hurting the economics of pipeline owners
Regulatory
With pipes being built for a 25 year or longer time horizon, changing regulatory requirements any time during the life of the project can hurt the economics of the pipeline.
Operating
Over 25 years lots of maintenance, pipeline are safest way to move but still have risks for corrosions etc. Rising costs hurt too.

19. Supply: Drilling Linked to Pricing
Turning to a specifc suppy risk example on the gas side. This is pertinent for the development of REX. Graph shows how the higher price environment led to increased gas well rig counts (Which are highly correlated with drilling) over the last 6 years. You can see in 2001 when the price dropped it took 6 months for drill to respond then it fell. When prices rose, the reverse was true. The big spike in 2005 had little impact because prices returned to still very good prices. However, if prices fall to below economic levels for the marginal wells, drilling will respond.

20. Future supply linked to continued drilling
This chart depicts the production from an average well in the Power River basin in the Rocky Mountain production region. You can see the well comes on strong and then falls off down to less that 50% of peak production within 7 years. If drilling were to drop off total production would begin to fall off, though not quite this rapidly. The point is drilling needs to continue strong to keep gas production flat to slightly growing. If not it declines and can decline relatively quickly.
A pipeline requires steady volumes over 20 to 25 years to recover its investment. If the volume drops off, either a customer is paying for space not used or the pipeline is not recovering its costs and the pipeline cannot be moved to another location.
Conventional oil behaves similarly, though the declines are not as steep. Fortunately, oil sands facilities, once constructed and operational will produce a constant level for 20 to 30 yearrs except for operational upsets or maintenance shut downs.

21. Construction Pressures
Steel
High Chinese Demand
Pipe Mill Space
3,200 miles/year capacity for 24”+
Lay Costs
Only 25 Spreads available
Right of Way
Higher congestion, more vocal opposition
Workforce
Retiring skilled labor not being replaced
The other major risk in more detail is construction costs. With all the demand for pipe, and steel for other industries costs are going up siginificantly. More than double of last 7 years
Steel went up first due to high demand in China for multiple uses not just pipe
Next with all the pipe being built, mill space is at capacity resulting in delays and higher costs. Pipe is being brought from Brazil, Italy, Greece and Japan as well as North Amercian Mills. Space booked over 1 year in advance. Rolling 24”+ pipe is a specialty and no new mills are planned.
All pipe lay contractors are busy resulting in higher costs with only 25 spreads available for large jobs
With pipe in congested high density areas, more landowners to deal with and they want a piece of the pie too.
The workforce not only affects lay crews but also engineering, design and project management.
Lots of pipe projects costing 20 to 30% more than when first budgeted due to these pressures.
Also have to deal with weather issues during construction etc.

22. Risk Strategies Strong project management Joint Ventures
Long term agreements
Take or Pay Contracts
Legislative stability
Is there hope?
Need to start with strong project management that will get a good estimate of project cost and then marshal the process to completion.
Need to find ways to lay off risks
Partnering with others reduces each companies individual risks. Aligning with the producers can with risk sharing as interests are more aligned as well.
Long term agreements that allow cost of service adjustments to tolls reduces both cost risk and volume risk as long as volume doesn’t drop to the level of no viability.
The more closely matched an agreement or take or pay contract is matched with the depreciable life of the pipeline the less risk there is.
Not up here: Advance pipe orders and long term agreements with contractors can reduce risk of pipe cost, though the initial cost estimate of the project will higher, though less surprises later.

23. North American Oil and Gas Pipelines: Redrawing the Map
Stephen J.J. Letwin
Executive Vice President
Gas Transportation & international
Visible growth. A number of our liquids projects now moving to construction, in fact, C$ 9 billion proceeding. Here is a picture showing the unloading of pipe for our Southern Access and Southern Lights projects. Feels good to be moving forward.