Enbridge, Veresen to build Bakken natural gas pipeline in North Dakota

CALGARY - The joint owners of the Alliance Pipeline said Tuesday they plan to link liquids-rich natural gas from the Bakken shale formation in North Dakota to a processing plant near Chicago.

Enbridge Inc. (TSX:ENB) and Veresen Inc. (TSX:VSN) said they will build a 124-kilometre pipeline from Hess Corp.'s gas processing plant in Tioga, N.D., to the Alliance mainline at Sherwood, N.D.

The gas can then move along the Alliance pipeline to the Aux Sable natural gas liquids processing plant in Channahon, Ill., near Chicago. That plant is owned by Enbridge, Veresen and Williams Partners L.P., three major pipeline operators.

The Alliance pipeline is a key piece of North American energy infrastructure, carrying natural gas from northeastern British Columbia and northwestern Alberta through Saskatchewan, North Dakota, Minnesota, and Iowa to markets in the Chicago area.

Enbridge and Veresen did not disclose a pricetag for the new North Dakota project.

"With the rapid increase in crude oil drilling activity in the Bakken, there is a corresponding need for additional capacity to gather and process associated liquids-rich natural gas volumes," said Veresen CEO Stephen White.

Natural gas producers in North America have been turning an increasing focus to liquids-rich areas as a means to cope with persistently low prices. The liquids, used to make plastics and petrochemicals, fetch a much higher price than ordinary dry natural gas.

Enbridge's president of gas pipelines, green energy and international said the Bakken area — a petroleum-rich rock formation that stretches through parts of Montana, North Dakota and Saskatchewan — is of strategic importance to the company.

"Our significant investments in crude oil transportation systems in North Dakota and Saskatchewan enable Bakken producers to access multiple markets," Al Monaco said in a statement.

"We're now extending those services to natural gas and (natural gas liquids) midstream infrastructure."

The Tioga Lateral pipeline is expected to be in service by the third quarter of 2013, provided it gets regulatory and other approvals.

New York-based energy producer Hess Corp. (NYSE:HES) has agreed to be an anchor shipper on the Tioga line. At the same time, the Aux Sable partners and Hess have reached an agreement concerning natural gas liquids processing services.

Hess is the largest gas producer and third-largest oil producer in the North Dakota Bakken.

That company has committed to ship enough gas on the Tioga line for it to go ahead. But Enbridge and Veresen will hold an open season to attract more shippers.

The pipeline will have an initial design capacity of about 120 million cubic feet per day. It can be expanded based on shipper demand.

The Alliance pipeline is set up well to carry more liquids-rich gas volumes out of the Bakken, said Edward Kallio, director of gas marketing services for Ziff Energy Group in Calgary.

"All they have to do is add compression downstream of the Bakken to handle it," he said.

"So it's a no-brainer for them to do that. So they get more throughput on the line, plus Aux Sable gets the liquids downstream."

Kallio said the Alliance partners might look at similar projects north of the border, linking more liquids-rich gas in Canada to processing facilities around Edmonton.

Enbridge shares rose 28 cents to $32.73 in afternoon trading on the Toronto Stock Exchange. Veresen shares rose 14 cents to $14.80.