Enbridge purchase of stake in Bakken pipeline throws Sandpiper project up in the air

The future of a controversial and much-delayed oil pipeline in northern Minnesota is in doubt after the company proposing it announced a big investment in a different pipeline that would also transport North Dakota crude — but without crossing Minnesota.

Calgary-based Enbridge Inc. announced late Tuesday that it's buying a $1.5 billion stake in the Bakken Pipeline system, which includes the Dakota Access Pipeline. It will move oil from North Dakota's Bakken range through South Dakota and Iowa to a tank farm in Patoka, Ill., about 70 miles east of St. Louis.

The $2.6 billion Sandpiper pipeline would run from the Bakken oil fields through Minnesota — including pristine lake country — to a terminal in Superior, Wis. The pipeline has drawn fire from environmentalists and American Indian tribes and has been winding through the Minnesota regulatory process for the past 2½ years.

Enbridge doesn't expect construction on Sandpiper to begin until 2019. The Dakota Access pipeline is projected to be in service by the end of 2016.

Enbridge has formed a joint venture with Marathon Petroleum to buy a stake in the Bakken Pipeline System. Marathon has been a key partner in Sandpiper, with plans to finance 37 percent of the pipeline and become one of its major customers.

But when the new Bakken Pipeline deal is complete, Enbridge and Marathon plan to terminate their joint venture agreements for Sandpiper, Enbridge said in a statement. With that, Sandpiper's future is murky.

"Enbridge continues to believe the Bakken region is a highly productive and attractive basin, which has significant crude oil supply growth potential that will require additional pipeline capacity in the future," the company said in a press statement. "The scope and timing of the Sandpiper Pipeline Project will be evaluated during the quarter to ensure that it is positioned to meet the growing need for pipeline capacity."

Enbridge declined further elaboration.

Scott Strand, head of the Minnesota Center for Environmental Advocacy, said he thinks that with Enbridge's new pipeline investment, Sandpiper "will be put on the shelf." Strand's group had pushed for a full environmental impact review of the Sandpiper project.

The oil industry has been hammered by low prices, and production from the Bakken is down significantly from its late 2014 peak. There's no sign of a big rebound anytime soon. Thus, the Dakota Access Pipeline should provide enough medium-term capacity for Enbridge, decreasing its need for Sandpiper, Strand said.

"For now, it's very hard to see the economic case for doing [Sandpiper]," he said.

Enbridge wants Sandpiper be completed by the end of 2017, but the company says that with the state's timetable, the project won't be built until 2019. The $3.7 billion Dakota Access Pipeline received its final permits — these from the U.S. Army Corps of Engineers — late last month.

"We view the [Dakota Access Pipeline] as a soon-to-be cash flow producing replacement for what we think will be a deferred Sandpiper pipeline," Robert Kwan, an analyst at RBC Capital Markets, wrote in a report Wednesday.

Enbridge and Marathon have bought a stake in a company that owns 75 percent of Bakken Pipeline System, which also includes a pipeline from southern Illinois to the Texas Gulf Coast. Enbridge is receiving an effective 27.6 percent interest in the Bakken Pipeline System.

In Minnesota, opponents of Sandpiper's proposed route have ranged from the White Earth Nation to the Sierra Club to Park Rapids-based Friends of the Headwaters. They fear that if the pipeline breaks, it would pollute northern waters, including the Mississippi River headwaters and lakes plied by American Indians to gather wild rice.

In September, after a challenge by environmental groups, the Minnesota Appeals Court faulted the Minnesota Public Utilities Commission (PUC) for its initial environmental review of Sandpiper and "Line 3," another Enbridge project. Line 3 is a $2.6 billion replacement pipeline to carry Canadian crude oil to Superior. Plans call for it to be rerouted from its current path — which parallels U.S. Highway 2 — to the proposed Sandpiper route.

After the court's decision, the PUC ordered a full environmental impact review for Sandpiper and Line 3. Enbridge accused regulators of imposing unlawful procedures and unfairly delaying its pipeline plans.

Plans for Line 3 are not affected by Enbridge's investment in the Dakota Access pipeline, Shannon Gustafson, an Enbridge spokeswoman wrote in an e-mail.

Mike Hughlett • 612-673-7003