Energy Transfer (ET) and South Bow (SOBO) have launched an open season for commitments to a joint tariff for a new project called the Big Sky Pipeline System. The project will use the companies’ existing pipeline systems and likely require new pipe to transport Western Canadian Sedimentary Basin (WCSB) crude oil from Hardisty, AB to Patoka, IL and the ET terminal in Nederland, TX.
WCSB oil production continues to grow, and the growth increases the risk of constraints moving barrels to market, according to East Daley Analytics’ Crude Hub Model. On its 4Q24 earnings call on February 14, Enbridge (ENB) said the Mainline system to the US has been in apportionment since Nov ’24, a state we expect to continue. ENB plans to expand the Mainline in 4Q26, and to that end is expanding its northbound Southern Lights Pipeline carrying condensate to support blending with additional heavy, sour WCSB volumes.
The Crude Hub Model shows why more egress is needed for Canadian barrels. We estimate Canada’s West Coast demand is ~80% utilized, while SOBO’s Keystone Pipeline runs full at ~99% utilization.
ET and SOBO have provided no details on a project route, timeline or capacity. East Daley suspects Big Sky Pipeline will take advantage of existing Keystone infrastructure out of Hardisty, then require new pipe to connect to ET’s Dakota Access Pipeline (DAPL) in Stanley, ND (see map). Under this scenario, WCSB volumes would need to be batched on DAPL with the Bakken’s light, sweet barrels as Canadian volumes reach PADD 2 (Midwest) refiners in Patoka and export capability in Nederland via the Energy Transfer Crude Oil Pipeline (ETCOP), shown in the figure. SOBO likely has steel left over from its canceled Keystone XL project, which would significantly reduce project costs.
The joint open season and potential for a joint venture between ET and SOBO is synergistic. SOBO is highly levered with a 5.52x net debt to EBITDA ratio, according to East Daley’s Financial Blueprint, and the limited free cash flow requires the company to partner on new projects. ET on the other hand has deep pockets, generating $3.1B in free cash flow available to equity in FY24.
The Big Sky Pipeline could provide critical egress for WCSB shippers between two leading crude oil pipeline operators. The open season is scheduled to close March 31, 2025. – Gage Dwan Tickers: ENB, ET, SOBO.
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