As the North American crude market has experienced a renaissance, thanks to the unconventional development revolution, Enbridge Energy Partners has been one of the largest beneficiaries in this change in market dynamics. The company has the largest transportation system connected to premium markets for North American crude supplies.

“No other MLP has a liquids pipeline system with a scale and positioning of our systems. Our location and market access to led and will continue to lead to further expansion opportunities,” Mark Maki, president and principal executive officer at Enbridge Energy Partners, said during a February 14 conference call to discuss fourth-quarter 2012 earnings.

He added that the company’s liquids-rich pipelines saw volumes and deliveries grow throughout the year, citing the Lakehead System that runs 1,900 miles from Neche, North Dakota, in the Bakken to Chicago. The system, which has a capacity of 2.5 million barrels (bbl.) per day, transported an average of 1.79 million bbl. per day in 2012.

“The market continues to experience price dislocations for crude oil between inland sources and waterborne equivalent. North American supply is priced at a discount to imported Brent, Maya and similar barrels due to current infrastructure constraints and supply and demand imbalances,” Maki said.

“Strong system utilization and strong North American crude oil supply fundamentals support our plans to expand our systems,” he said. Throughout 2012, Enbridge announced a series of complementary infrastructure projects at a cost of $7.3 billion that are designed to alleviate market disruptions by 2016.

Maki stated that in 2012 there were more disruptions than normal, which resulted in large price discrepancies across regions and caused rail transportation to increase. “These liquid expansion projects are underpinned by long-term, low-risk commercial frameworks that will provide a sustainable and predictable stream of cash flow to our partnership and unitholders.”

These projects include the $2.5 billion Sandpiper Pipeline that will transport up to 225,000 bbl. per day of crude from North Dakota to the Enbridge Mainline system when it comes online in early 2016; along with three expansions of the Mainline itself that will cost an aggregate of $2.4 billion that will be brought online between 2015 and 2016; and $2.4 billion in three separate expansions dubbed the Eastern Access project that will transport crude from the Mainline system to refineries in Sarnia, Canada and Chicago.

Enbridge’s expansion programs are designed to unlock the Gulf Coast, East Coast and Midwest markets that have traditionally been served by foreign imports to new domestic production. These projects include acquisitions, reversals and expansions of pipelines.

Maki said that Bakken production growth has filled the declining demand for light oil in the Midcontinent and overwhelmed outbound pipe capacity, resulting in increased rail transport capacity and demand out of the play. As companies such as Enbridge bring more pipe capacity online to these markets, rail transportation capacity will be shifted to focus on supplying markets, such as the West Coast, which cannot be economically accessed by pipeline.

“We believe the current environment of historically wide crude oil price differentials will be alleviated, as we will be able to deliver substantial incremental volumes in crude oil to new markets. The cost to access those markets by pipe, if the infrastructure were available, will be less than $10 per barrel,” he said.

“Pipelines can live on a far lower sustaining differential than rail can,” added Steve Wuori, president of Enbridge’s liquids pipelines division. “The wild differentials that are so attractive today, particularly out of the Bakken by rail, will inevitably close due to greater supply into those markets.”

However, despite strong economics supporting the development of North American crude oil, Enbridge felt the negative effects of declining natural gas liquids (NGL) prices in 2012. Maki said that these declines were the main reason for the company’s underperformance in 2012. “These headwinds are expected to persist for the near-term and likely throughout 2013. With that said, our natural gas assets are well positioned to grow as natural and NGL prices recover.” The company posted adjusted earnings of $1.14 billion for the fiscal year, which was at the midpoint of its guidance levels due to the downturn in prices.

Steve Neyland, Enbridge’s vice president, finance and principal financial officer, said that the company anticipates adjusted earnings to increase to between $1.25 billion and $1.35 billion.

Contact the author, Frank Nieto, at fnieto@hartenergy.com