Enbridge Inc.’s Hardisty Contract Terminal helps Alberta oil suppliers manage the effects of price swings
Jumbo tanks erected last fall 160 kilometers southeast of Edmonton a pyramid-scale landmark
Imagine standing on an Alberta hilltop and looking east along a smooth trench lined with steel, 25 meters wide and two meters deep, that stretches over the horizon for 2,400 kilometers – almost the entire distance to Toronto as the crow flies. The $600-million cluster of 19 jumbo tanks that Enbridge Inc. finished erecting last fall at Hardisty, 160 kilometers southeast of Edmonton, would fill such a Pyramids-scale landmark to the brim with oil.
Steve Wuori, Enbridge’s executive vice-president of liquids pipelines, boils the main service provided by its new tank farm down to a single word – time. “It’s a valuable commodity in the oil business.”
No Canadian fossil fuel producers or marketers claim to be big enough to change the direction of movements by the international markets that determine the value of their wares. All Alberta energy companies – and the provincial treasury, which relies on oil and gas royalties as its biggest revenue source – have routinely called themselves price takers since the mid-1985 end of the National Energy Program and the inauguration of the free trade era.
But the new storage site, formally titled the Enbridge Hardisty Contract Terminal, enables Alberta oil suppliers to try managing the effects of uncontrollable price movements with a technique known as arbitrage. An ability to stockpile and drain inventory in response to market trends is the key to practicing the complex art, which juggles timing, delivery destinations and types of shipments. Enbridge’s attached pipeline network carries about 90 different varieties of oil, in batches kept separate with hydraulic engineering techniques, to markets across Canada and the United States, Wuori reports.
At the 2009 average price of US$70, the 7.5 million barrels contained by the Hardisty tank farm – enough to fill 48,000 Olympic swimming pools, Enbridge calculates – would be worth $452 million. But the value is a moving target.
On any given day, owners and merchants of the black gold river make educated guesses about how much it will be worth tomorrow or next week, month, season or year. Markets gyrate around the clock. Consequences of making the right judgment calls – or mistakes – about when to buy, sell or hold are often huge.
In 1998, a hardship year when oil averaged $14.44, the entire 7.5-million-barrel Hardisty reservoir would have fetched $108.3 million. In 1999, the beginning of the long climb by global markets towards new 21st-century heights, the value recovered to $19.25 a barrel or $144.4 million.
At the 2008 top of the fossil fuel economics cycle, the giant pool was worth $747.3 million at the annual average price of $99.64 a barrel. At the dramatic moment in July 2008 when the oil bubble blew up to its peak at $147.50, Hardisty’s 7.5 million barrels was worth $1.1 billion. But by Christmas, when oil deflated to $30.28 in the darkest hours of the global financial crisis, the pool’s value shrank by 80 per cent to $227 million.
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