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EXCLUSIVE

Enbridge plans to re-export Canadian oil via United States

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[April 05, 2014]  By Selam Gebrekidan and Nia Williams

NEW YORK (Reuters)  Enbridge Inc <ENB.TO> has obtained a license to re-export Canadian oil from the United States, becoming the first company to publicly confirm a move that could fuel debate over U.S. trade policy and oil sands pipelines.

U.S. subsidiary Tidal Energy Marketing has a license to export "limited quantities" of Canadian-origin oil from a U.S. port, Enbridge said, confirming weeks of market rumors and speculation about such shipments. Market sources say they expect the first cargoes to sail for Europe later in April.

Terri Larson, an Enbridge spokeswoman, told Reuters in an email that the firm planned to export "less than 1.5 percent of Enbridge's total U.S. shipments." She declined to provide specifics on the port of departure, the destination or the type and volume of oil involved, saying this is commercially sensitive information.

The United States does not allow exports of its own oil, even though its domestic output is at a 26-year high. There are few exceptions to the rule; shipments can go to Canada, for example, and foreign oil can leave U.S. shores so long as exporters have a license.

Reuters reported earlier this year that the U.S. government granted a number of permits to re-export foreign crude.

But Enbridge is the first company to publicly confirm it holds a re-export permit and intends to use it. The company has to segregate the re-exports from any U.S. oil it carries in its pipelines.

The re-exports are bound to draw more attention to these restrictions as oil companies mount pressure on the Obama administration to end the ban, in place since the Arab oil embargo of the 1970s.

They may also anger environmental groups that oppose growing oil sands production in Canada, and the Keystone XL pipeline, which they say will help tar sands oil reach a global market.

Earlier this week, Senator Lisa Murkowski, a Republican from Alaska, urged the government to bypass current regulations by allowing condensate exports.

DESTINATION EUROPE?

Analysts say re-exports will open up new markets for Canadian oil, especially with the recent startup of pipelines such as Enbridge's Seaway and TransCanada's <TRP.TO> Gulf Coast line.

"This is a viable opportunity for Canadian barrels to get out into the wider world," said Martin King, an analyst with FirstEnergy Capital in Calgary.

"It's another source of revenue other than big brother United States," he added.

Oil traders have been eyeing Enbridge's rumored shipments since late February. Many expect exports of up to 40,000 tons of heavy oil to leave Texas ports as early as this month and go to refiners in Italy and Spain that can process heavy crude oil.

The Department of Commerce has granted three licenses to re-export oil to the United Kingdom, four to Italy and one to Germany since last year, according to data Reuters obtained through Freedom of Information Act requests.

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These are the first permits to ship oil to Europe since 2008, and were approved by the department's Bureau of Industry and Security (BIS), the designated gatekeeper for such licenses.

The bureau does not reveal names of companies with approved licenses and declined to discuss specific permits for this story.

There were no approved licenses for re-exports to Spain in documents reviewed by Reuters. So far, U.S. customs data compiled by PIERS does not show crude oil shipments leaving U.S. ports for Europe.

Canadian oil traders say the logistics of re-exporting oil sands via the United States were likely to be complicated. The oil has to make its way to a U.S. port through Canada's congested pipeline network and volumes will be constrained by total pipe and rail capacity.

Enbridge has to ensure that no U.S. oil is mixed in with the Canadian barrels destined for re-export. In addition the condensate used in blending to help the viscous oil sands bitumen flow through the pipelines must also come entirely from Canada.

One Calgary-based trader said a number of companies have export licenses similar to those Enbridge holds but will not export until the U.S. government revisits its current stance on exports.

A NEW DEBATE ON KEYSTONE

Critics of the Keystone XL pipeline contend allowing re-exports of Canadian oil from the United States undercuts President Barack Obama's pledge to protect the climate.

However, Keystone's owner TransCanada Corp <TRP.TO> says it will not re-export Canadian oil sands from the pipeline. The project, delayed by five years, is awaiting a decision from Obama.

Enbridge says "virtually" all of the crude oil moving on its Seaway pipeline, which ships both heavy and light crude from the Cushing, Oklahoma, storage hub to a terminal in Freeport, Texas, is for U.S. domestic use.

The company owns a 50 percent interest in the 400,000 barrel-per-day Seaway Pipeline, one of only two major pipelines that carry Canadian crude to Gulf Coast refiners.

(Additional reporting by Ron Bousso in London; editing by Jonathan Leff, Nick Zieminski and Lisa Shumaker)

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