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Rivalry — what rivalry? TransCanada CEO: time has come for Mackenzie, plays down Enbridge rivalry Gary Park For Petroleum News
TransCanada doesn’t even like to talk about a rivalry with Enbridge as it tries to lock up the lead role in shipping natural gas from the North Slope and Mackenzie Delta and ramps up its growing role in connecting the Alberta oil sands and Lower 48 markets.
On the verge of starting field construction for its $5.2 billion, 590,000 barrel per day Keystone pipeline to Oklahoma, it surprised many observers April 25 by unveiling plans for a separate 750,000 bpd to Gulf Coast refineries.
At the same time, Chief Executive Officer Hal Kvisle said the “time has come” to proceed with the Mackenzie Gas Project, now that the demand for gas is reflected in the rising prices that have reached $10 per thousand cubic feet in recent weeks.
“The Mackenzie gas producers (Imperial Oil, Royal Dutch Shell, ConocoPhillips and ExxonMobil Canada) are eager to bring their gas to a very tight North American market,” he told reporters. “The gas is needed and needed soon.”
Putting indirect pressure on the Canadian government to settle on fiscal terms for the Mackenzie project and remove the regulatory obstacles, he said Canada’s “national interest is served by a pipeline that will underscore our sovereign commitment to the North.”
Cost could reach C$20 billion While the delays stretch out the price is also rising, with some observers now estimating the cost at C$20 billion, compared with C$16.2 billion just over a year ago.
Pending a resolution of the Mackenzie issues and decisions from Alaska on who will secure rights to carry North Slope gas, TransCanada is wasting no time moving from its traditional gas transportation role into a crude carrier, going head-to-head with Enbridge, which has been Canada’s dominant oil shipper for decades.
The Keystone pipeline was the first test of TransCanada’s ability to work with producers and refiners.
But Kvisle downplayed talk of rivalry, saying “it’s not either or.”
TransCanada executives suggest there is room for both companies, noting that pipeline space from Alberta to the U.S. is expected to be constrained by 2010-11 and that another 500,000 bpd of capacity will be needed every two years after 2011.
Kinder Morgan and Altex Energy are also in the field, trying to line up shippers and buyers for their own pipelines from Alberta to the Gulf Coast.
Kvisle: Oil sands production the issue Kvisle said the most important questions facing the industry are: How much will production from the oil sands grow and where will it go?
He said plans for the second phase of Keystone, from the Cushing hub in Oklahoma to the Gulf Coast, will be tested in an open season in two months, bolstered by the “excellent progress” made in talks with producers and refiners.
TransCanada has already secured shipping commitments averaging 18 years for 495,000 bpd on Keystone Stage 1, with ConocoPhillips signed up as the major shipper and a 50 percent equity partner.
Kvisle said that route is a companion, not direct competition for projects under way by Enbridge, which is also chasing 1 million bpd of exports from the oil sands.
Fueling TransCanada’s interest is the realization that interest accumulated from construction of Keystone can be paid off in 12 to 18 months, compared with 10 years for a Mackenzie pipeline.
Although he would not be pinned down on a cost estimate for Keystone Stage 2, the separate system is targeted for an in-service date of 2012, about three years after Keystone Stage 1 starts operations.
However, it is estimated costs would be 20-30 percent higher than Keystone Stage 1, pushing them into the range of $6.2 billion-$6.8 billion, with shipping tolls expected to top $6 per barrel.
“It will be a very big system and will deliver right through (from Alberta to Texas),” Kvisle said. “The construction of (Keystone Stage 2) will roll right into construction of the other. It’s advantageous to us in terms of procuring pipe … and in terms of securing contractors.”
Appeal of the Gulf Coast He said the various pipeline projects in the works are “much in demand by the market and will serve the U.S. national interest,” regardless of building opposition from environmentalists to the use of output from the oil sands.
The Gulf Coast appeals to the pipeline companies and producers as their best way to avoid saturating U.S. Midwest refineries with Canadian heavy crude and driving prices down, as well as seizing a chance to overcome shrinking supplies from U.S. producers, Mexico and Venezuela.
Joseph Dukert, an energy economist with the Washington-based Center for Strategic and International Studies, told the Globe and Mail that U.S. refiners are still faced with refitting their plants to upgrade Alberta bitumen and refine synthetic crude.
“Because our production continues to decline and Mexico’s (deliveries to the U.S.) are tapering off, we need all the oil we can get,” he said. “The situation is going to continue to be tight.”
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