If you hear the sound of metal-on-metal rising from downtown Calgary it could be the growing swordfight between pipeline giants, TransCanada and Enbridge.
From a skirmish over competing proposals to build liquefied natural gas terminals in Quebec, they are now fully embroiled in heavyweight contests to carry natural gas from Alaska to the Lower 48 and heavy oil from Alberta to the U.S. Midwest.
Thus, for the first time in the more than 50 years that they have existed, the two companies are competing head-to-head across the spectrum of energy delivery services.
TransCanada sharply raised the stakes Feb. 9 when it confirmed a spreading rumor and announced plans to build a 1,800-mile pipeline to ship 400,000 barrels per day from Hardisty, Alberta, to the Illinois refining hubs at Wood River and Patoka.
To most observers, the announcement was seen as an aggressive response to Enbridge’s campaign to wrestle control away from TransCanada in the battle to carry Alaska gas through Canada, adding value to its 50 percent stake in the Alliance gas pipeline from northeastern British Columbia to Chicago.
Enbridge: Industry competitive
Enbridge spokesman Jim Rennie told Petroleum News that energy delivery is evolving into a highly competitive industry, with “alternative proposals out there for everything we are interested in … and we are happy to operate in that environment. Ultimately the market will decide which projects go ahead.”
TransCanada Chief Executive Officer Hal Kvisle said in a statement that the Keystone project “is another way of providing a valuable service to our customer.”
Hejdi Feick, a spokesman for TransCanada, told Petroleum News that although Keystone is a shift in business strategy it does not pose any unusual challenges for TransCanada, whose pipeline expertise has been focused on natural gas.
The only exception was a short period when TransCanada owned 50 percent of the 172,000 bpd Express pipeline from Alberta to Casper, Wyo., before selling the stake to Terasen in 2000.
TransCanada’s first serious oil foray
In making its first serious foray into oil shipments, TransCanada threw down the gauntlet to both Enbridge and Terasen, who were already dueling over rights to ship oil sands production, which could grow over the next 10 years to 2.6 million bpd from about 1 million bpd.
But it is the TransCanada-Enbridge showdown that is attracting most attention Analysts agree the two are in a fight for long-term shipping commitments — a high-stakes game that stands to benefit producers more than the pipelines. The expectation is that one of the Midwest destined pipeline proposals will fall by the wayside.
Karen Taylor, analyst with BMO Nesbitt Burns, said in a research note that the competition among the three pipelines could see the “winner” pay the price from sub-optimal returns.
Andrew Kuske, an analyst at UBS Warburg, said TransCanada faces “tough competition” because of Enbridge’s “existing infrastructure and customer focus.”
Dominique Barker, a Credit Suisse First Boston analyst, said TransCanada’s entry into the pipeline race to the U.S. Midwest is confirmation that the United States, not China, is the leading market for Alberta’s heavy oil.
She said TransCanada’s plan raises questions about whether the Chinese, who have been in discussions with Enbridge, will ever become buyers of oil sands production.
Conversion and new construction
The US$1.7 billion Keystone plan includes converting 770 miles of TransCanada gas pipelines in Alberta, Saskatchewan and Manitoba and adding about 1,000 miles of new 30-inch pipeline from the Canada-U.S. border to the Chicago area.
Encouraged by six months of discussions with potential shippers and other stakeholder groups, TransCanada has laid out a timetable that includes an open season this winter and spring; the start of environmental assessments in spring and summer; major regulatory applications in fall and winter, all targeting a start of operations in 2008 and 2009.
Meetings are also planned with oil producers, refiners and industry groups, including the Canadian Association of Petroleum Producers, to assess interest and support for the project.
But TransCanada is lagging well behind Enbridge, which has been working for three years with producers, refiners and stakeholders on its line-up of oil sands pipelines and is “well along” in those discussions, Rennie said.
The direct rivals to Keystone are Enbridge’s Southern Access and Spearhead, aiming for an ultimate increase of 300,000 bpd in its capacity to the U.S. Midwest, the Cushing, Oklahoma, hub and eventually U.S. Gulf Coast refineries.
Spearhead from Chicago to Cushing is due on stream by early 2006 at an initial 60,000 bpd and Southern Access from Superior, Wis., to Wood River, which is designed to carry an incremental 130,000 bpd.
TransCanada poised to intervene
In a sideline spat, TransCanada is poised to intervene in the Spearhead hearing when Enbridge applies to the National Energy Board for a toll agreement with its mainline customers to help finance the reversal of the existing Cushing-to-Chicago line.
TransCanada has indicated its case will be based on the implications of collecting revenue from Canadian pipeline customers to pay for the operating of a U.S. pipeline.
Enbridge is also embarked on a basket of undertakings to support its U.S. expansions.
Within Alberta its Athabasca pipeline from the oil sands could be increased to 570,000 bpd from 345,000 bpd, while it has targeted a mid-2008 start up for the Waupisoo pipeline at 210,000 bpd. Both connect to Enbridge’s mainline system, which itself could see incremental gains of more than 500,000 bpd over the 2007-2013 period.
Adding to Enbridge’s full plate, it is arm-wrestling with Terasen to gain an edge in building pipeline capacity from northern Alberta to deepwater ports on the British Columbia coast, with connections to Asia and California.
All of these plans combined exceed the anticipated increase in oil sands production, setting the stage for a battle among the pipelines to secure long-term commitments, said Greg Stringham, vice-president of the Canadian Association of Petroleum Producers.
