It could be a case of last in, first out, for TransCanada in its tussle with smaller Canadian pipeline rivals Enbridge and Terasen to carry the growing volumes of oil sands production out of Alberta.
The next month will tell whether TransCanada can keep its US$1.7 billion Alberta-to-Illinois Keystone project alive. For now, the late entry into the field looks to be on shaky ground.
TransCanada Chief Executive Officer Hal Kvisle conceded as much July 29 when he said that if Enbridge and Terasen obtain commitments to carry several hundreds thousand barrels per day, Keystone could become a tombstone.
“We don’t think it serves the producing sector’s best interest to overbuild a lot of pipe that people are paying unnecessarily high tolls on,” he told a conference call.
“We’re not about to build large pipeline projects like this on spec and just hope that the oil shows up.”
However, he said that even if Enbridge’s planned 400,000 bpd Gateway project from Alberta to a northern British Columbia port goes ahead it won’t automatically “preclude Keystone,” although Gateway would “reduce the need for a project like Keystone.”
Firm commitments due in August
Whatever doubts and hopes TransCanada still harbors will likely be resolved one way or the other in August when it looks for firm commitments from producers for Keystone, which was publicly launched in mid-February, proposing a 1,900-mile system to deliver 400,000 bpd to Patoka, Illinois, by 2008 or 2009. The plan includes converting an existing gas pipeline from Alberta to Manitoba, removing 500 million cubic feet per day of gas capacity in the process.
The initial announcement came in the midst of a growing public spat between TransCanada and Enbridge over who should have rights to build the Canadian section of an Alaska Highway gas pipeline and was seen by some as an attempt by TransCanada to derail Enbridge’s multi-billion dollar plans to transport oil sands output to Asia, California and the U.S. Midwest, with a possible link to the Gulf Coast.
Since disclosure of the Keystone plans, TransCanada has refined the targets to between 300,000 and 590,000 bpd, with a start up set for 2009.
Kvisle said the refining hub in the Chicago area can absorb an additional 800,000 bpd of Canadian crude if oil sands producers grow to that extent.
“The reasonable forecasts that exist today are for such significant increases in Fort McMurray and Cold Lake (the northeastern Alberta centers of oil sands and heavy oil development) that we think there’s a good chance for a number of these projects to go ahead,” he said.
Kvisle said there is “interesting interplay” at work in contract negotiations with producers that will show whether “particular shippers see particular value” in Keystone and whether the project offers “unique attributes to particular parties” that are both producers in Western Canada and have refining interests or capacity in the Chicago refining region.
Enbridge had three-year head start
In making its surprise entry to the oil sands pipeline picture, TransCanada was already conceding three years’ advance work by Enbridge in discussions with potential shippers and stakeholder groups and a similar head start by Terasen.
Both of those traditional oil carriers are entering the make-or-break phase of their work, with Enbridge announcing July 28 that, having gained shipper backing, it plans to spend US$895 million expanding its Southern Access pipeline from Alberta to Illinois by 2009 and could save US$125 million if the project is built in one rather than three phases.
Enbridge Chief Executive Officer Pat Daniel told analysts July 28 that his company plans “very aggressive” spending over the next five years to serve the oil sands sector, including an import condensate line, likely to follow the same right of way as the Gateway venture.
He said an additional 150,000 bpd of condensate, needed to offset a shortage of diluent needed to blend with bitumen and improve the pipeline flow, could even boost Enbridge’s initial Gateway target of 400,000 bpd to 600,000 bpd.
If the oil sands export and condensate import lines are “built together,” the combined cost could be slashed by C$600 million, trimming tolls in the process.
Enbridge open season this fall
Enbridge will hold an open season for the crude line this fall once firm commercial agreements are in place.
The key piece of that puzzle is the cooperative agreement signed with PetroChina to secure 200,000 bpd from Canadian producers, making China’s largest oil company the anchor tenant on Gateway.
Meanwhile, Terasen is advancing various elements of its expansion program.
It has filed an application with the National Energy Board to boost capacity on its Trans Mountain system from Alberta to Burnaby, British Columbia, to 260,000 bpd from 225,000 bpd at a cost of C$210 million, setting an in-service date of early 2007.
The company said it intends to file with Alberta regulators this fall to spend C$800 million Corridor pipeline from the oil sands to the Edmonton refinery region.
Depending on regulatory and shipper approval, that will raise capacity on the diluent/bitumen system by 200,000 bpd from the current 258,000 bpd.
Terasen is also working on plans for either a major expansion along its Trans Mountain route or a new pipeline to either Prince Rupert or Kitimat on the British Columbia coast.
