TransCanada has opened a new front in its turf war with Canadian rival Enbridge to ship crude from unconventional plays to North America’s largest markets.
Chief Executive Officer Russ Girling told analysts, shareholders and reporters on April 27 that his company will submit revised plans “very shortly” to United States regulators for its stalled Keystone XL system linking the Alberta oil sands and Bakken play to Texas Gulf Coast refineries and is “actively” exploring the possible conversion of its natural gas Mainline from Alberta to Eastern Canada to carry crude.
Both plans put it head-to-head with Enbridge, which is moving ahead with its plans for the Flanagan South and Seaway pipeline projects to compete with TransCanada’s US$2.3 billion Gulf Coast connection from Cushing, Okla., to the Texas refineries.
Repurposed Mainline: 800,000 bpd
The surprise was Girling’s announcement that TransCanada is now in the early stages of weighing an attempt to link Western Canadian crude production to Canada’s major outlets in Ontario and Quebec, which currently rely on imports of 500,000 barrels per day from the Middle East and Africa.
A repurposed Mainline could, by some estimates, carry 800,000 bpd.
“We have a lot of work to do technically,” he said. “We have a lot of work to do in conversations with out shippers. But … it seems to make sense to people.”
He said Eastern Canadian refiners have asked TransCanada whether it is feasible for them to access landlocked supplies of Western Canadian crude rather than paying premium prices of $15-$30 per barrel for international feedstock.
TC has conversion experience
Girling said it would be premature to discuss what such a plan would entail.
He said there are “integrity” issues that come from switching gas pipe to oil, but TransCanada has already had some experience in that field in building its existing Keystone system, which carries Alberta crude to refineries in Illinois and the storage hub in Cushing.
Line 1 of the mainline was converted in 2010 for the Canadian portion of the first Keystone pipeline to Steel City, Neb.
“I think it’s likely technically feasible that we can make something like that work,” Girling said.
Gas customers welcome switch
Chad Friess, an analyst with UBS Securities, said he expects current gas customers on the underutilized Mainline would welcome the switch.
He predicted that if the project goes ahead, light oil rather than oil sands crude would fill the line, pointing to the Bakken plays in Saskatchewan and North Dakota as the likely sources.
Friess said the conversion would “free up TransCanada’s stranded capital in the gas Mainline and solve a lot of the problem they are having with producers over tolls. If a portion of that rate base was transferred to an oil pipeline, it would be very attractive for both. It is like a win-win situation.”
Montreal-based research analyst Pierre Lacroix, of Desjardin Securities, said the concept is based on two top-of-mind rationales that the Mainline needs higher volumes and the Eastern Canadian refineries want lower-priced feedstock than the global barrels they import.
“It’s certainly something that can be entertained at high-level discussions, but a lot of details probably need to be nailed down,” he said.
Also on the table
Refineries in Ontario, Quebec and Atlantic Canada could process a combined 1.2 million bpd.
Enbridge has the edge with its long-established mainline to the U.S. Midwest and Ontario, although the line has recently been carrying only about 1.55 million barrels per day, 1 million bpd short of its design limit.
But the company has filed an application with Canada’s National Energy Board to reverse the flow of Line 9, extending shipments of Alberta and Bakken crude from Sarnia, Ontario, to Westover, in southwestern Ontario, then possibly into the Montreal area and eventually to Atlantic Canada and the U.S. Atlantic Seaboard.
Canada’s largest oil sands producer Suncor Energy, which has a refinery in Montreal, has publicly endorsed moving more Western Canadian oil into that region.
Also on the table is a proposal to build about 50 miles of new pipe from the end of the Mainline in Quebec to the St. Lawrence Seaway, which it could be barged to the 300,000 bpd Irving Oil refinery — Canada’s largest — in Saint John, New Brunswick.
For those staring into their crystal balls that has even opened up the possibility of Alberta oil sands crude being exported to Europe — a prospect that has stirred concern among environmentalists and European lawmakers, who are trying to curb the growth of oil sands-derived production.
Enbridge is also considering a 50,000 bpd addition to its Line 5 from Superior, Wis., to Sarnia for Bakken and oil sands crude to meet refining needs in Michigan, Ohio and Ontario.
New Keystone XL route skirts Sand Hills
Taking on these fresh challenges is seen as TransCanada’s response to the intense heat it has faced over the past year as Keystone XL turned into an international issue and, Girling said, made life very uncomfortable for his 4,400 employees.
To counter some of the opposition from lawmakers and critics of “dirty” oil sands crude who fear the harm to the U.S. heartland from a pipeline spill, TransCanada is on the verge of filing a new application to skirt the environmentally sensitive Sand Hills region of Nebraska.
That proposal is being reviewed by Nebraska regulators and a parallel federal review by the U.S. State Department is pending.
Rather than retreating from the spotlight and the “high profile twists and turns it has experienced,” Girling said TransCanada is currently evaluating C$50 billion worth of long-term energy projects, in addition to its slate of C$13.8 billion of projects scheduled for completion over the next three years, including C$7.8 billion for new oil pipelines.
He said TransCanada “fully understands that the transition to a less carbon-intensive future” requires a greater effort by his company to manage its environmental impact, while it seeks to land a “fair share” of the C$50 billion nest egg.
