TransCanada has announced it has enough binding, 20-year shipping contracts to launch Energy East, its C$12 billion venture spanning 2,700 miles from the Alberta oil sands to New Brunswick, possibly picking up Bakken crude along the way.
The crude could serve as feedstock for refineries in Ontario, Quebec and ending with the 300,000 barrels per day Irving Oil facility at Saint John, New Brunswick.
The prospect of moving 1.1 million barrels per day of crude from Alberta to Atlantic Canada for the first time, starting in 2018 — with 900,000 bpd committed — justifies the portrayal of Energy East by its supporters as “historic” and “nation-building.”
TransCanada executives have disclosed that Bakken producers are among those who have signed long-term contracts, but will not disclose whether they are in both North Dakota and Saskatchewan/Manitoba, or what volumes are involved.
A new terminal will be built in southeastern Saskatchewan, implying a connection with the Bakken formation, although the precise location will not be announced until plans start to firm up.
Initially light, sweet crude
Chief Executive Officer Russ Girling said the shippers have only booked to ship light, sweet crude in the initial stages, again reinforcing the prospect of Bakken crude entering the stream, but that is “subject to commercial agreements.”
He also said the commercial open season which closed in June attracted interest from a “number of international parties,” including European and Indian refineries, but he would not say whether any were among those signing contracts.
Above all, Energy East offers an alternative to the feuding that has pushed TransCanada’s Keystone XL and Enbridge’s Northern Gateway to the brink of collapse.
For Canada, it falls into the same category as the Canadian Pacific Railway, which was the first building block in tying together the British Colonies of North America in the 19th Century, followed by the TransCanada Highway and TransCanada’s own natural gas mainline and Enbridge’s crude pipeline.
Equally, Energy East will provoke a debate that could be “nation dividing,” with opponents marshalling their forces to wage a battle to sway the public and politicians, inspired by their success in stalling TransCanada’s Keystone XL and Enbridge’s Northern Gateway.
Mostly national approvals
Although, as with all pipelines that cross provincial borders, Energy East will rely mostly on the National Energy Board and the Canadian government for decisive approvals, especially if the project does open the doors to exports of crude or refined products to Europe, India and China. It could also result in shipments to refineries on the U.S. Atlantic Seaboard and Gulf Coast.
But it also needs a “social license” from 150 First Nations and aboriginal communities along the pipeline right of way, along with proving that it will incorporate unmatched safety and environmental standards.
“I can safely say that environment concerns are going to top the list of priorities for a number of our stakeholders,” conceded Alex Pourbaix, TransCanada’s president of energy and oil pipelines.
“I am just as confident that the Energy East project will soon become known as a model of environmental responsibility within the energy sector.”
Environmental critics
Those claims no longer wash with the most outspoken environmental critics, who have played the largest roles in stalling progress on TransCanada’s Keystone XL and Enbridge’s Northern Gateway and are ready to fight Kinder Morgan’s plans to triple capacity on its Trans Mountain system from the oil sands to the Vancouver area and Washington State.
Pourbaix noted that 70 percent of the pipeline is already in the ground — 1,184 miles of underutilized natural gas pipeline from Alberta to Ontario that TransCanada plans to convert to a crude-carrying system, adding 870 miles of new pipeline to Saint John.
The gas line, one of several operated along the route by TransCanada, was constructed in the 1980s, which raises questions about its condition, even though TransCanada said here will be some digs to check the pipe’s integrity.
For the opponents, overriding all else is their determination to prevent the flow of crude from the oil sands, using the successful fight against Keystone XL as their model.
They brush aside the prospect that Energy East could displace 700,000 bpd of crude that is imported from unstable regimes to Eastern Canada.
Others are concerned about plans to build tanker terminals in Quebec City and, more significantly, a C$300 million facility in Saint John, which offers a year-round ice-free port, making feasible the possibility of exports to Europe, India and possibly Asia.
Labor wants Canadian refining
The Alberta Federation of Labor, while supporting Energy East in principle, said the project must be built around refining crude in Canada, not exporting bitumen blends.
“Without strong leadership from Alberta and the federal government, this will be another missed opportunity” to benefit from the value-added end of Canada’s oil industry, said AFL President Gil McGowan.
Girling said TransCanada “strongly believes Canada will be served first” by Energy East. “The primary driver has been to supply Canadian refineries.”
Beyond that, exports of crude or refined products “will be up to the marketplace to determine.”
On TransCanada’s side is a new, streamlined federal regulatory process, including a deadline on reviews introduced by Natural Resources Minister Joe Oliver to prevent unnecessary delays and efforts to use filibuster tactics.
The Quebec hurdle
In the political realm, the greatest hurdle to be overcome is likely in Quebec, where environmentalists are a stronger force than anywhere else in Canada.
But Quebec Premier Pauline Marois, who agreed last year to participate with other provinces in a working group on resource issues, including pipelines, is being pulled in opposite directions. She has to consider the prospect of Energy East offering a lifeline to the two remaining refineries in Quebec after a spate of closures in recent years, along with the faint hope that refining crude in Canada will lower gasoline prices, while looking for ways to accommodate the project opponents.
Greenpeace, the Sierra Club and the nationalist Council of Canadians have immediately lined up against Energy East, with Greenpeace spokesman Keith Stewart noting there has been a “much more organized political push” for Energy East.
However, he noted that Northern Gateway proceeded out of the spotlight for many years until the regulatory process started, at which time the governing British Columbia Liberal government of Premier Christy Clark and the opposition New Democratic Party refused to endorse the project unless Enbridge was able to resolve the concerns about First Nations involvement, possible pipeline spills and tanker accidents and British Columbia’s demand for a larger share of the revenues.
Oliver and Redford both left no doubt that they view Energy East as a breakthrough candidate, supported by the shipper response to the open season, which raised capacity from TransCanada’s original 500,000-850,000 bpd to 1.1 million bpd and provided enough support to make the Saint John extension viable.
“Our government welcomes the prospect of transporting Canadian crude oil from Western Canada to consumers and refineries in Eastern Canada and ultimately to new markets abroad,” Oliver said.
“Initiatives like this could allow Canadian refineries to process more potentially lower-priced Canadian oil, enhancing Canada’s energy security and making our country less reliant on foreign oil,” he said.
Bulk imported
In 2012, 83 percent of crude oil deliveries to Atlantic Canada refineries and 92 percent of crude oil deliveries to refineries in Quebec were imported.
Pourbaix said most of the imports came from Saudi Arabia, Algerian and Libya and cost US$30-$40 per barrel more than domestic crude.
Energy East can eliminate Eastern Canadian refineries’ dependence on imported oil and ensure Canadian companies receive greater value for their domestically produced crude, he said.
Redford said her government has “made a commitment to the project as part of our efforts to build new markets and get a fairer price for the oil resources Albertans own.”
A month ago, Alberta committed to ship 100,000 bpd of its royalty crude for 20 years on Energy East, indicating it would pay about C$5 billion in tolls over the period.
The province is expecting to receive up to 400,000 bpd of royalty crude by the time Energy East starts deliveries to Ontario in late 2017, the Alberta Petroleum Marketing Commission has said.
Canadian Prime Minister Stephen Harper, long an unwavering advocate of opening new markets for Canadian crude, gave an unusually lukewarm assessment of Energy East, describing it as good in principle, while needing to go through a rigorous independent analysis.
“There are approval processes to look at environmental effects, the economic issues ... to look at all those things,” he said, while suggesting the project can enhance the “long-term energy security of North America.”
Energy East is now viewed as gaining an edge over rival Enbridge in the race to secure outlets for oil sands and Bakken crude.
Line 9 reversal
Enbridge is poised to reverse its Line 9 in Ontario and start shipping 300,000 bpd of western crude to Quebec refineries.
Chief Executive Officer Al Monaco said Aug. 1 the Line 9 and Energy East projects could open a door to Canada’s first significant crude exports outside North America.
“It’s not a bad assumption (that the projects) involve a lot of crude and it will have to find a home,” he said.
Patricia Mohr, the Bank of Nova Scotia’s chief economist, said in a note that Energy East could open an economic route to Europe, India and China.
She said refineries in western India are interested in importing Alberta blended bitumen and estimated tanker charges from Quebec City and Saint John would average US$4.20 per barrel.
Mohr said a tanker terminal in Saint John would accommodate Very Large Crude Carriers which could carry up to 2 million barrels and lower those shipping costs to US$3.
She estimated shipping costs on Energy East would be US$7 from Alberta to Saint John, compared with US$15 to reach the Irving Oil refinery in Saint John by rail and US$6-$8 from Alberta to the Gulf Coast.
Mohr projected the tolls on Northern Gateway from the oil sands to a tanker port on the British Columbia coast at US$3.30 and US$5 on the expanded Trans Mountain system.
“Had (Energy East) been available in the first half of 2013, the cost of Edmonton Par crude from Alberta delivered to Montreal/Quebec City would have been US$14.85 per barrel cheaper than imported Brent,” Mohr said.
