TransCanada promotes crude solution11/1/2012
It is a conundrum facing Canada’s energy industry.
While the western oilpatch has a glut of crude oil, eastern refineries shell out top dollar for overseas crude.
Yet a proposed west-meets-east solution by pipeline giant TransCanada Corp. is gaining traction.
With the future of the Keystone XL and Northern Gateway pipelines stuck in political quagmires, the alternative eastern route is hailed as a way to ease the bottleneck of crude oil in Alberta while lowering costs for refineries out east.
The proposal involves converting part of TransCanada’s existing natural gas mainline to oil.
The Calgary energy company said Wednesday the pipeline stretches roughly 3,000 kilometres from Alberta to Montreal.
“Converting more of our mainline capacity to crude oil service can be a cost-effective way of supplying refineries in Eastern Canada with less expensive, domestically produced oil from Alberta and the Bakken region of Saskatchewan,” Trans-Canada spokesman Grady Semmens said in an email.
Given 80 per cent of the pipeline is already in the ground, Semmens said the project has several advantages compared with other proposals under consideration.
The company is considering extending the pipeline east of Montreal, although this would depend on market demand, he said.
Roger McKnight, a senior petroleum adviser for En-Pro International of Oshawa, said piping crude east would bolster the economies of Ontario, Quebec and the Maritimes.
“This would significantly help eastern refineries because the input costs would be drastically reduced compared to the Brent crude pricing being using right now,” McKnight said in an interview.
Given the controversy of shipping crude south to the United States or west to British Columbia, opening up eastern markets is a no-brainer, he said.
John Herron, president of the Atlantica Centre for Energy in Saint John, N.B., said the pipeline would increase market diversification for western crude oil while providing eastern refineries with more competitive prices.
“It’s in the national interest for us to have market diversification with respect to Canadian crude. Because we only ship to one main customer, the United States, we are accepting less than full market value for the commodity.”
Also, Herron said from a regional perspective, the pipeline would diversify the feedstock for eastern refineries, lowering input costs.
“The overall theme is having market diversification makes sense, but the project is not a slam dunk overnight. We have to attract capital and companies willing to assume risk.”
Edward Kallio, director of gas consulting with Ziff Energy Group in Calgary, said western oil production is expected to increase dramatically between now and 2020.
Given the increase in production and the bottleneck of crude in Western Canada, shipping oil east is an attractive alternative, Kallio said.
“It’s a really nice plan B,” he said noting that TransCanada could ship 500,000 to a million barrels a day.
Eastern refineries process 600,000 to 700,000 barrels of crude a day.
However, Kallio said some eastern refineries would have to make investments to handle heavier crude from Western Canada.
The proposed project would cost an estimated $5 billion. Industry observers say the pipeline will likely be extended to Saint John, where Irving Oil Ltd. runs the biggest refinery in Canada. From Saint John, western crude could be shipped by small tanker or rail to Imperial Oil Ltd.’s Dartmouth refinery, now up for sale.
Pius Rolheiser, an Imperial spokesman, said in an email that the refinery can process a variety of crudes, including those from Western Canada.
(The Chronicle Herald)