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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--TransCanada Corporation (NYSE:TRP) (Calgary, Alberta) wants to convert an existing natural gas pipeline to carry crude oil from Western Canada to Eastern Canada. The company says the multibillion-dollar conversion project is technically and economically feasible. Now, TransCanada is asking the market what it thinks.
Last month, TransCanada began a two-month binding "open season" process to obtain firm, long-term commitments to transport crude through its proposed Energy East pipeline. The proposed pipeline would be a conversion of an existing gas pipeline that is part of TransCanada's Mainline system. If all goes according to plan, the pipeline could transport up to 850,000 barrels per day (BBL/d) of crude oil to Quebec by late 2017 and New Brunswick by 2018.
"Our discussions with prospective shippers have been very positive and lead us to believe that there is sufficient demand for this project in the market," Philippe Cannon, a TransCanada spokesperson, told Industrial Info. "This open season is to secure the commercial underpinning from our customers that will allow us to proceed with developing the pipeline."
TransCanada wants to convert about 1,864 miles of existing gas pipeline from southeastern Alberta to Cornwall, Ontario. TransCanada would have to add about 171 miles of new pipeline from Hardisty, Alberta to Burstall, Saskatchewan. Depending on market demand, the project also could add up to about 900 miles of new pipeline in other provinces.
"The pipeline will be capable of transporting all grades of crude oil," Cannon said in an email interview. "Refineries in Quebec currently are configured to process light crude oil, so we expect much of the initial demand for the pipeline will be light, sweet crude produced in Alberta and the Bakken formation in Saskatchewan, as well as synthetic crude oil from the oil sands." He added that the Saint John Refinery, owned by Irving Oil Limited (Saint John, New Brunswick), also can process heavy crudes and is currently receiving Western crude by rail. That refinery "may be interested in receiving heavier grades (of crude) from the oil sands," the TransCanada spokesperson said.
Whether the crude oil will be refined in Eastern Canada--thus displacing imported crude--or shipped overseas will be determined by the market, Cannon said: "The pipeline could eliminate Eastern Canadian refineries' reliance on crude oil imported from overseas. Eastern Canada currently imports more than 600,000 barrels a day, 80% of its refinery feedstock, from countries including Saudi Arabia, Nigeria, Venezuela and Algeria."
Whether refined domestically or exported, the Energy East project could shrink the price penalty imposed on Western Canadian heavy crude oil. Limited transportation options have imposed sizable price penalties--at some points more than $40 per barrel--on Western Canadian Select (WCS) compared to Brent crude oil. TransCanada's Cannon said that if the Energy East project begins operating, it would "help to ensure that domestically produced oil gets greater value by competing directly with more expensive imported crude that is trading on the world market."
"The deep discount imposed on WCS is an important factor in the proposed conversion," Jesus Davis, Industrial Info's vice president of research for Oil & Gas Production, Transmission and Terminals, said in an interview. "Crude oil production from Canadian oil sands is growing, and Canada needs to find a way to get that crude to market."
Plans to ship Canadian crude oil through proposed pipelines in Western Canada, like Northern Gateway, have run into widespread political opposition in British Columbia, Davis noted. And the proposed Keystone XL pipeline, which would bring Canadian crude to the U.S., remains stymied on this side of the border. For more on the delays facing these pipeline projects, see January 24, 2012, article -- As Keystone XL and Northern Gateway Pipelines Stall, Other Projects Ready to De-Bottleneck Cushing.
"Even if Keystone XL gets built, Canada would still need more crude-oil pipelines to bring its heavy crude to market," Davis said. "In fact, if three pipelines were built--one to the south, one to the east and one to the west--they'd all be full. That's how much crude could be produced from the oil sands projects."
"For Canadian refineries in the East, taking crude from Energy East would be a no-brainer, unless they had to make major modifications to process it," he added.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
Last month, TransCanada began a two-month binding "open season" process to obtain firm, long-term commitments to transport crude through its proposed Energy East pipeline. The proposed pipeline would be a conversion of an existing gas pipeline that is part of TransCanada's Mainline system. If all goes according to plan, the pipeline could transport up to 850,000 barrels per day (BBL/d) of crude oil to Quebec by late 2017 and New Brunswick by 2018.
"Our discussions with prospective shippers have been very positive and lead us to believe that there is sufficient demand for this project in the market," Philippe Cannon, a TransCanada spokesperson, told Industrial Info. "This open season is to secure the commercial underpinning from our customers that will allow us to proceed with developing the pipeline."
TransCanada wants to convert about 1,864 miles of existing gas pipeline from southeastern Alberta to Cornwall, Ontario. TransCanada would have to add about 171 miles of new pipeline from Hardisty, Alberta to Burstall, Saskatchewan. Depending on market demand, the project also could add up to about 900 miles of new pipeline in other provinces.
"The pipeline will be capable of transporting all grades of crude oil," Cannon said in an email interview. "Refineries in Quebec currently are configured to process light crude oil, so we expect much of the initial demand for the pipeline will be light, sweet crude produced in Alberta and the Bakken formation in Saskatchewan, as well as synthetic crude oil from the oil sands." He added that the Saint John Refinery, owned by Irving Oil Limited (Saint John, New Brunswick), also can process heavy crudes and is currently receiving Western crude by rail. That refinery "may be interested in receiving heavier grades (of crude) from the oil sands," the TransCanada spokesperson said.
Whether the crude oil will be refined in Eastern Canada--thus displacing imported crude--or shipped overseas will be determined by the market, Cannon said: "The pipeline could eliminate Eastern Canadian refineries' reliance on crude oil imported from overseas. Eastern Canada currently imports more than 600,000 barrels a day, 80% of its refinery feedstock, from countries including Saudi Arabia, Nigeria, Venezuela and Algeria."
Whether refined domestically or exported, the Energy East project could shrink the price penalty imposed on Western Canadian heavy crude oil. Limited transportation options have imposed sizable price penalties--at some points more than $40 per barrel--on Western Canadian Select (WCS) compared to Brent crude oil. TransCanada's Cannon said that if the Energy East project begins operating, it would "help to ensure that domestically produced oil gets greater value by competing directly with more expensive imported crude that is trading on the world market."
"The deep discount imposed on WCS is an important factor in the proposed conversion," Jesus Davis, Industrial Info's vice president of research for Oil & Gas Production, Transmission and Terminals, said in an interview. "Crude oil production from Canadian oil sands is growing, and Canada needs to find a way to get that crude to market."
Plans to ship Canadian crude oil through proposed pipelines in Western Canada, like Northern Gateway, have run into widespread political opposition in British Columbia, Davis noted. And the proposed Keystone XL pipeline, which would bring Canadian crude to the U.S., remains stymied on this side of the border. For more on the delays facing these pipeline projects, see January 24, 2012, article -- As Keystone XL and Northern Gateway Pipelines Stall, Other Projects Ready to De-Bottleneck Cushing.
"Even if Keystone XL gets built, Canada would still need more crude-oil pipelines to bring its heavy crude to market," Davis said. "In fact, if three pipelines were built--one to the south, one to the east and one to the west--they'd all be full. That's how much crude could be produced from the oil sands projects."
"For Canadian refineries in the East, taking crude from Energy East would be a no-brainer, unless they had to make major modifications to process it," he added.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
