TransCanada Seeks Customers for Mainline Oil Pipe Project

TransCanada Corp. (TRP), the company proposing to build the Keystone XL pipeline, is soliciting customer commitments to convert a portion of its Mainline natural gas system to carry oil from Western Canada to refineries in the east.

The Energy East project involves converting 3,000 kilometers (1,800 miles) of the Mainline system to ship crude and building 1,400 kilometers of new pipelines to reach refineries as far as east as New Brunswick, the Calgary-based company said in a statement today.

The project would move as much as 850,000 barrels of crude a day from expanding oil-sands production, supplying refiners that currently import more than 600,000 barrels a day of higher priced oil, TransCanada said. With enough customer demand, the company said it will seek regulatory approvals and may have the project in service in late 2017.

Producers have been seeking ways to bring added Alberta oil production to market. Western Canada Select oil trades at a discount to Brent, the international benchmark, because of transportation bottlenecks. TransCanada’s Keystone XL project would move 830,000 barrels a day from the oil-sands region to U.S. Gulf Coast refineries.

Converting the existing Mainline conduit to carry oil would cost about C$5 billion ($4.9 billion) and be “Canada’s most elegant solution” to the need for more oil-sands outlets, a group of RBC Capital Markets analysts led by Greg Pardy wrote in a Feb. 11 research note.

TransCanada didn’t immediately respond to a phone message and e-mail requesting comment on the cost estimate.

Oil Trains

Irving Oil Corp. has been moving more than 90,000 barrels a day of crude by rail from Alberta and North Dakota to supply its New Brunswick refinery, Canada’s largest, a person familiar with the matter said in December. The closely held company has been using trains to transport the cheaper crude in lieu of imports from the North Sea, Middle East or Africa.

Adding new lines and converting to oil would give new life to TransCanada’s Mainline system, which experienced a 19 percent drop in average volume last year to 4.2 billion cubic feet a day. Use of the pipeline to ship gas to eastern Canada has declined as production from shale formations has increased in the U.S. Northeast.

The company is awaiting U.S. government approval of its $5.3 billion Keystone XL pipeline, one of several proposals to move crude from the oil-sands area. Kinder Morgan Energy Partners LP (KMP) is planning a C$5.4 billion expansion of the Trans Mountain pipeline between Alberta and Vancouver. Enbridge Inc. (ENB) is planning a pipeline from Alberta to Kitimat, British Columbia.

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