TransCanada to Proceed With $12 Billion Pipe to East Coast

Aug. 1 (Bloomberg) -- TransCanada Corp., the country’s second-biggest pipeline operator, plans to go ahead with a C$12 billion ($11.6 billion) pipeline that will ship oil from Western Canada to the East Coast.

The Energy East project would have a capacity of 1.1 million barrels a day and be in service by the end of 2017 for deliveries to Quebec and to New Brunswick in 2018, the Calgary-based company said today in a statement.

The project to supply East Coast refineries and export terminals involves converting a portion of 3,000 kilometers (1,864 miles) of existing 42-inch natural gas pipeline and building 1,400 kilometers of new pipeline, the company said.

The new line would be in addition to the proposed $5.3 billion Keystone XL pipeline from Alberta’s oil sands to the Gulf Coast, which is pending approval from the U.S. government.

“Energy East is one solution for transporting crude oil but the industry also requires additional pipelines such as Keystone XL to transport growing supplies of Canadian and U.S. crude oil to existing North American markets,” Chief Executive Officer Russ Girling said in the statement.

The project is bigger than TransCanada’s previous estimate of 850,000 barrels a day, and the company has an agreement with Irving Oil Corp. to build a new deepwater marine terminal in Saint John, New Brunswick, according to the statement. Irving, which runs a 300,000-barrel-a-day refinery, said in a separate statement it will spend $300 million on the marine terminal.

Higher Cost

TransCanada’s cost is almost twice the $7 billion that Carl Kirst, an analyst at BMO Capital Markets (QGCM), had estimated. Investors are “near the good-riddance” point with the Keystone XL project, Kirst wrote in a note today to clients. “Energy East not only can take the place of XL, it becomes an even larger driver to future value.”

Girling said the cost is “in line with a project this size.”

“It translates into a toll that is very reasonable,” he said at a press conference.

The connection to the coast will allow oil from Western Canada (CWB) to be shipped to the U.S. Eastern Seaboard, and to destinations as distant as Asia, Girling said.

It’s more likely that the oil will go to Canadian refineries, where it will replace higher-priced imports from the Middle East, Girling said.

Bakken Oil

TransCanada has discussed shipping oil from the Bakken formation, TransCanada President Alex Pourbaix said. He didn’t specify how much or say whether the oil would come from the U.S. or Canadian portion of the field.

Oil-sands production is expected to more than double to 5.2 million barrels a day by 2030, according to the Canadian Association of Petroleum Producers. Canadian oil has traded below the U.S. benchmark West Texas Intermediate crude, because producers lack transportation to ship it to refiners. Western Canada Select averaged $16.75 a barrel below WTI in the second quarter, according to data compiled by Bloomberg.

The Council of Canadians said the project would endanger waterways, citing oil spills caused by other pipeline operators. Enbridge Inc. (ENB) spilled 20,000 barrels of oil into the Kalamazoo River in Michigan in 2010 and Exxon Mobil Corp.’s Pegasus pipeline ruptured in March, sending 5,000 barrels of oil flowing through streets in Mayflower, Arkansas.

Bay Threatened

“This would threaten the Gulf of St. Lawrence and the Bay of Fundy, water bodies that must be protected as part of the commons and a public trust, not as a highway for oil exports,” Maude Barlow, national chairwoman of the social justice group, said in an e-mailed statement.

Pourbaix said the project will have a minimal environmental footprint, since it will use existing pipe for most of its route and follow existing rights-of-way where possible. TransCanada will use electric pumps, which will reduce air emissions, and build pump stations on the site of existing gas-compression stations.

TransCanada rose 2.3 percent to C$48.01 at the close in Toronto.

To contact the reporters on this story: David Scanlan in Toronto at dscanlan@bloomberg.net; Mike Lee in Dallas at mlee326@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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