TransCanada to Face Hurdles in Quest for Eastern Pipeline

TransCanada Corp., (TRP) facing opposition to its Keystone XL pipeline in the midwestern U.S., is encountering challenges at home from environmental groups and provincial lawmakers over a proposed C$12 billion ($11.6 billion) line to ship oil to the Atlantic Coast.

The country’s second-biggest pipeline operator plans to move as much as 1.1 million barrels a day from the oil sands in Alberta to New Brunswick by 2018.

Environmental groups and native leaders may push to block the pipeline, emboldened by the work of Keystone XL opponents who’ve fought that project for more than four years. The 4,400 kilometer (2,734 mile) Energy East line would need support from provincial governments in Alberta, Saskatchewan, Manitoba, Ontario, Quebec and New Brunswick.

Some of the strongest opposition will be in Quebec, said political scientist Peter Stoett. The government of Premier Pauline Marois has halted natural gas exploration by hydraulic fracturing, or fracking, while crews continue to clean up the disaster in Lac-Megantic, where a runaway train filled with crude exploded in the center of town, killing 47 people last month.

“We can expect a serious debate to emerge in Quebec over this,” said Stoett, director of the Loyola Sustainability Research Centre and professor of political science at Montreal’s Concordia University, in an e-mail. “The train tragedy might increase support for pipelines in some places, but overall my impression is that it will further deepen water-rich Quebec’s concerns about crude in general.” The province produces much of its energy through hydro-electricity.

Photographer: Scott Eells/Bloomberg

TransCanada Chief Executive Officer Russ Girling said his Calgary-based company has experience building pipelines in Quebec and will reach out to residents for input. Close

TransCanada Chief Executive Officer Russ Girling said his Calgary-based company has... Read More

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Photographer: Scott Eells/Bloomberg

TransCanada Chief Executive Officer Russ Girling said his Calgary-based company has experience building pipelines in Quebec and will reach out to residents for input.

Marois Response

Julien Lampron, a spokesman for Marois, said the premier is on vacation and no one in the government will be making comments on Energy East.

Marois told reporters on July 26 that she was still considering supporting an eastern pipeline. “We built a working group between Alberta and Quebec -- with ministry of finance and various ministries in Quebec that are concerned -- to assess the future of this project, the risk associated with it and the mitigation measures that we should have if it happens,” she said, according to the Globe and Mail.

“Politically, TransCanada’s challenge in Quebec is so big that this project just won’t happen,” said Pierre-Olivier Pineau, a management professor at the HEC Montreal business school who specializes in energy. “It will be perceived as risky, with negative consequences for the environment.”

TransCanada Chief Executive Officer Russ Girling said his Calgary-based company has experience building pipelines in Quebec and will reach out to residents for input.

Keystone Delays

“We’re very familiar with the Quebec environmental and regulatory review process,” he said, during a televised press conference announcing the project on Aug. 1. “We’re going to make sure that we set up a process where everyone will have an opportunity to have input.”

TransCanada’s $5.3 billion Keystone project has been stuck in regulatory limbo as the U.S. government weighs approval. Opponents have argued the project will increase greenhouse gas emissions by aiding the expansion of the oil sands, which have higher emissions than conventional crude.

Energy East can expect more of the same opposition, said Daniel Kessler, a spokesman for 350.org, a U.S. group that is helping organize the battle against Keystone.

“We plan to fight it with our friends in Canada,” said Kessler, referring to the Energy East proposal. “Our goal is to not play whack-a-mole with these projects, but to slow them down long enough until policy makers come to their senses and adopt policies to keep fossil fuels in the ground.”

Native Consultations

Energy East will create thousands of jobs along the pipeline route and at the refineries it serves, said Alex Pourbaix, TransCanada’s president of energy and oil pipelines.

“The Energy East pipeline could eliminate eastern Canadian refineries’ reliance on crude oil imported from overseas and ensure Canadians receive greater value for their domestically-produced oil,” Pourbaix told reporters on Aug. 1.

TransCanada will also consult with the estimated 150 aboriginal communities along the proposed route, Pourbaix said. Native opposition to Enbridge Inc. (ENB)’s Northern Gateway pipeline to the Pacific Coast has contributed to delays in that project.

“TransCanada fully respects their legal and constitutional rights,” Pourbaix said.

TransCanada rose 2.3 percent on the day of the Energy East announcement, as some investors bet the project will boost earnings. Analysts from Royal Bank of Canada, Canaccord Genuity Corp. and Desjardins Securities Inc. said the project would have a net benefit for TransCanada. Seven analysts raised their target prices on the stock on Aug. 1 and 2.

All-Canadian

TransCanada shares fell 2 percent to C$47.25 at 10:32 a.m. in Toronto and have risen 0.5 percent his year compared with a 3.2 percent rise in the Standard & Poor’s/TSX Energy Index. The company reported earnings of 52 Canadian cents in the second quarter, up from 39 cents in the same quarter of 2012. The company reported revenue of C$2 billion this quarter compared with C$1.85 billion for the same quarter last year.

While pipeline approvals are becoming increasingly difficult to obtain, TransCanada’s new line may win more support at home than Keystone has received, said Steven Paget, a Calgary-based analyst at FirstEnergy Capital Corp.

“Building oil pipelines, particularly Canadian oil pipelines, carries more political risk than the construction of nuclear reactors” Paget wrote in an Aug. 2 note. “The all-Canadian reach of this pipeline may satisfy this part of the opposition.”

Suncor Support

Demand for the line is firmly in place, said Pierre Lacroix, a Montreal-based analyst at Desjardins. TransCanada has 900,000 barrels of oil a day in long-term contracts from producers in Western Canada, the company said in the project announcement.

Cenovus Energy Inc. (CVE), the fourth-largest Canadian oil producer, expects to ship 200,000 barrels a day on the new pipeline to New Brunswick, said Calgary-based Rhona DelFrari, a Cenovus spokeswoman in an interview. Some of that oil may be exported overseas, she said. “This pipeline just makes sense,” she said. “It gets Canadian oil to Canadian customers.”

Steven Williams, CEO of Suncor Energy Inc. (SU), Canada’s biggest oil producer, said his company is “actively engaged” in the new pipeline, during a conference call with analysts Aug. 1.

“Suncor is absolutely aligned with its industry partners about the need to get oil sands and western crudes to as many markets as we can,” he said.

The federal National Energy Board is in charge of approving and regulating pipelines that cross provincial borders, though provinces can have their say during public hearings, said Whitney Punchak, a spokeswoman for the NEB.

‘In Principle’

“Safety is our top priority,” said Ontario Energy Minister Bob Chiarelli, in an e-mail. Ontario “will participate in the hearing process to ensure that the environment, health and well being of Ontarians are protected.”

The federal government has already signaled support for the Energy East pipeline.

Prime Minister Stephen Harper told reporters in Quebec on Aug. 2 that his government backs the project “in principle.”

Canada “strongly supports constructing energy infrastructure that will help transport Western Canadian oil to the east,” Harper wrote in an April 29 letter to Conservative lawmakers in New Brunswick.

To contact the reporter on this story: Gerrit De Vynck in Toronto at gdevynck@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net

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