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Keystone Delays Fuel Push for Canada East Oil Pipeline

Photographer: Brett Gundlock/Bloomberg

The TransCanada Corp. Hardisty Terminal 2, under construction in anticipation of the Keystone XL pipeline approval, in Hardisty, Alberta, Canada, on Dec. 6, 2013. Close

The TransCanada Corp. Hardisty Terminal 2, under construction in anticipation of the... Read More

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Photographer: Brett Gundlock/Bloomberg

The TransCanada Corp. Hardisty Terminal 2, under construction in anticipation of the Keystone XL pipeline approval, in Hardisty, Alberta, Canada, on Dec. 6, 2013.

Delays by the U.S. in reviewing Keystone XL are helping build momentum for an oil pipeline to Canada’s East Coast.

TransCanada Corp. (TRP), the company proposing the $5.4 billion conduit to connect Alberta’s oil sands with U.S. Gulf Coast refiners, may have an easier path to approval with its alternative to the nation’s Atlantic Coast. The C$12 billion ($11 billion) Energy East would be North America’s largest oil line, with capacity to ship 1.1 million barrels a day.

“We view the Energy East project a step in the right direction,” Thomas Mulcair, leader of the federal New Democratic Party, said at the Bloomberg Canada Economic Summit yesterday in Toronto. The opposition leader prefers the project over Keystone because it would support Canadian “value-added” jobs by supplying refineries in Eastern Canada.

While shipping oil-sands crude across the country to the port of Saint John, New Brunswick, is farther than sending it to the Gulf Coast, Energy East wouldn’t require U.S. approval and would let producers sell their fuel to refineries in Canada and as far away as India. Other proposals that have faced opposition include Enbridge Inc. (ENB)’s Northern Gateway to the Pacific Coast and the twinning of Kinder Morgan (KMP) Energy Partners LP’s expansion of its Trans Mountain line.

‘The Crux’

Currently, refineries in Quebec and Atlantic Canada import 86 percent of their crude supplies, or about 700,000 barrels per day, according to the Canadian Association of Petroleum Producers.

Delays to TransCanada’s Keystone XL pipeline are changing the nature of Canadian and U.S. relations, Chief Executive Officer Russ Girling said at the conference.

“Nobody believes that this doesn’t set a precedent, that the world is the same as it used to be,” Girling said, referring to the lack of progress in getting U.S. approval for the pipeline. “The crux of the question is, does the U.S. want Canadian oil.”

The Obama administration on April 18 extended the U.S. review of Keystone XL because Calgary-based TransCanada’s route faces a legal challenge in Nebraska. That added fresh delays to a project first proposed in 2008 and originally intended to come online in 2012.

‘Really Early’

TransCanada is learning from its difficulties with Keystone XL as it pursues Energy East, Girling said. The company was on the ground negotiating with landowners and politicians ahead of environmental groups opposed to the project, he said. It also has changed the proposed route several times before filing for Canadian regulatory approval for Energy East, expected by the end of June.

“On Energy East, we went out there really early, before we drew a line on the map,” Girling said.

Energy East has been opposed by environmental and other organizations including the Council of Canadians, an advocacy group that argues environmental concerns surrounding the pipeline trump the few benefits it says the project would generate.

The risks include the prospect of a diluted-bitumen spill in waterways and the potential climate-change impact of greater oil-sands development, Andrea Harden-Donahue, a spokeswoman for the Council, said today in an interview.

New Brunswick’s energy and mines minister called on the provinces and federal government to work together to get Energy East built.

‘Very Keen’

“There’s been a lot of discussion around Energy East and obviously New Brunswick is very keen to see that move forward,” Craig Leonard said yesterday. “It clearly brings benefits across the country.”

Producers such as Royal Dutch Shell Plc and Total SA (FP) are counting on pipelines including Northern Gateway, Keystone and Energy East to ease a transportation bottleneck that’s suppressing the price of Canada’s heavy crude and costing the economy as much as C$50 million a day, according to the Canadian Chamber of Commerce.

TransCanada rose 0.3 percent to C$51.15 at the close in Toronto. The shares have gained 5.4 percent this year.

Canada’s crude output will more than double to 6.7 million barrels a day by 2030 provided new export conduits are built, according to a report last year from the Canadian Association of Petroleum Producers.

A lack of pipeline access to the continent’s coasts has contributed to keeping the price of Canada’s heavy oil about $20 a barrel less than the U.S. benchmark over the past four years, according to data compiled by Bloomberg.

Route to India

Exporting crude from the East Coast is a “valuable option” for oil-sands output, said Steve Laut, president of Canadian Natural Resources Ltd. (CNQ), the nation’s biggest heavy oil producer. The company has committed 80,000 barrels a day to Energy East, as well as booking 120,000 on Keystone XL and another 75,000 on Trans Mountain, which links to the Pacific Coast, he said.

“It’s a good route to get to India and that’s a growing market,” Laut said about Energy East in a May 9 telephone interview, noting Indian buyers of crude have contacted Canadian Natural and are “keen” to buy its oil. “It’s very important for Canada that at least one, if not all of these pipelines, is built.”

TransCanada is still confident Keystone XL will be approved and built, even as it advances Energy East, Girling said.

“So far, our success with Energy East suggests it’s the right strategy,” Girling said.

To contact the reporters on this story: Rebecca Penty in Toronto at rpenty@bloomberg.net; Jeremy van Loon in Toronto at jvanloon@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net; Jacqueline Thorpe at jthorpe23@bloomberg.net Steven Frank, Paul Badertscher

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