Canada Pipeline Plans Turn to Energy East

Chances are good an oil pipeline to Canada’s east coast will beat to market Enbridge Inc.’s Northern Gateway project, even with its approval this week by Prime Minister Stephen Harper’s government.

TransCanada Corp. (TRP) plans to apply for a permit by mid-year for a 4,400 kilometer (2,700 miles) pipeline project called Energy East that would cross six provinces and carry 1.1 million barrels a day to a refinery and export terminal in the port of Saint John, New Brunswick. The mammoth proposal is gaining favor in Canada.

“The benefits of Energy East will flow across the country and those benefits will be huge,” said Jack Mintz, director of the University of Calgary’s School of Public Policy. “There will be a shift to Energy East” as Northern Gateway faces opposition, he said.

Energy East would create C$35.3 billion ($32.6 billion) in economic benefits over the next five years, according to a report by consulting firm Deloitte commissioned by TransCanada in September 2013. It would also help replace higher-priced oil imports from the Atlantic basin.

Currently, refineries in Quebec and Atlantic Canada import 86 percent of their crude, or about 700,000 barrels per day, according to the Canadian Association of Petroleum Producers. Energy East would displace imports with domestic crude.

Harper is seeking to diversify the country’s oil and natural gas exports, and new pipelines are needed to turn his vision of Canada as an “energy superpower” into reality. In addition to Keystone XL, the TransCanada project that’s seen approval stalled by Barack Obama’s administration, Energy East is one of three major domestic projects that would help wean the world’s sixth-largest oil producer off its main customer, the U.S.

Aboriginal Opposition

Enbridge earlier this week won Harper’s approval to go ahead with Northern Gateway, subject to 209 conditions. Chief Executive Al Monaco vowed to engage British Columbia aboriginal groups staunchly opposed to oil pipelines and tankers they say threaten their food supply and way of life. Environmental groups are also threatening legal action to stall construction, and B.C. Environment Minister Mary Polak said her government remains opposed to the project, with 4 of 5 conditions set out by Premier Christy Clark remaining unsatisfied.

Only 29 percent of respondents in a Bloomberg-Nanos poll conducted June 3 wanted Harper to allow the project to proceed immediately.

Energy East seems a walk in the park by comparison. Much of the line already exists in the form of an underused natural gas conduit. New Brunswick, home to Canada’s largest refinery, has lobbied for a pipeline to Saint John, one of the country’s largest ice-free ports, as a way to promote jobs in an economically-depressed region.

Land Claims

“Everything is already there,” John Stephenson, president of Toronto-based fund manager Stephenson & Company Capital Management, said in an interview. “You’re converting an existing pipeline and there are no land claim issues. And you have a province at the end of the line that wants the oil.”

Asian markets want the oil too. Indian oil demand will double through 2025, according to forecasts from the Institute for Economic Growth at the University of Dehli. India is the world’s fourth-largest importer and consumer of oil.

“The big growth markets are in India and in China,” Greg Stringham, a vice-president at the Canadian Association of Petroleum Producers in Calgary, said in a June 9 phone interview.

Energy East would allow western Canadian crude to reach India for the same transport costs as a pipeline to the nation’s Pacific Coast, according to Asim Ghosh, chief executive officer of Husky Energy Inc.

“The importance of Energy East to Western Canada is very large,” Ghosh said in a June 4 phone interview.

Test Shipment

Husky sent a first test shipment of light oil from its White Rose field off Canada’s East Coast to India late last year and that crude is now certified to be used in all state-owned Indian refineries, Ghosh said.

“Once you get on water, transport becomes very cheap,” he said. “I believe India sees the need to diversify its source of supply and sees Canada as a reliable partner.”

There’s also increased interest from Europe for energy, Stringham said. A cargo of almost 600,000 barrels of Canadian oil-sands crude arrived in Spain last month at the port of Bilbao. The shipment was the first major shipment of oil sands crude to the European Union, which is planning a fuel quality directive to help reduce carbon emissions associated with transportation.

Carbon Impact

Not everyone is in favor of a new cross-country pipeline. The Council of Canadians, an advocacy group, says the environmental risks would trump the few benefits the project would generate. Equiterre, a Montreal-based environmental organization, says emissions associated with Energy East would be even greater than the carbon impact from Keystone XL, and put local habitats along the route at risk from spills.

New Brunswick would “more than welcome such an investment,” said Energy Minister Craig Leonard. “It would be hugely transformative” for the Canadian province, which had a jobless rate of 10.2 percent in May, compared with 7.0 percent nationally.

Producers would welcome the line too. The discount for Canadian heavy crude has average about $20 a barrel over the past five years, costing the country about C$50 million a day in foregone revenue, according to the Canadian Chamber of Commerce. Oil and pipeline companies expect that rebate to disappear once crude can be loaded onto tankers and shipped to Asian or European markets.

TransCanada already has commitments from producers wanting to ship oil along Energy East, including Cenovus Energy Inc. The Calgary-based company has pledged to ship 200,000 barrels a day on the route, the most of any of the proposed conduits.

To contact the reporter on this story: Jeremy van Loon in Calgary at jvanloon@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Susan Warren at susanwarren@bloomberg.net Chris Fournier, Paul Badertscher

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