Western Canadian oil producers fear that a growing glut of light oil in their traditional market will drive down the value of their crude, and are looking to TransCanada Corp.’s proposed west-to-east pipeline as a route to world prices for their oil.
While political proponents of the cross-country pipeline say it would bring cheap western crude to Eastern Canadian refineries, the oil companies are clearly eyeing the line as a way to get their oil into markets that are paying the world price.
“Any access to the Eastern Canadian refinery markets, to Europe or Eastern Seaboard refineries, that is a plus for the industry as a whole,” said Murray Nunns, chief executive officer of Penn West Petroleum Ltd.
TransCanada has won the endorsement for its $5-billion pipeline plan from New Brunswick Premier David Alward, who will travel to Alberta next month to visit Premier Alison Redford and put some political momentum behind the project. TransCanada says it is confident the project will be competitive with other proposed new routes, but still must line up shippers willing to make long-term commitments to justify its investment.
Western Canadian producers have been frustrated by the inability of companies to win approval for new pipelines in the United States or across British Columbia, even as they face a surge of new production in the northern United States that is competing for existing capacity to their markets in the Midwest.
“The No. 1 issue facing the industry is time,” Mr. Nunns said. “How long is it going to be before projects are ready and we have access to world pricing? There’s going to be interest in projects that have time and certainty on their side.”
From that perspective, TransCanada’s plan to convert an existing, underused natural gas line is a mixed blessing. The east coast project is far behind others, including Keystone XL and Northern Gateway, in the regulatory process, but faces less opposition.
Jackie Forrest, a Calgary-based analyst with IHS Cera Inc., said the pipeline to Eastern Canada would be an important outlet for producers of light oil and companies that upgrade oil sands bitumen to synthetic crude.
“We think there is a need for it,” Ms. Forrest said.
“From the perspective of Canadian producers of light crude who are going to face increasing competition going into the U.S. market due to growing supply of tight oil, it makes sense.”
TransCanada’s Alex Pourbaix, chief of pipeline operations, said the cross-country pipeline could either stop in Quebec or carry on through the province to Saint John, home of a 300,000-barrel-a-day Irving Oil refinery and an excellent deep-water port. It could carry anywhere from 500,000 barrels a day to one million.
Mr. Pourbaix said the company has done preliminary estimates and believes its cost to producers will be highly attractive.
“This is not a high-cost option,” he said. “This is a very competitively priced option to get incremental production out of the Western Canadian basin to market.”
TransCanada may be competing with rival Enbridge Inc., which has applied to reverse an oil pipeline that is currently bringing imported crude through Quebec into Ontario. Enbridge’s Line 9 reversal will deliver 240,000 barrels of western oil to Montreal, home of Suncor Energy Corp.’s refinery. The National Energy Board is due to hold hearings on that project later this year.
Oil companies are looking at a myriad of ways to secure access to new markets.
Crescent Point Energy Corp., for example, has “had conversations” with potential European buyers, said Trent Stangl, the company’s vice-president of marketing and investor relations. It might be possible, he said, to send oil to the Louisiana coast and load it onto tankers. But TransCanada’s proposed cross-country pipeline provides another avenue.
Eastern Canada is “a nice market for light,” he said. “But it’s also good if you can get port access, so that you can get beyond the East Coast and into the international markets, whether they happen to be Europe or in Asia.”
Eastern Canada and the Eastern Seaboard is “an absolutely fantastic market” for Alberta oil, said Marcel Coutu, chief executive officer of Canadian Oil Sands Ltd. But the industry still faces a lack of information on the total cost of moving oil through the TransCanada proposal, he said.
“It’s actually fairly significant capital cost,” he said, adding that the project could spark an industry fight with gas producers currently using the line.