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An aerial view of Irving Oil’s refinery near Saint John, N.B. (Christinne Muschi for The Globe and Mail)
An aerial view of Irving Oil’s refinery near Saint John, N.B. (Christinne Muschi for The Globe and Mail)

Where oil meets water: The final stop for the Energy East pipeline Add to ...

When the project was announced in early August, TransCanada chief executive officer Russ Girling credited Irving Oil patriarch and chairman Arthur Irving for winning over producers. Prior to its effort to secure commitments from shippers, TransCanada had estimated the pipeline would carry between 500,000 and 850,000 barrels a day, and equivocated about the potential of reaching Saint John, rather than ending in Quebec City.

While Mr. Girling credited Mr. Irving for getting skeptics on board, the family scion certainly had a large supporting cast, including the company’s executive team, New Brunswick Premier David Alward and Saint John Mayor Mel Norton.

Saint John has more to offer than most Calgary oil executives had realized. It includes the largest and most sophisticated refinery in Canada, access to an ice-free port that could handle the world’s largest crude carriers, and a huge swath of port land that is zoned and ready for industrial development. Shippers can save up to $1.50 (U.S.) a barrel by loading on to the ultra-large carriers, compared to smaller ones that can reach Quebec.

“Those were just huge factors that they were just not aware of,” said Irving Oil refinery manager Mr. Sherman. “And once we made them aware of those, you could see this aha! moment where they said this makes a lot of sense from the point of view of where can they get to with their product.”

Perhaps most importantly, with the Albertans facing political uncertainty in the United States and British Columbia, New Brunswick offered all-party political support and a mostly-willing populace, although many environmentalists oppose it and First Nations want to be consulted.

Mayor Norton travelled to Calgary in May and met with TransCanada and oil companies to ensure they understood Saint John would welcome the Energy East project, a stark contrast to the chilly reception offered by some city officials to Kinder Morgan Inc.’s proposal to expand its pipeline into the Port of Vancouver.

“We went there with a very simple message: We would very much welcome this development coming to Saint John,” Mr. Norton said in an interview at his office overlooking the city’s waterfront. “It’s a place that doesn’t see economic development like this and quality of life as mutually exclusive.”

The city – and indeed the province – have struggled greatly since the recession, with Saint John suffering from the highest urban unemployment rate in the country.

Premier Alward – who lobbied aggressively for a Saint John terminus – has labelled the project a “game changer.” But it remains unclear how much actual economic benefit the city will see from the project, especially once the short-term gains from construction have ended Indeed, Mispec Point is something of a field of broken dreams for this industrial port city. Canaport LNG – a liquefied natural gas importation venture owned 75 per cent by Repsol SA and 25 per cent by Irving Oil – sits adjacent to the proposed Energy East site. It operates well below capacity after the shale gas boom in North America sent prices plunging.

Just as Canaport LNG was struggling with its startup in 2009, Irving Oil and partner BP PLC shelved a much-touted plan for a second refinery in the city, succumbing to the reality of brutal refinery economics in the Atlantic basin that forced the closing of some 20 plants on both sides of the Atlantic.

While cab drivers and other people in Saint John will tell you otherwise, Irving Oil insists there is no plan to revive the second refinery proposal once the pipeline brings Western Canadian oil to the city. Irving and TransCanada instead plan to locate the Canaport crude export terminal and adjacent storage tanks on land that was zoned for industrial use under that plan. The terminal would employ just a couple dozen workers – a sharp contrast to the many hundred that would work at a refinery.

Still, Mr. Sherman said the pipeline does offer important benefits for the existing refinery, which exports 80 per cent of its product into the highly competitive northeastern U.S. market. Irving has committed to take some crude volume off the pipeline, although it won’t say how much.

Shifting oil flows

The company traditionally imported all its crude by sea from sources such as the North Sea, west Africa and the Middle East; it has a longstanding agreement with Saudi Arabia for roughly 20 per cent of the refinery’s needs.

But in recent years, the refinery has greatly expanded its access to mid-continental North American crude, which has sold at a discount – at times a steep discount – to international sources. It can now bring in 120,000 barrels a day of so-called mid-continent crude, the growing volumes from Western Canada and North Dakota’s Bakken field that are increasingly shipped by rail.

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