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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 ...

Last year, the company installed a rail handling yard that can empty 40 crude-laden rail cars at a time, twice a day, for a total capacity of 80,000 barrels a day. It also receives up to 40,000 barrels a day by ship, after the oil is sent down the Hudson River from Albany, which has become a major terminus for crude-carrying trains.

The Irving refinery was the destination of the train carrying Bakken oil that derailed and exploded in Lac-Mégantic, Que., in early July, killing 47 people and levelling several downtown buildings. Mr. Sherman said the company regretted the tragedy but it will not affect its ability to get crude by rail because it primarily uses a Canadian National connection through Moncton, rather than the Canadian Pacific route that relied on the Montreal Maine & Atlantic Railway line through eastern Quebec and Maine.

The pipeline will greatly reduce Irving Oil’s reliance on rail, as the Energy East pipeline should be significantly cheaper. Bank of Nova Scotia economist Patricia Mohr recently estimated the rail costs from Alberta to Saint John at $15 (U.S.) a barrel, while pipeline costs would be more like $7 (U.S.).

However, the refiner plans to maintain its seaborne and rail import capacity in order to maintain its flexibility in sourcing the most inexpensive crude.

The Irving refinery can handle a mixed slate of crudes, but not a straight diet of oil sands bitumen. The company installed a unit know as a resid cracker in 2000 that expanded its output and allowed it to break down some heavier grades of crude. But to process bitumen, it would need a coker unit, similar to the ones featured in Fort McMurray upgraders and the most advanced refineries on the U.S. Gulf Coast.

At this point, TransCanada plans to ship “pipeline-ready” crude through Energy East whether to refineries or export terminals, in order to avoid the need for increasingly-expensive diluent that is mixed with bitumen to allow it to flow through the pipe.

Irving Oil will say little about prospects for future investment in the refinery that might be driven by access to the pipeline, including whether Irving would consider installing a coker to process bitumen. But Mr. Sherman – who spent 25 years working at Syncrude Canada Ltd.’s upgrader in Fort McMurray – said it is difficult to make a commercial case for a coker.

“They’re very expensive and we’re a smaller company,” he said. “I wouldn’t discount it as an impossibility but there has to be a business case in terms of how do you spend billions of dollars and get a rate of return.”

He added that it offends his personal sense of Canadian nationalism to be shipping raw bitumen out of the country rather than processing it here: “It’s like cutting down trees and shipping the trees instead of lumber, without getting any value out of it.” But profitability rather than sentiment will drive investment decisions.

Without precisely-defined, long-term benefits from the pipeline, some critics in Saint John are asking whether it is worth the risk from pipeline spills and increased tanker traffic in the ecologically important Bay of Fundy. Many environmentalists oppose it for the same reason they are seeking to block Northern Gateway and Keystone XL, as an effort to blunt expansion in the oil sands and prevent a major increase in greenhouse gas emissions.

From his base in St. Andrew near the Maine border, Matt Abbott cruises the bay in his small boat and monitors the environment. He said the tanker traffic is already disrupting whales and other marine mammals, and a doubling or tripling of traffic will only make matters worse. He also worries about tanker accidents and pipeline spills into spawning rivers that feed the bay.

“The benefits of this project to New Brunswick are being oversold,” said Mr. Abbott, who works with NBCC Action, the advocacy arm of the New Brunswick Conservation Council. “This isn’t a game-changer economically that it’s being called. Is the short-term infusion of cash and jobs worth the long-term risks associated with it?”

Former New Brunswick premier Frank McKenna – now deputy chair of Toronto-Dominion Bank – lobbied aggressively for the Energy East pipeline to reach Saint John. In an interview this week, he acknowledged the resulting permanent job creation appears modest at the moment, but added it is critical for the region to build its energy infrastructure.

“What it brings are options,” Mr. McKenna said. “Once you have the infrastructure, a lot of good things can happen.”

That rationale applies equally for Alberta’s oil producers, whose single export customer has been the U.S., which is rapidly reducing its reliance on imported crude.

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