Go to the Globe and Mail homepage

Jump to main navigationJump to main content

While new pipelines and rail capacity have cleared a transportation logjam for crude oil, producers fear others will develop if new pipelines cannot be approved and built quickly enough. (RICHARD PERRY/NYT)
While new pipelines and rail capacity have cleared a transportation logjam for crude oil, producers fear others will develop if new pipelines cannot be approved and built quickly enough. (RICHARD PERRY/NYT)

Pipeline builders struggling to keep up with producers Add to ...

As pipeline companies and railways race to add capacity for moving oil and natural gas around North America, two concepts are key: “plumbing” and “market options.”

Until about eight years ago, the North American industry faced a predictable, undramatic pathway, with steady declines in conventional oil and gas production and a measured growth in the oil sands that would require only incremental increases in pipeline capacity. But in a few short years, that picture changed dramatically, as drilling advances resulted in booming gas and tight oil production and triple-digit prices fuelled increasingly by ambitious expansion plans in the oil sands.

More Related to this Story

But the plumbers have struggled to keep up. Until recently, there was a blockage at Cushing, Okla., that resulted in deep discounts for North American crude compared to international sources. While new pipelines and rail capacity have cleared that logjam, producers fear others will develop if new pipelines cannot be approved and built quickly enough.

The support for TransCanada Corp.’s Energy East proposal shows how desperate producers and refiners are to expand their market choices – for sellers to find potential buyers and for the customers to have as many sources of supply as possible. It comes down to basic economics: the more competition in the marketplace, the less pricing power one side has over the other.

Faced with projections for staggering increases in crude production in North America, pipeline companies have responded with ambitious plans to connect markets with new oil and gas reserves that are currently not on the grid. In Canada alone, energy companies are proposing to add nearly four million barrels per day of pipeline capacity to markets to the east, west and south. That would support a projected increase in Canadian production to six million in 2025, up from 3.2 million barrels per day last year. In addition, the projected increase has supply growing by some 1.3 million barrels per day in the northern U.S.

However, the fate of several proposals remains in doubt, notably TransCanada’s own 850,000-barrel-per-day Keystone XL pipeline, which awaits a decision from the U.S. State Department and U.S. President Barack Obama, who is facing enormous pressure from environmental groups to reject the pipeline.

TransCanada chief executive Russ Girling insisted Thursday that the company’s effort to win support for Energy East had nothing to do with uncertainty in the U.S. “The Keystone process is an independent process that really has nothing to do with this project,” he told reporters Thursday. “The marketplace needs both of these pipelines – and probably more as we move forward.”

More are being planned; none have been approved.

To the East

In addition to the Energy East line, which would go into service in late 2017, Enbridge Inc. is seeking approval to reverse its Line 9, which now carries imports from Montreal to Southwestern Ontario. It would deliver 300,000 barrels per day of light crude to Montreal and start up next year.

To the West

Enbridge faces an uphill battle to win approval for its 500,000-barrel-per-day Northern Gateway project, which is now under regulatory review. B.C. Premier Christy Clark opposes the project in its current form but has recently agreed to work with Alberta to find a way forward.

At the same time, Kinder Morgan Inc. is planning to expand its pipeline from Alberta to Vancouver by nearly 600,000 barrels per day. It too has met resistance from local politicians who worry about increased traffic of crude tankers in English Bay.

To the South

While TransCanada awaits a decision on Keystone XL, Enbridge has filed an application with the State Department to amend its cross-border permit and increase the flow on its Alberta Clipper line by 350,000 barrels per day. Enbridge CEO Al Monaco sounded optimistic that his project wouldn’t get bogged down in U.S. climate-change politics the way Keystone XL has.

“What we’re talking about here is simply adding horsepower to the existing pipeline. So as far as what pipeline companies do in their lives, this is a very benign type of increase in capacity,” he said.

With a file from Jeffrey Jones in Calgary.

Follow on Twitter: @smccarthy55

In the know

Most popular videos »

Highlights

More from The Globe and Mail

Most popular