TransCanada Corp. is preparing a widening assault on its chief competitor, Enbridge Inc., as it seeks to move oil to eastern Canada, and plan new pipelines out of the oil sands.
TransCanada has already staged a major shift away from the natural gas business that was once its primary pillar, with the construction of its Keystone oil pipeline network. That system received a boost this week when the U.S. gave a final approval to construction of the southern leg of Keystone XL.
Now, however, TransCanada is moving directly into more direct competition with Enbridge, the long-time leader in moving Alberta crude. TransCanada is "working pretty hard," the company said Friday, on finding ways to move oil out of the oil sands, which would allow it to own the entire transportation network for crude that must, for now, travel on competitors' pipes before jumping onto Keystone.
"We see very significant opportunities to grow our presence in the inter-Alberta market," said Alex Pourbaix, TransCanada's president of energy and oil pipelines.
At the same time, TransCanada is pressing ahead with plans to pump oil through parts of its cross-Canada natural gas pipelines. That project would take Alberta oil east to refineries in Montreal, and potentially along the Atlantic, and stands in direct geographic opposition to Enbridge's plan, through its Northern Gateway project, to send oil west. Kinder Morgan is also pursuing a project to carry further crude to the Pacific for export to California and Asia.
With regard to sending oil east, "we believe it is very technically feasible, and we believe the resulting tolls from that project are very competitive with other competing projects to get Canadian oil to markets both in and outside of Canada," said Mr. Pourbaix.
The company is considering sizes for the project that range from 400,000 to 900,000 barrels a day, as well as the potential for extending the pipe to the East Coast, where Irving Oil has substantial refining capacity that is currently dependent on expensive international oil.
"At this point we're getting a lot of inbound interest from potential shippers on the project, but we have a fair bit of work to do to lock all of that down," Mr. Pourbaix said.
TransCanada acknowledged that a series of high-profile pipeline spills in recent years are likely to lead to increased safety requirements that are raising the cost of pipelines.
But the company also took a thinly-veiled shot at competitors, saying it believes its own records on safety and first nations relations allowed it to win a $4-billion contract to build a natural gas pipeline from gas fields in north-eastern British Columbia to Kitimat, where it will feed a new LNG project being pursued by Royal Dutch Shell plc, Korea Gas Corp., Mitsubishi Corp. and PetroChina.
Enbridge, which has also sought to win gas pipeline contracts to the B.C. coast, has struggled with both spills and first nations relations.
But the ability "to manage through these major safety issues and operational issues, the capacity to deal with aboriginal issues" are now "front and centre in everyone's minds," TransCanada chief executive Russ Girling said. "We're hearing that loud and clear every day. … No longer can it just be a bid solely based on the lowest price."
There is, he said, "beginning to be a differentiation."
TransCanada has, however, suffered its own safety issues, from explosions on its aging natural gas pipelines to a series of leaks at pumping stations on its new Keystone oil pipeline through the U.S.
In a second-quarter results call Friday, Mr. Girling let slip the estimated price tag of the Shell-led project, which he said would cost $12-billion to build, in addition to the $4-billion pipeline TransCanada plans to build. Shell has declined to disclose that figure.
TransCanada reported second-quarter earnings of $300-million, or 43 cents a share, down from $355-million, or 51 cents a share, in the same period of 2011. Corporate revenue climbed a slight $9-million to $1.8-billion.
Though the company saw a rise in earnings from its oil pipelines, that was more than offset by weaker earnings from its natural gas pipelines, which have suffered lower volumes as gas prices have stayed weak.
It has pointed, however, to a huge portfolio of investments, some $13-billion worth by 2015, that it says will accelerate earnings and dividends.
On Friday, it said it had received approval to build one of those, the $2.3-billion (U.S.) Gulf Coast project that will extend 780 kilometres from the massive crude hub at Cushing, Okla. to Gulf Coast refineries. Built to carry 700,000 barrels a day, the pipeline is an important move toward alleviating the Cushing gluts that have cheapened North American crude blends -- and a critical first step for TransCanada, which is still awaiting a regulatory decision on the northern leg of Keystone XL.
That 1,897-kilometre northern leg has been the source of significant controversy in the U.S., and was initially turned down by the U.S. Department of State. TransCanada expects a decision on a new filing by early 2013. The company says it is still working with the state of Nebraska to plan a route around the Sandhills, the delicate ecosystem that it first intended to cross with an initial route that generated major backlash.