TransCanada Corp. has moved a major step forward on its plan to ship Western Canadian crude to the country's eastern refineries and export facilities, so far facing few of the political hurdles that have dogged other pipeline projects aimed at moving crude out of Alberta.
The Calgary-based pipeline giant said Tuesday that it has launched a formal process to acquire shipping commitments from energy companies for the Energy East Pipeline, which could reach New Brunswick's Irving Oil Ltd. refinery and port of Saint John.
TransCanada said it is confident in gaining such support, and will then file for regulatory review with the goal to begin shipments by late 2017.
"We're committed," said Jeff Matthews, Irving Oil's director of business development. The proposed pipeline "increases our ability to compete in a tough industry by allowing our refinery access to a crude supply region in Western Canada that has not been accessible in the past," he said.
The west-to-east project – unveiled just a year ago – is gaining considerable momentum at a time when other pipeline projects such as TransCanada's Keystone XL and Enbridge Inc.'s Northern Gateway face uncertainty amid political friction and environmental concerns.
Energy East is expected to largely handle light oil, along with some heavy crude from the oil sands. As a result, projects such as the Keystone XL and Northern Gateway pipelines will still be needed to bring Alberta's vast oil sands reserves to market.
The proposed Energy East Pipeline would carry as much as 850,000 barrels a day of western crude to eastern markets, with an option of either stopping in Quebec or extending it to Saint John. At its maximum, it would be 4,400 kilometres long, including the conversion of TransCanada's underutilized natural gas line to a point near the Ontario-Quebec border, and new construction from there to Saint John.
The Saint John facility is Canada's largest and most complex refinery. Mr. Matthews said oil producers are also interested in accessing Irving's Canaport marine terminal for export.
With support from a wide range of politicians, Energy East now faces the acid test of commercial viability as producers weigh competing projects and the appeal of various markets.
While Alberta producers have been keen to reach the huge refining hub on the U.S. Gulf Coast, or access fast-growing markets through Asia, the Eastern Canadian market appears to be their most problem-free alternative, at least in the short term. But there is limited capacity to process oil sands bitumen at refineries in Ontario, Quebec and Atlantic Canada.
Keystone XL, which would carry bitumen to the Texas Gulf Coast, has encountered lengthy delays from the Obama administration in the face of fierce criticism from environmentalists. The company says it remains confident of eventual approval, but the political risk remains high.
At the same time, Northern Gateway – which aims to transport oil sands crude to Kitimat, B.C., for export to Asia – has run into a wall of opposition from First Nations, the environmental community and the B.C. New Democrats, who may well win government in the upcoming provincial election.
The eastern pipeline proposal has won broad endorsement from the federal government, the New Democratic Party opposition, and New Brunswick Premier David Alward. Quebec Premier Pauline Marois has been consulted on the project and has given support in principle.
Environmentalists warn that the plan to convert an underutilized gas pipeline to carry crude oil could foul water sources right across the country. They point to last week's pipeline break and oil spill in Arkansas, and to Enbridge's accident that sent crude into the Kalamazoo River in Michigan in July, 2010.
Natural Resources Minister Joe Oliver said Tuesday that it is important to extend the reach for western oil producers, especially given the surge of production that is flooding into traditional U.S. markets.
"It's coming at a time when we're getting to the point where there's going to be inadequate pipeline capacity," Mr. Oliver said. "Clearly this is not an either/or situation – we need to get our oil to tidewater and that means the West coast, the East coast and the Gulf Coast."
TransCanada also paints the eastern proposal as complementary to other projects being planned, including Keystone XL, Northern Gateway and Enbridge Inc.'s reversal of its Line 9 to bring 300,000 barrels a day of western crude to Montreal and the Suncor Energy Inc. refinery there.
"We are going to need all of the above," said Stefan Pohlod, president for the eastern energy pipeline.
IHS Inc. analyst Jackie Forrest said the industry would face 1-million barrels per day of pipeline over-capacity if all the proposed projects were completed on schedule in the 2015 to 2018 time period.
"However, producers are looking for market options – so it is possible we would see a future scenario with excess pipeline capacity," Ms. Forrest said. "And since we expect oil sands to grow beyond 2020, this extra capacity would be needed in the early part of the next decade."