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The slick strategy of the reusable pipeline

It's been a downright busy few days of developments in the oil pipeline game, and all the projects share a common attribute.

In the $20-billion of proposals hitting milestones this week, all are based on old infrastructure or rights-of-way.

Part of the draw for Enbridge Inc. and TransCanada Corp. and their shippers is saving a few bucks on steel and land acquisition versus starting from scratch. But an even bigger attraction is the prospect of hopping over at least some of the regulatory and political quagmire into which the all-new proposals have sunk.

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It shows that the future of oil transport in this country is dependent on the ideas and investments of the past – at least 1.8 million barrels a day of additional capacity anyway.

Of course, none of the projects – Enbridge's Line 3 replacement, its Line 9 reversal and TransCanada's Energy East pipeline – will slip stealthily past regulators without scrutiny in an age of heightened environmental concern. But using resources already bought and paid for in areas where residents are used to the business certainly boosts the odds of helping to break a logjam that is holding back exports and holding down crude prices.

It might work. Look at the alternatives: TransCanada's Keystone XL pipeline is now in its sixth suspense-packed year of U.S. State Department study. Approval is nowhere near assured as President Barack Obama weighs how it might colour his environmental legacy.

By the way, the initial Keystone pipeline that started up in 2010 went the repurpose route, with the Canadian portion made up of converted natural gas lines. Its approval was relatively painless, although it moved through the process just before pipelines became the battleground for opposition to oil sands development.

Enbridge's Northern Gateway pipeline to the Pacific Coast won a green light from the National Energy Board in December, but chief executive officer Al Monaco said shortly after that the company still has its work cut out to convince numerous First Nations that it won't mean calamity for their communities. This too has stretched out for years.

On Wednesday, former Conservative cabinet minister Jim Prentice signed on with Enbridge to help gain the trust of wary B.C. aboriginals, although some quickly said the move came eight years too late.

The thorny issues surrounding those projects add impetus to sketch out new ideas for old equipment.

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Let's recap this week's pipelinery. Enbridge said it will spend $7-billion to replace its aging Line 3 that extends to Superior, Wis., from Edmonton. Mr. Monaco is certain it will not require an application for a new presidential permit, the U.S. process that has ensnared Keystone XL.

Also, why should that get held up, when all the company is doing is building a brand new line, with 21st century technology, to replace one built in 1968 that has had a number of ruptures?

Line 3 has run well under capacity. The new one will run full out at 760,000 barrels a day, essentially doubling the effective flow rate – expansion without expanding.

TransCanada filed its project description for the $12-billion Energy East pipeline to the Atlantic, the first stage in its formal regulatory process. In Saskatchewan, Manitoba and Ontario, the 1.1 million b/d would flow through a converted gas pipeline and the company will build facilities through Eastern Ontario, Quebec and New Brunswick.

This is a Canada-only plan that would not have seen the light of day if not for the delays in the other major export proposals. It will require National Energy Board approval, and while it does not strictly require support from provincial governments, TransCanada will submit the project for study by Quebec's environmental review body.

On Thursday, the NEB will issue its ruling on Enbridge's Line 9 reversal, which attracted staunch opposition from some green groups. It is hard to predict rejection, given that the line between Sarnia, Ont., and Montreal is already there, but the placing of numerous conditions are likely to win approval.

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Still, the projects show that if you want a new pipeline in this country, you'd do well to find an old one to reuse. There are only so many to go around, though.

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About the Author
Mergers and Acquisitions Reporter

Jeffrey Jones is a veteran journalist specializing in mergers, acquisitions and private equity for The Globe and Mail’s Report on Business. Before joining The Globe and Mail in 2013, he was a senior reporter for Reuters, writing news, features and analysis on energy deals, pipelines, politics and general topics. More

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