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TransCanada eyes an east coast export alternative

The Shell Canada refinery in Montreal.

Paul Chiasson/The Canadian Press

As protests and government wrangling in the West threaten to scotch plans to export crude off B.C.'s coast, the energy industry is escalating efforts to send oil tankers to India and China by way of the east coast.

TransCanada Corp. is now months away from formalizing its plan to pump oil through part of its cross-country natural gas pipeline network. This plan has won broad support from political and business leaders, who see it a way to ensure refineries in Ontario, Quebec and New Brunswick consume Canadian oil, rather than relying on more expensive imports from Europe, Africa and the Middle East. It would also jack up the price oil companies operating in the West receive for their crude.

But TransCanada's oil pipeline also stands to serve another important role: Allowing the energy industry to access Asia's lucrative markets while bypassing the controversial projects that are designed to reach tidewater on the west coast. TransCanada's cross-Canada pipeline may become an important avenue for industry to access rich export markets, and find the new buyers and higher prices it is desperate to secure.

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TransCanada is confident it can compete with Enbridge Inc.'s proposed Northern Gateway pipeline and Kinder Morgan Inc.'s Trans Mountain expansion plans.

"They believe they can land crude in China at competitive prices to what it would cost to land it from the west coast," said Laurie Smith, partner at Bennett Jones LLP who works with energy companies as they sort through their export options. "That's something that is under very active development right now."

It is shorter to reach India's west coast refining hub via Canada's east coast than it is to ship oil off the west coast, he said in an interview Wednesday. Further, the Eastern Canadian route extends to China by moving tankers through the Straight of Malacca between Malaysia and Indonesia and then north through the South China Sea.

Shipping oil to major refining facilities in Europe, such as the Netherlands' Rotterdam, are also under consideration, Mr. Smith said. Exports off the east coast must be part of the mix, he said, otherwise energy companies will lose out in price negotiations, given that Irving Oil's refining complex in Saint John, N.B., is one of the largest facilities in Canada.

"No one is going to invest all that money to build it over to the Irvings," Mr. Smith said. "It would just put the Irvings in a hell of a negotiating position. They would have to have some option to export it."

A delegation from Calgary travelled to the Port of Montreal several months ago and asked questions about the possibility of exporting oil from Montreal, a person familiar with the visit told The Globe and Mail. Train cars filled with oil can currently access that port, but no oil shipments have yet started. Further, Korea National Oil Corp.'s Canadian company, Harvest Operations Corp., is examining whether it could rail Alberta oil to the east coast and then send it on barges to its refinery in Come By Chance, Nfld., which has struggled with the cost of the Atlantic-sourced crude it now uses.

Asked about the potential for Atlantic exports, Alex Pourbaix, TransCanada's president of energy and oil pipelines, says the project's primary focus is to feed eastern refineries. "Eastern Canadian refineries consume about 700,000 to 800,000 barrels per day," he said at a conference in Calgary Tuesday. "So right off the bat I think the most obvious market for any eastern movement of western crude oil would be those domestic markets."

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But it's clear TransCanada and the broader industry are contemplating export options. In a presentation circulated among potential oil shippers earlier this year, TransCanada compared its project to Northern Gateway. It would cost $5.20 to $8.20 to send a barrel from Alberta to Shanghai via Northern Gateway, TransCanada then estimated. It would cost about $8.50 to send it via the east coast, making it economically feasible.

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About the Authors

Carrie Tait joined the Globe in January, 2011, mainly reporting on energy from the Calgary bureau. Previously, she spent six years working for the National Post in both Calgary and Toronto. She has a master’s degree in journalism from the University of Western Ontario and a bachelor’s degree in political studies from the University of Saskatchewan. More

Asia Bureau Chief

Nathan VanderKlippe is the Asia correspondent for The Globe and Mail. He was previously a print and television correspondent in Western Canada based in Calgary, Vancouver and Yellowknife, where he covered the energy industry, aboriginal issues and Canada’s north.He is the recipient of a National Magazine Award and a Best in Business award from the Society of American Business Editors and Writers. More

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