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TransCanada has ‘work to do’ to win Quebec approval for Energy East

TransCanada President and CEO Russ Girling announces the new Energy East Pipeline during a news conference in Calgary, August 1, 2013.

TODD KOROL/REUTERS

The Quebec government is warning it will not automatically support TransCanada Corp.'s proposed $12-billion Energy East pipeline as the company prepares to formally file the project for approval with regulators in the days to come.

"It's clear we won't say 'This project gets carte blanche,'" Quebec Minister of Energy and Natural Resources Pierre Arcand said in an interview Tuesday afternoon, noting the National Energy Board imposed 30 conditions on Enbridge Inc. in backing the company's Line 9 pipeline reversal project.

"It will take a certain number of conditions on our part as well" for Energy East. "We'll examine all the elements, including royalties."

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TransCanada has "work to do" to explain the economic advantages of the pipeline plan, Mr. Arcand said. "The project could be very positive. But the devil is in the details."

The minister's comments highlight the significant hurdles TransCanada still faces in winning political backing for the project and the fact the road to approval and construction may not be as easy as its promoters initially believed. While projects like Keystone XL and Northern Gateway are stalled over environmental opposition, Energy East could also encounter a rough ride before it is ultimately approved or rejected.

Even initial geotechnical work TransCanada wants to do near Cacouna, Que., a possible port site for the project, is encountering public opposition because of the effects it could have on beluga whales in the area. A separate battle over natural gas supply has also emerged between TransCanada and gas distributors like Quebec's Gaz Métro.

Calgary-based TransCanada is pitching Energy East as a Canadian nation-building project that would carry 1.1 million barrels of Alberta oil sands crude across six provinces to refineries in Quebec and New Brunswick. Much of the volume, carried on an existing natural gas pipeline that would be converted to carry oil, would be destined for export.

"This project is not necessary for Quebec," said Pierre-Olivier Pineau, an energy specialist at Montreal's HEC business school, noting the supply needs of the province's two oil refineries will be largely met by the Enbridge Line 9 project and other sources. "It could be beneficial. But it's not because it's beneficial that it's necessary."

Symbolically, the fact Energy East will transport oil sands crude will be a difficult sell to Quebeckers, Mr. Pineau said. He said the project is also undermined by the perception in Ontario and Quebec that the Alberta and Canadian governments have no coherent and convincing climate policy.

Mr. Arcand said the Quebec government's ultimate stance on Energy East will be guided by the objective that the province cut its reliance on oil imported by tanker as much as possible. Premier Philippe Couillard also noted last month in the legislature that the province is a net beneficiary of Canada's equalization payment system, funded to a large extent by the West's oil and gas development.

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Gaz Métro and other gas distributors are raising concerns about TransCanada's plan to convert its west-to-east mainline gas pipeline to carry oil, arguing the move will lead to natural gas shortages and higher prices for users. They're asking the company to replace any gas capacity they take out of the system with another pipe able to carry the same volume and they want the company to pay for the change.

TransCanada has reportedly rejected the claim, saying that would make the project uneconomical because it currently hinges on using underutilized infrastructure.

A key player in this tug-of-war is India-based IFFCO Canada Entreprises Ltd., which is planning a $1.6-billion fertilizer plant in Quebec that hinges on securing a reasonably priced source of natural gas. That industrial project alone will consume roughly one-fifth of Quebec's total annual natural gas consumption if it moves forward, Mr. Arcand said.

"The problem, from what I can see, is that if tomorrow morning there are two other plants that require equally enormous supplies of natural gas, do we have what we need for the future [as a province?]" the minister said. "My understanding is that right now, if the IFFCO project moves forward, we don't have a lot of wiggle room any more."

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