A view of the Irving oil refinery in Saint John on July 31, 2013.DAVID SMITH/The Globe and Mail
TransCanada Corp. announced Thursday that it will push ahead with a major oil pipeline linking Western Canada with refineries and export terminals in the east, marking a significant step forward for Canada's goal to tap new export markets.
The Energy East pipeline would deliver some 850,000 barrels of crude a day from Western Canada to Quebec and New Brunswick, serving the three refineries in the two provinces. The project – labelled a "nation builder" by New Brunswick Premier David Alward – has been endorsed by provincial and federal politicians, though Quebec Premier Pauline Marois said last week her province would have to study the proposal once TransCanada releases its detailed plans.
The planned pipeline is a strategic bid to open up new export opportunities for Canadian energy producers eager to diversify their markets beyond the oil-glutted U.S. Midwest. Alberta oil production is surging, but the province faces serious hurdles with other projects aimed at expanding crude-export capacity.
TransCanada's proposed Keystone XL line connecting western Canadian producers to the U.S. Gulf Coast has encountered opposition among environmentalists and politicial uncertainty in the United States. And Enbridge Inc. is battling to make progress on its highly contentious Northern Gateway route through British Columbia to access Asian markets.
According to sources, TransCanada officials are set to make the announcement in Saint John, N.B., joined by Mr. Alward; Rob Moore, the federal minister for the Atlantic Canada Opportunities Agency, and executives from Irving Oil Ltd., which owns a large refinery in Saint John, provincial and federal sources said.
Industry analysts said several new export options will be needed if producers are going to meet an ambitious target to expand production from 3.2-million barrels per day last year to nearly 5-million barrels by 2020, as projected by the Canadian Association of Petroleum Producers. The Energy East line would not be completed until 2017 into Quebec, and 2018 to Saint John, meaning rejection of the Keystone XL plan or failure to move forward with North Gateway could leave producers increasingly relying on rail over the medium term.
The TransCanada project aims to please both Quebec and New Brunswick by offering their refiners a secure supply of North American crude, which has recently been cheaper than imported sources. It is offering producers the option of exporting through Quebec City or Saint John. The New Brunswick port is ice-free and can handle the world's largest crude carriers, which substantially reduces shipping costs on long-haul routes to Asia.
Politically, the project has attracted far less opposition so far than either Keystone XL, which has become a prime target for American climate-change activists and a political bone of contention between U.S. President Barack Obama and congressional Republicans, or the Gateway project, which has been opposed in its current form by Premier Christy Clark.
However, Quebeckers have yet to weigh in on TransCanada's plan to pipe crude through their province to Saint John, and Ms. Marois' minority PQ government could face broad, noisy opposition to it as it jockeys towards the next provincial election. Enbridge has faced vocal opposition to its plan to reverse the Line 9 pipeline from Montreal to Southwestern Ontario to bring North American crude into Quebec, and Ms. Marois has promised to hold hearings on that project, which is now before the National Energy Board.
Sources say TransCanada has worked closely with the Quebec government to ensure the province sees benefits from the project in hopes of avoiding the "what's-in-it-for-me" complaint that has dogged Enbridge in British Columbia. Port officials in Quebec City and Montreal worried about losing business as western crude displaced seaborne imports.
"Quebec didn't want a pipeline simply moving crude through the province to New Brunswick," one senior government source said. "There has been an effort to meet its asks."
Under the Energy East plan, TransCanada would convert a portion of its natural gas mainline to carry oil from Hardisty, Alta., where it would build a new storage terminal, to Quebec City and Saint John. Starting near the Ontario-Quebec border, the company would have to build new pipeline, but says it has much of the right-of-way that it needs.
Bank of Nova Scotia energy economist Patricia Mohr said the plan is "compelling" for western producers and eastern refiners. It would "open up valuable new outlets for Alberta and Saskatchewan crude oil in Eastern Canada and in export markets, via marine tanker loading terminals in Québec City and Saint John, New Brunswick," Ms. Mohr said in a report this week.
New Brunswick is touting the pipeline project as a key part of its plan to build the province into an energy powerhouse. Those ambitions suffered a setback in recent years, after Irving cancelled plans to dramatically expand its refinery, and the Canaport liquified natural gas import terminal suffered from competition with cheap North American shale gas. Last week, Canaport applied to transform its offshore facility to a gas storage and export terminal, giving it a new lease on life.