Gas firms dig in against Energy East project
CA L G A RY/O T TAWA • TransCanada Corp. will have to spend US$1-billion more than planned on an oil pipeline to Canada’s Atlantic Coast if natural gas customers get their way, a move it says would threaten the viability of the project.
TransCanada has delayed seeking regulatory approval of the $12-billion Energy East line as it negotiates with Quebec’s Gaz Métro Inc. and Ontario units of Spectra Energy Corp. and Enbridge Inc., said two people familiar with the talks who asked not to be identified.
The spat centres on TransCanada’s plan to convert a 3,000-kilometre stretch of its mainline gas conduit to carry oil. TransCanada is pursuing Energy East as environmental opposition imperils other planned lines from Canada’s oilsands to tidewater, including its Keystone XL.
Gas distributors claim that converting the mainline in eastern Ontario would lead to fuel shortages and higher prices. While TransCanada intends to build a new 250-kilometre gas line to meet demand, the distributors say it won’t be big enough. They want the firm to build a standalone oil line or a gas line the same size as the existing one at no cost to customers.
Building an oil line from North Bay, Ont., to Ottawa instead of altering the existing one would cost at least US$1billion more and put Energy East in jeopardy, the firm says.
“It would be prohibitively expensive,” Karl Johannson, president of natural gas pipelines at TransCanada, said in an Oct. 16 interview, adding Energy East’s economics are tied to re-purposing the 1950sera mainline. “What makes this project work is we have underutilized infrastructure.”
Energy East would be North America’s largest and longest crude line, crossing six Canadian provinces and carrying 1.1 million barrels a day. TransCanada latched onto the concept as a means to transport rising supplies of oilsands crude and also reverse declining business on its mainline.
Mainline gas flows have fallen as the U.S., supplied with volumes from the Marcellus and Utica shale formations, requires less Canadian gas. TransCanada plans to convert a leg of its mainline that can carry 1.2 billion cubic feet a day of gas in Ontario and replace it with one that can transport 600 million cubic feet a day.
Gaz Métro says TransCanada’s plan would reduce gas capacity in Central Canada by 20% and lead to shortages at peak times, such as on the coldest days when demand for the heating fuel is highest.
The head of Quebec’s largest natural gas distributor also says Energy East will hurt consumers, raise prices and reduce employment if imple- mented as proposed. Gaz Métro CEO Sophie Brochu told the Montreal Board of Trade on Tuesday that changes to the project are needed to ensure there is an adequate supply of natural gas at no higher cost.
Elizabeth Blair, a spokeswoman for Enbridge Gas Distribution Inc. and Andrea Stass, a spokeswoman for Spectra’s Union Gas Ltd., said their companies are aligned with Gaz Métro.
TransCanada’s proposal will more than cover demand
The gas dispute risks becoming political
for gas in Ontario and Quebec, Mr. Johannson said.
A compromise is unlikely before TransCanada submits its application to the National Energy Board in a few weeks, Mr. Johannson said. The filings are taking longer because of their complexity, not the feud with gas distributors, he said. TransCanada planned a mid-year application for Energy East as of May and has revised its schedule a number of times since then.
The gas dispute risks becoming political as the emerging public discourse pits Central Canada’s gas needs against Alberta’s aspiration for new markets for its crude.
The Ontario and Quebec governments aren’t taking a final position on Energy East as they hold consultations on the project’s impacts.
Jennifer Beaudry, press secretary to Ontario Energy Minister Bob Chiarelli, said it’s premature to comment while Ontario’s energy regulator conducts a review, which includes considering the reliability of the province’s gas supply.
The Quebec government will examine TransCanada’s filing to determine how it affects gas volumes in the province, which will need to remain well supplied, Finance Minister Carlos Leitao said Oct. 15.
“We continue to be optimistic that Energy East, which we see as vital for TransCanada, will be found to be in the national public interest, though the regulatory process is becoming ever more daunting, and approval can’t be taken for granted,” Stephen Dafoe and Francesco Sorbara, corporate bond analysts at Bank of Nova Scotia in Toronto, said in an Oct. 17 note to clients.
If TransCanada bows to gas distributors’ demands, Energy East’s higher costs would be passed on to oil producers and refiners that have booked capacity on the line, Mr. Johannson said.
As Energy East is envisioned, shippers will incur costs of US$7.40 to US$10.20 a barrel to move oil across Canada on the pipeline and then by tanker to the U.S. Gulf Coast, the most likely market, said David McColl at Morningstar in Chicago. Currently, the costs are less than rail, he said.
“That’s a key piece of the economic equation — will Energy East be competitive in shipping to the Gulf Coast?” McColl said. “There are probably solutions for all these issues and concerns, none of which would kill the TransCanada Energy East project.”