East-west pipeline impossible to predict,
Shipping oil east may not spell relief at pumps
CALGARY The Conservatives in Ottawa are staunch supporters, the New Democrats have called it a “win-win-win” and the premiers of Alberta and New Brunswick have loudly touted the benefits of an oil pipeline from west to east.
But the degree to which Eastern consumers will benefit at the pump is unclear, as it’s up to the pipeline’s customers — oil producers at one end and refineries at the other — to determine which barrels go where.
“One thing that I’ve learned over the years is the market will do what the market will do and it’s difficult to predict beforehand,” said Geoff Hill, oil and gas sector leader at Deloitte Canada.
The crude could flow to Eastern refineries clamouring for cheaper domestic supplies. Or, offshore buyers may drink it up. Most likely, it will be a combination of both.
“If you’re a supplier of oil, you’re going to be sending it to whoever gives you the highest price for it,” said Hill. “You’re probably going to see a healthy amount of export as well as domestic supply, depending on the market for oil at any given time.”
Calgary-based pipeline giant TransCanada Corp. is in the process of determining what, precisely, the market wants out of its Energy East pipeline through a process known as an open season.
Energy East involves configuring part of TransCanada’s underused natural gas main line between Alberta and Quebec to handle oil, as well as laying down a chunk of new pipe to the East Coast.
The line, which could carry up to 850,000 barrels of oil per day, would deliver crude to refineries in Montreal, Quebec City and Saint John, N.B.
Last year, Eastern refineries imported some 720,000 barrels of oil per day from overseas suppliers — many of which are far from being political allies — to meet virtually all of their needs, said Alex Pourbaix, president of energy and oil pipelines at TransCanada.
Alberta oil prices, which themselves trade at a discount to WTI, should improve with the new Eastern market access, he said. At the same time, the ailing refineries should see better profit margins.
And consumers are likely to benefit to some degree as well, Pourbaix added.
“Just removing reliance on a higher priced, much more risky feedstock I think will have an impact on the perception of scarcity, which should have an impact on gasoline prices,” he said. “In any sort of market, if you add an incremental volume of supply to a fixed level of demand, you should see some price benefits.”
Pourbaix expects that, at least in the beginning, Energy East will carry light oil. Large amounts are being produced in the Bakken formation, underlying parts of Saskatchewan and North Dakota, as well as central Alberta.
But if heavy oil producers want to ship product east, too, the pipeline will be capable of moving both types of crude to various locations in batches, Pourbaix said.
Though the Eastern market is thirstiest for light oil, Irving Oil’s massive refinery in Saint John can handle some heavy grades.
But it’s not necessarily Eastern Canadian refineries that producers are eager to access.
Accessing the port at Saint John, N.B., would enable them to ship their oil, perhaps unprocessed bitumen from the oilsands, to lucrative overseas markets by tanker.
“I would say the real target here is to get it to the deep sea port at Saint John and export it either down to the U.S. Gulf or to India or wherever — whoever wants it,” said Roger McKnight at En-Pro International. “I don’t see how it’s going to benefit consumers. I just don’t see it.”