Oil Sands Truth: Shut Down the Tar Sands

TransCanada takes on rival Enbridge

Redrawing the pipeline map
TransCanada takes on rival Enbridge in trying to reshape continental oil movement
David Ebner
Vancouver — From Saturday's Globe and Mail
Jan. 02, 2010

A decade ago, TransCanada Corp. (TRP-T36.190.260.72%) was reeling as the Calgary power and natural gas pipeline company had slashed its dividend and watched its stock price plunge when a rival pipeline came on the scene.

The corporate disaster came after a difficult merger with Nova Corp. At the same time, the Calgary company that had for decades enjoyed a cozy monopoly moving gas out of Western Canada suddenly faced competition from a new express pipeline from the region to Chicago built by natural gas producers.

Ten years later, most of it under the watch of Hal Kvisle, who became CEO in May, 2001, the firm has completely recovered, leaping beyond its power and gas businesses to redraw the map of oil movement in North America.

Its stock is near an all-time high, and on the ground it is on the verge of a massive transformation as it readies to become a major mover of oil, directly taking on across-the-street Calgary rival Enbridge Inc.

Enbridge, watching its entrenched lead in the oil pipeline business ebb, has opposed TransCanada at the National Energy Board, where TransCanada is trying to win approval for a new massive link called Keystone XL that would move oil sands directly from Alberta to the refineries of Texas. It would add to the just-built Keystone line from Alberta to Illinois and Oklahoma that is presently shipping oil.

At stake is dominance in the oil-moving business. Enbridge can ship upward of two million barrels a day from Alberta to the Chicago region and some more farther south. It also wants to build a big new link from Alberta to the northwest British Columbia coast for export to Asia.

TransCanada – which has backing from oil shippers – stands in the way and Enbridge now complains there'll be too much empty space in the pipelines, which could make oil shipping more expensive for everyone.

TransCanada, whose combined Keystone lines could move 1.1 million barrels a day by 2013, concedes there could be several years when there is spare capacity on Canada's pipeline network – but as oil sands development continues, the space is expected to fill.

“We concluded that the Houston market, the Gulf Coast, is better than going offshore to the Pacific. It's better, frankly, than sending more oil into a Chicago market that's already oversupplied,” Mr. Kvisle said in a year-end interview. “Rather than going to Chicago and sort of zigzagging backward to the Gulf Coast market, we came up with a project that goes straight to the Gulf Coast.”

The Houston region is the biggest refining hub in the U.S. Though demand for oil products in the U.S. appears to have peaked – it topped out in August, 2005, and is down 19 per cent since then – the hope for Canadian producers and TransCanada is to replace and displace production from the traditional suppliers of hard-to-refine oil from Mexico and Venezuela. There is potential competition from Saudi Arabia and Brazil and also regulatory risk as the U.S. Congress looks at capping greenhouse gas emissions, which could be a blow for the oil sands.

Mr. Kvisle, however, said he believes Canadian oil sands production compares well with other sources, especially from a security-of-supply perspective, but also environmentally, noting standards in a country such as Venezuela pale in comparison with Canada's.

“The U.S. would not reduce its carbon emissions at all by cutting off the flow of crude oil from Fort McMurray,” Mr. Kvisle said. “It's simply a spin that's been put out there by various environmental groups. I would have confidence that U.S. government officials in due course will land on the right answer.”

At the end of 1999, when its stock was around $10, down from more than $30, TransCanada posted revenue of $11.9-billion for the year, a loss of $70-million, and reported assets of $25.1-billion.

Today, while annual revenue is down at about $9-billion, the company makes much more money, with a 2008 profit of $1.4-billion, and its assets are worth $44.2-billion, approaching double what it was a decade ago.

TransCanada's web is wide. Beyond its oil ambitions, it has a sprawling natural gas pipeline system, which it hopes to expand into Alaska and the Northwest Territories. It also is a major power generator and is particularly active in Ontario, where it is refurbishing nuclear facilities on the Bruce peninsula, and in October won a $1.2-billion contract to build a new gas-fired power plant near Toronto.

In the gas pipeline business, attention once again turns to the fate of the star-crossed Mackenzie Valley project, which has been mired in a regulatory morass since 2004. An environmental-social review of the pipeline was finally released in the last week of December and the National Energy Board is expected to make a final ruling in 2010.

During the long review, a large new bounty of gas in the form of shale reserves has emerged throughout North America, a reversal of the seeming lack of supply when the Mackenzie process began. But to Mr. Kvisle, all sources of gas will be needed, including Alaskan, where TransCanada is working with Exxon Mobil Corp. to build a line.

Because of the potential of shale gas – from which three billion cubic feet of gas a day or more could come from northeast B.C. alone – the $16-billion Mackenzie pipeline to open up the region around Inuvik, NWT, seemed doomed with its fairly meagre one billion cubic feet a day of gas.

Mr. Kvisle insists all new gas is needed. The continent uses roughly 75 billion cubic feet a day – and continental supplies decline at 20 per cent a year from existing wells, which means annual supply needs to be fully replaced every five years. So numbers like one billion from Mackenzie, three billion in shale gas from B.C. or four billion in Alaska would all be important contributors.

Exxon, through its Canadian arm, Imperial Oil, controls the Mackenzie pipeline project. Mr. Kvisle said TransCanada would be interested to take control, depending on how the process goes.

“Mackenzie would be only 6 or 7 per cent of Western Canada's production and it's only 1,100 kilometres and it's only 30-inch-diameter pipe,” he said. “This is all relative small stuff. And we would see a lot of logic in it being viewed as a sort of integrated extension of [our] Canadian regulated [system].”

“But I wouldn't venture a guess as to the likelihood it moves forward in any form.

“There's so many uncertainties.”


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