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September 5th, 2013

Transcanada Energy East Oil Pipeline

by Andrew Price, President & COO

Transcanada recently announced that it was proceeding with plans to build a $12 billion oil pipeline from western Canada to the Maritime provinces. The Energy East Pipeline would extend about 2,800 miles and have the ability to move 1.1 million barrels of oil per day from Alberta and Saskatchewan to refineries located in eastern Canada.

While attention (both pro and con) is lavished on Transcanada’s proposed Keystone XL oil pipeline, the Energy East Pipeline has received very little attention in comparison.  The route has not been specified in detail but includes about 1,900 miles of existing 42-inch natural gas pipeline, which will be converted to accommodate oil, and 870 miles of new oil pipeline. Oil refineries in Quebec and New Brunswick, including the facility owned by Irving in St. John, would stand to benefit from improved access to cheaper oil. Eastern US refineries may also benefit.

In a related project, Irving plans to spend some $300 million on a new deep-water port facility in St. John. The port would allow western Canadian oil shipped on the Energy East Pipeline to reach US refineries on the eastern seaboard. Oil shipped from the oil sands in Alberta or from the Bakken shale field in North Dakota would displace higher priced oil that is currently imported from the Middle East, Africa or South America. Energy East Pipeline oil could also displace oil making its way by rail from west to east. The train that derailed tragically in Lac Megantic, Quebec was carrying Bakken oil from North Dakota to Irving’s St. John refinery.

Western Canadian oil trades at a steep discount to the US Benchmark WTI. Today Western Canadian oil was priced at $83 per barrel while WTI was priced at $108 per barrel. WTI itself has traded at a discount to Brent, the world benchmark for oil. Although the discount has closed dramatically of late, Brent which traded at $109 today, still fetched a $1 per barrel premium.  Seaborne shipments of oil to east coast refineries are usually priced off the Brent index, creating a strong financial incentive (about $26 per barrel at today’s rates) to improve west-to-east oil capacity.  

Transcanada is still hoping to move its Keystone XL pipeline forward, in addition to the Energy East Pipeline. Keystone, which would move 830,000 barrels per day from the same oil production centers in Western Canada and the Bakken to Gulf Cost refineries, is in limbo until final a final decision by the US Government is issued. 

(Tags: Transcanada, Energy East Pipeline, Keystone XL, WTI, Brent, Bakken, North Dakota, Quebec, Alberta, Saskatchewan, New Brunswick, Irving)

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