Pipeline conversion plan draws fire

CALGARY -- A fight between Calgary's biggest energy companies has erupted over TransCanada Corp.'s proposed Keystone oil pipeline, with EnCana Corp. and Shell Canada Ltd. opposing the plan and Canadian Natural Resources Ltd. and Suncor Energy Inc. standing in favour.

TransCanada, a natural gas pipeline company, wants to build its $2.1-billion (U.S.) Keystone project to carry additional oil sands production from Alberta to Illinois. The 3,000-kilometre line would involve about 2,100 kilometres of new pipe but the contentious part of the plan is the converting of 860 kilometres of a gas line in Saskatchewan and Manitoba to carry crude.

EnCana, the country's largest gas producer, which also has major oil sands ambitions, has balked, arguing in a submission to the National Energy Board with Shell, Devon Canada Corp. and Nexen Inc., that all of the capacity of the line is still needed for gas.

"We encourage and support additional oil capacity to the United States but not at the expense of gas capacity," said Alan Boras, an EnCana spokesman. "Canada has worked very hard to build export capacity to the U.S. and we wouldn't like to see any of that curtailed."

TransCanada argues that the pipeline in question -- which is one of six that constitute its so-called mainline -- accounts for only 4 per cent of the total export capacity out of Alberta and believes it makes the best sense to convert it to carry oil.

"We don't need that pipe," said Hal Kvisle, chief executive officer of TransCanada. "We can -- at all times, under any scenario -- move all the gas out of Western Canada that the basin can produce without that pipe and still have 10-per-cent spare capacity."

The debate has been conducted so far in paper form in filings to the National Energy Board. A public hearing on the conversion of the gas line begins Oct. 23. TransCanada also plans to file a full application to build the 435,000-barrel-a-day Keystone line late this year. The company said it needs approval for the conversion by March if it wants to meet its in-service goal of late 2009.

Industry players in general are growing worried about oil export capacity, given predictions that oil sands production could triple to three million b/d in 2015 from about one million currently. Current pipelines out of Alberta are almost or completely full already.

Numerous proposals for new pipelines have been put forward and for a while the most popular idea was Enbridge Inc.'s plan to build a line from Alberta to the British Columbia coast for export to Asia. But this year the interest of oil producers has shifted back to the U.S., given the shorter distance and strong prices.

Canadian Natural -- which is building a large oil sands project and is the No. 2 gas producer in the country -- told the National Energy Board that it is a "critical time" for new pipelines. It said it waded into the debate so the regulator would not be left with a "one-sided view."

Canadian Natural said the odds of a lack of gas export capacity appears "very small" if TransCanada's plan goes ahead.

"The risks of negative impacts on gas shippers are far outweighed by the benefits of utilizing [the line] to provide early expansion of oil transportation capacity," Réal Cusson, Canadian Natural's senior vice-president of marketing, said in a filing to the regulator.

Last November, TransCanada signed a long-term shipping contract with Houston-based ConocoPhillips Corp., putting Keystone well ahead of competing proposals. In February, Enbridge -- which operates the two million b/d mainline connecting Alberta with Chicago -- announced its $1.8-billion Alberta Clipper project, which would carry 400,000 barrels and run alongside the mainline.

Enbridge plans to file a regulatory application for Clipper by the end of the year and hopes it could be in service in 2009 or 2010. It would terminate in Wisconsin, where it would connect with another Enbridge link to Chicago. Enbridge's proposal got a boost yesterday, analysts said, when BP PLC said it was spending $3-billion on its Chicago refinery to handle more oil sands crude.

In Suncor's filing on the proposal, it said that if Keystone isn't ready in 2009, "Western Canadian crude oil will be stranded in Canada" in 2010.