Energy East pipeline case suspended

The developed of a proposed C$15.75 billion Canadian oil pipeline has asked Canadian regulators to temporarily suspend their review of the project, following the regulator's decision to consider the project's indirect greenhouse gas emissions and other factors as part of its environmental review.

At issue are the proposed Energy East Pipeline and the related Eastern Maineline Project, proposed by affiliates of TransCanada Corp. to transport "about 1.1 million barrels of oil per day from Alberta and Saskatchewan to the refineries of Eastern Canada and a marine terminal in New Brunswick" and to ensure natural gas supply to utilities in Ontario and Quebec.  In 2014, the developed applied to Canada's National Energy Board for approvals required for the 4,500-kilometer project's development.

That case remains pending, but a recent decision about the scope of environmental review has prompted the developer to ask for a temporary pause of the case. On August 23, 2017, the National Energy Board released its final decision establishing a List of Issues and Environmental Assessment Factors to be considered in its review of the projects.  The factors set for consideration include greenhouse gas emissions.  While the Board's environmental factors typically include only direct greenhouse gas emissions -- those emitted by the project itself -- including indirect emissions -- in this case the Board decided to include indirect greenhouse gas emissions as well:

Given increasing public interest in GHG emissions, together with increasing governmental actions and commitments (including the federal government’s stated interest in assessing upstream GHG emissions associated with major pipelines), the Board is of the view that it should also consider indirect GHG emissions in its NEB Act public interest determination for each of the Projects.

On September 7, the applicants filed a letter requesting a 30-day suspension of the Board's review process to give applicants time to "review the Decision, the resulting implications to the Projects, and the respective Project applications."  The next day, the Board issued a ruling that it "will not issue further decisions or take further process steps relating to the review of the Projects until 8 October 2017."

The case remains suspended until that time. 

Canada NEB starts Energy East pipeline review

Canada's National Energy Board has ruled that the applications are complete for the Energy East Pipeline Project and a related gas project.  This determination starts the NEB's review process, under which the Board must issue its recommendations to the Minister of Natural Resources within 21 months.

The National Energy Board is an independent federal regulator of several parts of Canada's energy industry, including the regulation of pipelines, energy development and trade in the Canadian public interest.

As envisioned by proponents TransCanada and Energy East Pipeline Ltd., Energy East would be a 4,500-kilometer pipeline that will transport approximately 1.1 million barrels of crude oil per day from Alberta and Saskatchewan to the refineries of Eastern Canada and a marine terminal in New Brunswick.  Some existing natural gas pipeline would be converted to oil transportation pipeline, while other facilities would be newly built.  The project is motivated in part by a relative surplus of Western Canadian crude production, with relatively few ways to ship that crude to refineries or ports.

The related Eastern Mainline Project entails about 279 kilometers of new gas pipeline and related components, designed to let TransCanada continue to supply gas after the proposed transfer of certain Canadian Mainline facilities to Energy East Pipeline Ltd. for conversion to crude oil service.

On June 16, 2016, the National Energy Board announced its determination that due to the interconnections between the applications, the Energy East and Eastern Mainline projects are more effectively assessed within a single hearing process, with one record, reviewed by one Panel of Board Members.   It also deemed the applications complete to proceed to assessment and a public hearing, starting the 21-month review process.

The Panel must submit a report to the Minister of Natural Resources recommending whether or not the projects should proceed, or on what conditions. This report is due no later than March 16, 2018.  According to the NEB, the process will include hearings, panel sessions, and assessments of the upstream greenhouse gas emissions associated with the project.

East coast exports of Western Canadian crude

As Western Canada produces more heavy crude oil, will it be exported from ports on Canada's relatively distant east coast?

Eastern Canadian exports of Western Canadian crude oil may increase, according to Canadian oil producer Suncor Energy Inc.  In its third quarter investor call, company Chief Executive Officer Steve Williams indicated that it could have long-term opportunities to export Cold Lake-grade crude oil by sending it by rail from Alberta to East Coast ports.  According to ExxonMobil, Cold Lake Blend is an asphaltic heavy crude blend of bitumen and condensate.

If long-term opportunities may exist, so too have recent opportunities.  In September 2014, Suncor confirmed that it had sent its first shipment of Western Canadian crude by rail to a storage facility in Sorel-Tracy, Quebec, from which it was loaded onto a tanker ship and sent to Europe.

Many aspects of the Canadian oil industry are regulated, such as the development of new crude oil pipelines from landlocked Alberta to distant refineries, storage facilities and ports.  Several pipelines have been proposed to increase takeaway capacity from the Western Canadian oil sands region, including the Energy East Pipeline in Canada and the Keystone XL Pipeline in the U.S.  But as securing regulatory approvals for pipelines takes time, shipping crude oil by rail has emerged as a quicker alternative.

In its most recent investor presentation, Suncor touted its near-term access to global markets, with over 600,000 barrels a day of sendout capacity.  Its current capacity includes over 80,000 barrels per day by rail, as well as over 70,000 barrels per day via pipeline to the U.S. Gulf Coast.  By 2015, Suncor plans for the 130,000 barrel per day "Line 9" pipeline to be reversed, allowing flows from Sarnia into Montreal.  Beyond then, Suncor is looking at additional pipeline projects including Keystone XL, Energy East, the Trans Mountain Expansion, and the Enbridge Northern Gateway pipeline to British Columbia.

As Suncor and other Western Canadian oil producers eagerly await new pipeline capacity, rail shipments may continue to serve as a temporary measure.  If pipelines can be developed to key market points, they typically offer a lower shipping cost per barrel than railroads can.  At that point, railroads may see a reduction in the volume of oil they ship  -- but until then, Western Canadian oil producers may continue to rely on rail to reach eastern ports.

Canada's Energy East Pipeline Project

A subsidiary of Canadian energy company TransCanada has proposed a crude oil pipeline running 4,600 kilometers from Alberta and Saskatchewan to Saint John, New Brunswick.  The proposed Energy East Pipeline Project would enable Western Canadian crude oil to be shipped east across six Canadian provinces, expanding economic opportunities for refining and export -- but like other major pipeline projects, the Energy East project faces regulatory hurdles.

On March 4, 2014, Energy East Pipeline Ltd., a wholly owned subsidiary of TransCanada Oil Pipelines (Canada) Ltd., proposed the project which entails the conversion of about 3,000 kilometers of existing natural gas pipeline to an oil transportation pipeline, new pipelines in Alberta, Saskatchewan, Manitoba, Ontario, Québec and New Brunswick, and marine facilities that enable access to other markets by ship.  If built, the $12 billion project could carry up to 1.1 million barrels of crude oil per day.

The major motivation behind the line is the relative surplus of Western Canadian crude oil, including fuel produced from the Alberta oil sands.  While Alberta and Saskatchewan produce substantial oil, relatively little capacity to ship that crude to refineries means relatively low prices for producers.  Meanwhile, refineries in Quebec and Atlantic Canada currently receive 86% of their crude oil from foreign sources.  TransCanada pitches the Energy East project as giving these Eastern Canadian refiners access to "reliable, low-cost Western Canadian crude."  The developer also points to positive economic development impacts, including about 10,000 jobs and an estimated $35 billion added to Canada’s gross domestic product over 40 years, as well as the relative safety of shipping oil by pipeline as opposed to by rail or truck.  Notably, the project also allows TransCanada to make better use of its existing natural gas pipeline system, which has excess unused capacity.

Like the Keystone XL pipeline in the U.S., the Energy East project faces opposition from both local siting concerns and global worries about the environmental impacts of "tar sands" crude production.  Some have also expressed concerns that the project would disrupt natural gas flows to Canadian consumers, although TransCanada has said that it has plans to build more lines to meet any increased demand.

Under Canadian law, interprovincial pipelines are federally regulated by Canada's National Energy Board (NEB).  According to its website, TransCanada expects final regulatory approval in the fourth quarter of 2015, with the project commissioned and placed in service in 2018.  How the regulatory process plays out will affect when -- and whether -- the Energy East pipeline project moves forward.