CALGARY—Crude from Alberta’s oil sands sells at a 30 per cent discount to its U.S. counterpart. TransCanada Corp. Chief Executive Officer Russ Girling plans to narrow that gap whether or not his Keystone XL pipeline to the Gulf of Mexico wins approval from the Obama administration.
Canada’s second-largest pipeline company proposes to ship oil 4,825 kilometres to the Atlantic Coast, allowing producers to send it by tanker to the Gulf, Girling said Thursday in an interview at Bloomberg’s New York headquarters. While he expects U.S. passage of Keystone “very soon,” the East Coast route makes sense in any event because of rising production from Alberta, Girling said.
“It’s not a Plan B, it’s a Plan A, and it will go if the market supports it, along with Keystone,” Girling said in the interview. “Once you get on tidewater, you can get anywhere, and you don’t need a presidential permit to bring oil into the Gulf Coast.”
The eastern line is among $22 billion (U.S.) in projects the company has proposed or has under construction. TransCanada shares are trading near a record high in advance of an expected U.S. decision this year on the $5.3 billion (U.S.) cross-border segment of Keystone, which would link crude from the oil sands and North Dakota with Gulf Coast refineries.
“I suspect we’re looking at anything from a few weeks to a couple of months” for approval, Girling said. The U.S., which rejected the pipeline last year, is reviewing the project again after the route through Nebraska was changed to avoid the most environmentally sensitive parts of an aquifer. TransCanada first proposed the Keystone XL line in 2008.
Pipeline bottlenecks due to U.S. refinery downtime and increasing output are depressing prices of Canadian crude, which sold for 30 per cent less than the U.S. benchmark in the fourth quarter, versus a 13 per cent gap a year earlier. The gap narrowed to $28.50 (U.S.) a barrel yesterday, from $42.50 on Dec. 14, according to data compiled by Bloomberg. The discount makes Canadian crude the cheapest in the world, and will cost Alberta about $6.02 billion this year in foregone revenue, the provincial government has said.
West Texas Intermediate crude oil for March delivery settled at $96.62 (U.S.) a barrel on the New York Mercantile Exchange Wednesday, while Western Canada Select, the benchmark for heavy oil-sands bitumen, closed at $68.12.
Girling, 50, expects to decide near the end of March on a project to convert part of the Calgary-based company’s cross- Canada gas mainline to oil and lay new pipe to the east coast by mid-2017. The eastern line, which would move as many as 900,000 barrels a day of western Canadian and U.S. crude to eastern refineries, “is economic,” Girling said.
“Production from the oil sands and U.S. production sources is expected to grow a couple million barrels a day, which means that we need, as an industry, probably three Keystones to get that oil to market,” Girling said in the interview, ahead of a trip to Washington this week for discussions on Keystone. “If Keystone doesn’t get approved, the oil will still get to the Gulf Coast.”
The company has offered producers and refiners delivery points in New Brunswick and Quebec, where there are two refineries, Girling said. The conversion and additions to the mainline, which may be built in stages to Montreal and then Saint John, will cost more than the company’s initial estimate of $5 billion due to projected rising costs by the time construction begins in 2015, he said.
“I’m very optimistic we will get the contractual support we will need and what I would hope is the pipeline goes all the way to Saint John,” Girling said.